Vendor consolidation means cutting the number of vendors you use in each category, so more of your business goes to fewer, better partners. You’ll also see it called supplier consolidation or vendor rationalization.
Most articles on the topic make the same argument: fewer suppliers means better rates and less admin. That’s true, but it skips the question a small purchasing team, facility manager or property manager actually has, which is which vendors to cut.
This guide answers that question. The short version: decide based on how vendors have performed for you, not on how much you’ve spent with them, and never cut all the way down to one.
In this guide:
- Signs your vendor list has grown too big
- Why teams really consolidate (it isn’t mainly price)
- A seven-step process for deciding which vendors to cut
- How many vendors to keep per category
- The risks of supplier consolidation, and the honest counter-argument
- How to stop the list growing back
- FAQ
Signs your vendor list has grown too big
Vendor lists rarely grow because someone planned it. They grow because every site, project or building has its own go-to vendor.
I’ve spent my career buying for construction and property operations, and I see this constantly. Each project has its own purchasing power, and everyone has a favourite go-to vendor for waste management or building supplies. You end up with 10 different projects using 10 mediocre vendors, each getting a tiny piece of the pie.
Common signs it’s time to consolidate:
- Each site or project uses its own vendor for the same service.
- No vendor in a category gets enough of your business to care about keeping it.
- Nobody can say who’s preferred and who’s just on the list.
- The same vendor appears under several names or contacts.
- Vendors you’ve already had problems with keep getting hired again, because the next person doesn’t know.
The real cost of a long vendor list isn’t the invoices. It’s that a vendor with a small share of your work has little reason to prioritize you, offer better terms or send a truck when you need one urgently.
Why teams really consolidate (it isn’t mainly price)
Better rates are a real benefit of vendor consolidation. But in my experience, price is only a fraction of how I evaluate a vendor. The other benefits carry as much weight:
- Loyalty and priority service. A vendor with a meaningful share of your work shows up first when something goes wrong.
- Better service levels. Responsiveness and flexibility improve when the relationship matters to the vendor.
- Consistent workmanship. You know what you’re getting, because you’ve seen it across several jobs.
- Fewer warranty costs. Work that holds up means fewer callbacks.
Workmanship never shows up on a quote. You only learn that one painter is consistently good and another is inconsistent by collecting feedback across several projects.
It still comes back to money, just not through the rate. I’ve watched the cheapest vendor win on paper, do the work, and then cause delays and rework downstream. A vendor who isn’t the cheapest but delivers on time, does the job well and needs no rework usually costs less overall. There are no warranty expenses afterwards, and your own customers notice the difference.
So the aim of vendor consolidation isn’t fewer vendors for its own sake. It’s more of your business going to the vendors who have earned it.
A real example: building supply, from four vendors to two
My company recently consolidated its general building supply vendors. We had three or four. Business was changing, we were taking on fewer projects that year, and there wasn’t enough volume to keep any vendor happy.
So we consolidated to one or two preferred vendors. Our preferred vendor became very loyal, because they could see that even when business was tough, we were pooling all our volume with them. They stepped up with better pricing, better incentives, and preferred delivery when we needed emergency shipments.
Concentrated volume buys loyalty, and loyalty shows up when something goes wrong.
How to decide which vendors to cut: a seven-step process
Say you have 200 vendors and want to get to around 60. Don’t work through the list alphabetically. Work category by category.
- Group vendors by category. Cleaning, waste, electrical, building supply and so on. Merge duplicate records as you go.
- Sort categories by risk. Mark each one strategic (a failure could seriously damage the business or stop operations) or low-risk (easy to swap, like office supplies or commodity materials).
- Start with fragmented, low-risk categories. They’re the quickest wins. My team started with building supply because most vendors in that market perform decently. We could pull it down to two or three without much trouble, and if one drops the ball, switching is easy.
- Rank vendors by performance evidence, not spend. Invoice totals tell you who you’ve used most, not who has served you best. Rank on field ratings, responsiveness, rework, warranty callbacks and how they handled schedule changes.
- Keep a core group of about three per category. The vendors at the top of your ranking become your core. Split them into preferred (proven, low risk) and approved (cleared to use, less history).
- Change status instead of deleting. Move the rest to approved, paused or do-not-use. Don’t delete them (see below).
- Re-test the core group every two to three years. Run a full RFP to the market to make sure the best three are still the best three. If one slips, the fourth-best gets their spot.
Strategic categories need more care. For a $10 million concrete-forming scope, I still want five to ten quotes. You might send an RFP to ten firms, get five decent responses and choose the best. Consolidating there means keeping a strong, pre-vetted shortlist, not cutting down to one name.
