IN this highly fluid business environment, it would appear most companies across the industry divide are struggling to cope with a litany of all sorts of business challenges.
It looks like the mantra of “doing more with less” is no longer a catch phrase but a means of survival for a lot many.
However, for some reason, for a select group of leading companies, the general trend is that most procurement departments are leaving a lot of money on the table due to their failure to consolidate their procurement requirements in a group procurement arrangement.
Supply chain practitioners should be seen to be pushing forward the agenda of identifying innovative strategies to prop up the bottom line and push the productivity meter forward despite the glum economy that seems to have engulfed the world around us, here and elsewhere.
Based on a deep knowledge of the overall business’s supply chain requirements, procurement professionals could easily rise above the norm by leveraging the use of group procurement structures as the foundation of procurement mastery, which can significantly achieve considerable purchasing power through volume consolidation.
The group procurement concept is built on the model of combining the purchasing power of several departments, business units and/or subsidiaries within a group structure with a view to negotiate for better quantity discounts that result in an item level price reduction not attainable through fragmented purchasing.
Adopting the group procurement strategy will, therefore, facilitate the aggregation of volume requirements for specific procurement categories and in doing so achieve better pricing models than in a situation where goods are purchased in a fragmented and uncoordinated manner.
Purchase requisitions for motor-vehicles, computers, furniture, fuel, stationery, vehicle tyres, computer consumables and any other general requirements should always be grouped together to incorporate the requirements of all departments and or all subsidiaries within the same group so that economies of scale and scope are created.
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The inherent appeal of group procurement lies in the fact that the combined clout of group members’ individual buying power will be used to leverage significant bargains with suppliers resulting in favorable pricing structures and first-in-line deliveries due to the magnitude and size of the purchase order.
Some organisations are even taking another step further by grouping requirements at industry level. For example, what can stop banks from grouping their requirements for the supply of POS machines.
What can stop fertilizer manufacturing companies to group their requirements and source specific raw materials as a group as a way of leveraging group buying.
What can stop service stations within the same locality from ordering fuel at the same time so that they can use the same transporter and save on transport costs. The only thing that stops organisations to pursue such strategies is nothing but the mindset. As is often said, stock items will never compete while in a container or while in a warehouse.
Perceptive supply chain executives have come to understand that creating value entails acknowledging and embracing the obvious fact that competitive battles within industries are now fought along supply chains, which means that a business organisation is always as strong as its weakest supply chain partner.
In the opinion of a significant number of procurement professionals, the group procurement business model has got the potential of significantly contributing to the organisation’s bottom line by lowering costs of sales at every turn of the supply chain.
Group procurement can also be utilised as a basis of creating a platform which brings together many professionals and organisations with a view to share best procurement practices through the exchange of information about the general and specific business trends within a particular industry.
Group procurement can also bring together different professionals in multiple industries with similar supply chain challenges.
This will allow group members the opportunity to exchange sourcing strategies, industry trends and even horror stories of procurement fraud that would have affected group members.
Procurement professionals are often duped by the same unscrupulous suppliers who use the same methods to defraud organizations.
Supply chain professionals group networks will enable the sharing of information amongst group members on the perpetrators of fraud, trickery, corruption and those suppliers and or contractors who are well-known for poor or non-performance.
From such group discussions, group purchase decisions can be made for certain product categories leading to group discounts.
Where there is regular group interaction, group members will act as knowledgeable experts as well as dedicated advocates of the good and bad practices of certain supply chain members.
This will forge valuable working relationships and the creation of a powerful forum for information sharing among group members. Group procurement models will always assist the organisation to stay abreast of trends and new products through sharing supply chain developments within the network.
Such kind of regular corporate conversations within the group will allow procurement professionals to stay nimble in the face of dramatic shifts in supply market conditions when they change at short or no notice.
Group procurement will also facilitate the adoption of requirements standardisation within the group, joint learning for the adaptation of standard requirements, networking and information sharing leading to joint exploitation of business opportunities in the supply market.
It will also create a forum for the sharing of notes on relevant risk reduction methods within the supply chain network.
For these reasons and many more, group procurement strategies have often been utilised to produce greater vendor accountability and provide unique opportunities for sharing and benchmarking best practices amongst participants to manage cost and improve on procurement process flows.
In certain instances, subsidiaries within the same group can also take advantage of the group procurement structure to piggyback on the use of pre-negotiated contracts, which will have been previously concluded with other subsidiary organisations within the group.
Group procurement strategies can therefore be used to leverage the use of contracts that will meet appropriate procurement standards, reducing the need to duplicate efforts across the whole group.
Piggybacking on previous contracts from other subsidiaries will enable companies to buy direct from source, completely eliminating the possibility of third-party involvement and the unnecessary duplication of sourcing processes.
If there happens to be any procurement department out there which has not yet embraced the group procurement concept, it is an unspoken truth that they could be throwing valuable dollars right out of the window.
However, for the successful implementation of group procurement, it is a strategic imperative to ensure that group members, be it departments or subsidiaries within the group should have requirements commonality in categories across participating groups which in turn requires close collaboration at all times.
The group procurement model is bound to raise the bar even higher due to the fact that it will also enhance increased production efficiencies from suppliers given the increased business activities derived from grouping of requirements. Therefore, group procurement does not only benefit the buyer, but it can also create immense value for the supplier in that it will assist in value creation to the supplier through longer production runs and economies of scale and scope.
Group procurement strategies will, therefore, enable the reduction of overhead costs overtime since the organisation will benefit from increased capacity utilisation as a result of big purchase orders.
From a supplier’s point of view, group procurement will, therefore, monetise excess capacity across group companies bringing the next generation of value.
Perhaps of equal or greater importance, the value of group procurement practices will emanate from the fact that it will save time and effort which if monetised can generate a lot of savings.
There is a lot of time that is wasted by a procurement department that generates a purchase order for fuel today and another one tomorrow and yet another one within the same week.
Such kind of repetition is not only duplicating efforts at every supply chain stage, but it will also take considerable time of the supplier and the whole supply chain network to include all those who process paperwork such as quotations, purchase orders, invoices and goods received vouchers.
For every purchase conducted through group procurement, there is always one less invoice, one less purchase order and one less requisition to process, saving time and effort for both the buyer and the supplier.
Even in public procurement there has been a significant recognition of the importance of group procurement through the promotion of what is generally referred to as shared procurement concept where procurement entities may be directed to group their requirements for the sole purpose of creating value for money through volume consolidation.
The context for group procurement is therefore a basic application of economies of scale and with proper application; the concept can easily become a driver of top line growth and a generator of value that is very difficult for competitors to duplicate.
To put it in strategic supply chain parlance, group procurement is about seeing the bigger picture of what volume consolidation can do to your top line and bottom line.
It is a big picture opportunity for value creation, which in all honesty, requires eye level discussion between and amongst top level management at group level, since it has got the capacity to bring an infinite pool of value offering.
With uncertainty often lurking in the shadows, what with the economy so often heading south, supply chain teams must co-create procurement solutions, sharing the fuel of hope through group procurement.
As is often said: “There is nothing for us without us”.
Nyika is a supply chain practitioner based in Harare. — [email protected]
