I hope that you have enjoyed the article “Can Supplier Consolidation Truly Save Cash?”
In the article, I referred to “pending legislation in the USA that will require businesses to file a 1099 form for every supplier with whom they spend $600 or more per year.” You can read more about that brilliant idea here if you’re not familiar with the legislation or the 1099 form process.
As I tried to convey in the article, it is hard to assign verifiable costs to the number of suppliers. One exception would be having to hire a contractor to create and distribute 1099’s to those suppliers with whom you’ve done business under the law that goes into effect in 2012. I would guess that these contractors that will pop up unless our congressmen and women get this looming debacle will probably charge on a per-1099 or per-supplier basis.
Because there will be now some verifiable, reduceable cost associated with the number of suppliers a company has – even if it only represents a small cost of doing business with a supplier – there will be some degree of push from executives for supplier consolidation. “Hey, if we don’t have to pay for a 1099, let’s not.”
Obviously, this is a disadvantage to the niche suppliers – primarily small businesses – who focus on doing one thing well instead of 50 things poorly. If a business can buy 50 things from the same place and only have the burden of issuing one 1099, that business may sacrifice quality, cost, delivery, and/or service to do so in order to avoid having to issue fifty 1099’s.
That sounds akin to a government-sanctioned plea to buy from Wal-Mart so that the local bike shop, pet store, pharmacy, etc. go out of business. And, if that wasn’t enough, this legislation discourages small transactions that are the lifeblood of small business. Some businesses will think “It will cost more to generate a 1099 for this item than to buy it, so I will not buy it at all.”
If no one noticed, “not buying” has been kind of bad for the economy in the past couple of years. It’s scary to think that our government – in addition to encouraging doing business only with the big guys – is also encouraging a situation where businesses will think twice about making small purchases.
It makes me wonder how much of the total business spend in the US is low value (e.g., less than $50). I think that is an area that is very important to the economy and very vulnerable to this legislation.
Circling back around to the article, the point is that whether demanded by management or influenced by dumb legislation, supplier consolidation is likely to be a goal of yours. So, when you engage in it, be sure to aim for the three results listed in the article.
To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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