How many vendors should you keep per category?
About three in good standing, and never just one.
Getting down to one is very risky. Always have two or three, so you have a preferred vendor and a second preferred as backup, and make sure the backup gets some business as well.
The mix can be three equal As, or one A and two Bs. The split can be flexible too. A 50/25/25 split works, and so does an even three-way one. The field often decides for you, favouring the vendor whose shop is next to the site. What matters is that all three get enough work to stay invested, and all three get your attention, because each of them will need to save the day at some point.
If a project needs something none of the three can provide, bring in a fourth vendor, but prepare them for the job so they have a fair chance of doing it well.
Approved vs. preferred: the vendors nobody would defend
Every list has vendors that everyone keeps using but nobody would defend. They’re usually approved by default. That means nothing is wrong with them, but there isn’t enough history to put them first.
Preferred vendors have a track record, senior sign-off and low risk. They know how to work with you and can handle difficult situations. Moving a vendor from approved to preferred should take evidence, and so should moving them down.
Don’t delete vendors. Change their status.
This surprises most people. A vendor consolidation shouldn’t mean deleting records.
I keep every vendor on file, whether approved, paused or do-not-use. The point of keeping that information is to know which vendors you can and can’t use, including the ones that dropped the ball, so a colleague doesn’t accidentally hire them thinking they’re new.
A consolidated vendor list isn’t necessarily a short list. It’s a list where everyone can see who to use first, who is the backup and who to avoid. The total number of records can stay large. The approved and preferred tiers are the ones to keep tight.
Supplier consolidation risks
Cutting to one vendor. If your only supplier can’t deliver, you have no one else to call.
Switching without preparation. I’ve watched a buyer move a whole category from vendor A to a cheaper vendor B. Nobody checked whether B could handle the volume, and nobody kept a backup. When B couldn’t deliver, there was no alternative. You can consolidate from 10 to three. That’s the right balance.
Keeping vendors in the dark. Once you’ve consolidated, tell the vendors you keep how you work, what you need and what you expect. “Just have what I need when I ask for it” gives them nothing to plan around.
The honest counter-argument: don’t consolidate without a record
Here’s the part most consolidation articles leave out. If you have no performance record, consolidating mostly removes your backup options. You’d be choosing which vendors survive based on familiarity or spend, which is how the list got this way in the first place.
So if you’re starting from nothing, start recording before you start cutting:
- Collect a quick rating from the field at the end of every job for a quarter or two.
- Keep low-history vendors as approved, not preferred, in the meantime.
- Then consolidate on evidence.
This is the loop that makes consolidation work: rate each vendor when the job closes, and use those ratings to choose vendors next time. One exception is when a colleague has worked well with a vendor at another company and can vouch for them. That’s a reasonable basis for giving them a chance.
How to stop the vendor list growing back
The vendor list will grow again, and that’s normal. New projects bring new contacts, and new service categories need new suppliers. The goal isn’t to freeze the total. It’s to keep the approved and preferred tiers under control.
I compare it to pruning. It takes time and continuous effort, and you can’t do it once and expect the tree to stay perfectly pruned forever. To keep on top of it:
- Give the list an owner, the way a CRM has someone responsible for it.
- Review vendors regularly so preferred status stays earned. See our vendor audit checklist.
- Keep vendor information current: clear, concise and usable by everyone, not only the person who added the record.
Vendor consolidation FAQ
What is vendor consolidation?
Reducing the number of vendors you use in each category so your business goes to fewer, better-performing partners. Done well, it improves loyalty, service and total cost, not just unit rates.
What’s the difference between vendor consolidation and vendor rationalization?
The terms are often used interchangeably. Vendor rationalization usually refers to the review of which vendors to keep, and consolidation to the result: fewer vendors, each getting a bigger share.
How many vendors should you have per category?
About three in good standing: a preferred vendor plus backups, all getting some work. Avoid consolidating to a single vendor.
Is vendor consolidation just about cutting costs?
No. Price is only part of it. Service level, ease of doing business, workmanship and warranty performance matter as much, and they often save more money overall than a lower rate.
Should you delete vendors you no longer use?
No. Change their status to approved, paused or do-not-use instead. Keeping the record stops colleagues rehiring a vendor who has already let you down.
Start with the vendor record
Consolidation decisions are only as good as what you know about each vendor. PowerRFP gives your team one place for every vendor and contact, with their status, notes and history, so nobody hires a vendor you’ve already paused. Vendor and contact records are unlimited. Create a free PowerRFP account and start building the vendor list you’ll consolidate from.
Related: Vendor management · Vendor audit · RFP evaluation criteria