Buying Groups for Corporates

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Every dollar saved buying goods and services adds four times bottom-line benefit

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A handful of Inventory (non-rent, non-wages) purchases usually make up + 50% of total business costs but then there’s a problematic myriad of “Un-important Many” expense purchases that constitute the 15% balance.

The basic problem is that procurement staff can be drowned managing the Un-important Many yet individually none are worth pursuing. A dedicated resource costs money but is hard to justify unless you have a large annual spend of one type.

2000 E-Commerce Bubble failures dispelled the myth that there is one easy solution. Only a few categories such as stationery and engineering supplies are catalog-able so rather than one big-bang technology solution, a hybrid solution is needed.

The bottom line is money is money and if procurement staff are to be fully committed to managing the Important Few Inventory items (as they should), what alternatives are there for dealing with the pesky Un-important Many?

Buying Groups

Buying groups charge members an annual fee to join and make available an inventory of pre-tendered deals across about 80 expense categories. They super size buying power via aggregation with members, both large and small, receiving the same discounted price. Suppliers embrace them because buying groups take no remuneration but reduce their selling costs (one RFP vs. many RFPs).

www.supplyclusters.com.au is one of Australia’s best known having been in business since 1996. They regularly benchmark the marketplace and vendor manage a myriad of expenses on behalf of their over 100 corporate members who buy direct at Supply Cluster discounts.

Quality is enshrined as a supplier who upsets one member risks upsetting them all.  Crown Equipment’s National Procurement Manager Rizwan Ullah booked annual savings of $1.8m while logistics solutions provider UTI CFO Carl Cruceanu claims five times ROI via Supply Clusters membership.  Another Supply Cluster member, Vicki Davidson, Purchasing Officer of Somersby NSW air conditioner manufacturer Baltimore Aircoil, said her company has saved over $100,000 since it joined Supply Clusters in 2003. “There are obvious financial and timesaving benefits of joining Supply Clusters. Our savings grow every year as we make sure other company divisions are aware of the deals we can get with preferred suppliers all around Australia,” she said. “Another major benefit of Supply Clusters is the opportunity to participate in monthly Mini-Conference networking events and Webinars to discuss experiences, purchasing practices and a wide range of business issues and opportunities. We can talk about problems other companies may have overcome in the past and find quick solutions together,” Vicki said.

Not-for-profits are well served by www.churchresources.com.au

Percent-of Savings Contractors

“At Risk” or “Percent-of-Savings” contractors are paid a percentage 30%, 40% or 50% of savings they deliver – nothing saved means nothing paid.  This model requires great care defining the starting point for savings as battles have been known to be fought when invoices are delivered.  Their aim is obviously to maximize “savings” and thus their remuneration but care is also needed regarding quality of chosen solutions.  Incumbent suppliers have known to simply be squeezed down to unsustainable pricing resulting in failures after the contractor leaves.

Credit Cards and P Cards

Card companies say it’s easy to hand out purchasing cards but it’s rarely that simple.  Fuel Cards are used for petrol, AMEX for travel and mobile phones are usually negotiated on corporate deals so exactly how extensive is the range of items corporates can use cards to buy? Some suggest only 8%! Merchant fees of between 1% and 3% are hidden in every transaction however in the right context, they can deliver the real benefits. If CFOs ever get their heads around P Cards flexibility, perhaps one day we might see their expansion emulating Amazon’s slaughtering traditional models used by Borders and Angus & Robertson. Visa, MasterCard and AMEX plus banks are the main players in Australia.

Hire a Consultant

A consultant designs a solution and specifies the task while a contractor actually does the work.  If you have the time, budget and money, consultants provide valuable and challenging overall framework. If you’re not prepared to bite the bullet and implement their recommendations, don’t bother starting the process.  Consultants can easily be googled.

Ian Cook

Supply Clusters