Horizontal Integration.
Whether you consider the term a strategic growth strategy for suppliers in a mature market OR just another cliche meaning “we want to sell you more” –
Horizontal Integration is a natural evolution for suppliers, especially in the services and supplies sectors, making the “One Stop Shop” a popular proposition these days.
In one of my prior posts, Finding the VALUE of “Value Add” Technology, we discuss that ‘time-saving technology’ can deliver minimal-to-no financial benefit to an organization depending on how the new efficiency is utilized. 

SAVED TIME DOES NOT ALWAYS EQUATE TO VALUE

This reality is also present when engaging a supplier positioned as a ‘one stop shop’ – an opportunity to address multiple needs from a single source.

What could be better than having “one back to pat” and “one ear to yell at”? (I know, I know, that is NOT the correct cliche – but I believe Latrell Sprewell taught us that NOTHING good comes out of choking)

In a ‘perfect world’ – NOTHING.  

• The fewer invoices to be audited, reviewed, and paid (please, please tell me you are auditing these!), the more time to focus on your core value.  
• The fewer “client review” meetings taken to discuss your usage and the latest-and-greatest, the more time to focus on your core business.  
• The fewer delivery trucks backing up to your dock, the more time to focus on your….YOU GET THE POINT!

So, if it’s great in a PERFECT WORLD, what should we be aware of in the ‘less-than-perfect’ world that we run our businesses in?

Here are a few telltale points that we review to determine if these type of supplier relationships are the best choice for our clients:

Is the supplier reaching too far beyond it’s core business?

A supplier may have a stellar reputation for Office Supplies, offering great pricing and tremendous service.  

Would they be able to perform strongly and price competitive on Break Room Supplies or Janitorial Supplies?  

Likely, YES.  The distribution of these items complement closely with Office Supplies (the supplier’s core) and the distribution process is very similar.

Would they be able to able to perform strongly and price competitive on Custom Printing Services?

MAYBE.  While ‘paper’ is a very complimentary item to general Office Supplies,  custom printing requires a much different process (notably, its custom!).  You should evaluate the costs of maintaining a relationship with a print shop versus potentially paying a higher rate to your office supply provider.  If the annual price premium is minimal (under 2%) versus your print shop relationship – it probably makes sense to consolidate your print with your office supplies.   

Is the supplier leaning heavily on subcontracts and partnerships to meet the total solution proposed?

A service provider provides all of your annual fire extinguisher inspections and maintenance, this year they propose a solution to consolidate all inspections, maintenance, and repairs for fire extinguishers, smoke alarms, sprinklers, and panels, using a combination of other companies via service partners.

Should you consider this type of consolidated solution?

MAYBE.  The consolidation to one partner streamlines your payable process and allows you to potentially benefit from the purchasing leverage secured by the supplier.  This could potentially yield you simplified process and cost savings.  

BUT…the use of service partners by the supplier adds variables to areas such as quality and consistency.  Do these variables equate to higher risk than sourcing each service independently?  That depends on the due diligence, supplier evaluation, quoting process you are plan to put into the category.  If it has been minimal to date, it may be wise to have the consolidated service provider select the necessary partners. 

Is the expertise level required from the supplier’s representative specialized enough that expanding to multiple-lines/services will actually HURT the value of the partnership?

More and more, we don’t have ‘sales people’, we have ‘customer consultants’.  I was recently collaborating with a very sharp representative about building a solution to streamline the process of ordering custom/logo’d apparel while reducing the overall spend by consolidating to a single supplier.  She was very knowledgeable about what was high quality, what was ‘hot’, and what would look best for promotional apparel.  In the conversation, the representative said to me – “we can also provide office supplies if you would like to, but, to be honest, I know much more about promotional apparel than Office Supplies”.

Should we expand the solution to include office supplies as well?

NO.  Earlier in this article, we discuss if the supplier is moving too far from their core competency, but what if the supplier representation is moving too far from their expertise?  My initial thought is to work with the specialist in the portion of the solution they can bring the most expertise to.  Would you want a podiatrist to perform your heart surgery? 

As marketplaces are more competitive than ever, suppliers will expand their offerings in effort to continue to grow and generate new revenue streams.  This can be advantageous to your organization, providing both time savings and cost reduction in some instances.  This could also result in inefficient procurement strategies, quality concerns, and pricing premiums.   Be cautious! 

I hope some of the points above help you navigate which situations are right for your organization.

Thank you for reading!

If you have any questions or are seeking more information, please contact me at assistantAjassistant@andjef.com