Quick Guide to Order Consolidation 

Order consolidation is the practice of combining purchase orders from multiple units of your business. From there, you can submit a single purchase order to a vendor that is able to fulfill all the requirements of that order. This saves the company from the time-consuming process of sending several purchase orders to multiple vendors.

In this quick guide, we’ll break down some of the key benefits of order consolidation, as well as how to practice order consolidation in your procurement function. 

Why is order consolidation important?

There are five major benefits to practicing order consolidation. First, order consolidation allows the business to reduce costs. Procurement teams save resources that would be used to create and process multiple orders. And, by bundling smaller purchases together, the organization can take advantage of quantity discounts and fewer shipping costs. As the company builds a relationship with a single vendor, you may even be able to qualify for loyalty discounts faster. 

Likewise, consolidating your purchase orders brings clear efficiency gains. Submitting one solitary purchase order instead of dozens (if not hundreds) of separate purchase orders. Team members who spend time manually tracking and routing purchase orders throughout the approval process can now reallocate their time and energy to more high-value tasks. Likewise, managing a single vendor, rather than multiple vendors, gives procurement teams more freedom to optimize other areas of this key business function.

Order consolidation can afford teams better negotiating power and contract terms. Consolidated purchase orders often include clauses to cover subsequent purchases in the same contract period, since vendors want to make their terms attractive to loyal customers. These clauses give your business leeway to submit additional invoice items as needed until the terms of the agreement are fulfilled, terminate, or a different threshold is reached. These types of contract terms help your company run more smoothly; the added flexibility makes it possible to navigate unforeseen business obstacles or scheduling delays. 

Consolidating your purchase orders makes inventory management much easier. Consolidating purchase orders enables businesses to negotiate simultaneous arrival dates and quantities to the materials necessary for the business to run smoothly. Order consolidation gives you more control over when which components arrive, enabling you to streamline production and spend less on emergency rogue purchases. 

[Read more: The Ultimate Guide to Purchase Order Processes]  

And, finally, consolidating your orders can help make your supply chain practices more sustainable. “When multiple orders are shipped in a single carton, packaging materials are minimized by using fewer boxes, and less tape and packing materials such as foam peanuts and air pillows,” wrote Retail Supply Chain Insights. “And the environmental benefits go well beyond the box – more units shipping in fewer cartons translates to better cube utilization on trucks and less fuel required to ship the same number of products. This can amount to a significant reduction in a company’s carbon footprint.” 

As more leaders put sustainability at the forefront of procurement, order consolidation becomes a simple way to practice what they preach. Suppliers, too can work toward their sustainability goals via order consolidation. 

How to practice order consolidation

There is no downside to practicing order consolidation, especially since the process is so simple. Procurement teams can combine all purchase orders from multiple units and submit a single PO to a vendor that is able to fulfill the requirements of the order. Many procurement software systems provide a feature within their programming that simplifies this process and assists you in generating consolidated purchase orders.

A blanket purchase order is the result of order consolidation. A blanket purchase order (BPO) is a long-term agreement between the company and the supplier to deliver goods on a recurring basis and with a set price, usually over a specific time period. Blanket purchase orders deliver many of the benefits outlined above; they’re also popular among suppliers, which enjoy guaranteed ongoing business and can schedule orders and predict cash flow more accurately. 

There are specific instances best suited for using a blanket purchase order:

• For goods or services that are ordered predictably throughout a time period (e.g., the organization needs five deliveries of printer paper per month)
• For items where the unit cost is well-defined and specific 
• For items that a single vendor is able to deliver consistently over the contracted time period
• For items that can qualify for bulk discounts 
• For items that can help the organization reduce risk with predictable ordering 
  

Not every material input is suited for order consolidation, but use the criteria listed above to find ways to streamline your ordering and make procurement run more efficiently.

‍
Inevitably, investing in solutions that provide data on global, third-party risk will benefit you in the long term. To learn more about third-party risk management, check out our blog, The Source.