Author: Mark Kusionowicz
What’s your instant reaction to the idea of a pooled buying network? I’m guessing that, like most people, you immediately think about the benefits that the purchasers get with increased “buyer power” - lower pricing, higher discounts, more commercial influence over the supplier and other such results of “winning”. It is therefore not surprising that if you Google ‘pooled buying’ the results all seem to lead to the conclusion that this is a one-sided “I win, you lose” arrangement designed to benefit the buyer at the expense of the supplier.
Indeed, I found that even an article entitled “Pooled Buying Power is a Win for All Involved…” was actually about the benefits to both employers and employees of pooled purchase of employee benefits - not a thought was expressed about the supplier of those benefits.
Suppliers win first
As Mark West discusses clearly in his post “Innovation OR Procurement” for a pooled buying network to be sustainable it has to benefit the supplier first. This is the basis on which INNOVO was created. The benefits to suppliers include very positive impacts to both the top and bottom lines of the corporate P&L.
Cost savings for suppliers come in 3 main guises. Across all industries and solutions an average of 10% of product or service price goes to “cost of sales”, but 9 out of 10 approaches to new clients are not successful. This means that it costs a supplier, on average, 9% of sales revenue to sell to that 1 out of 10 approaches - by removing the need to make speculative approaches to potential unknown buyers a supplier can save that 9%. Secondly, many suppliers have spare, unutilised capacity which incurs a cost. By making this capacity available to the network any take-up by new prospects reduces that cost. Thirdly, any supplier is also a buyer of goods and services, so membership of the network delivers procurement cost reductions as it does for any buyer.
Perhaps even more important are the benefits delivered to the 'top line' for business development. The pooled buying network provides immediate access to new markets and prospects at the exact time they wish to make a purchase, so removing the need for 'speculative' approaches. A network that includes advanced supplier-buyer matching technology will also bring in incremental sales through natural introductions and the ability to directly target desired new clients. It even enables the supplier to potentially build relationships with key buyers of their competition!
A partnership of equals
The benefits to the buyer are actually a “sharing” of the benefits received by the supplier, rather than a “discount” beaten out of them by “negotiation”.
A reader of Mark’s post comments: “If you…remain in the mindset that the buyer/supplier is a win/lose game, as it has been typically viewed in the 20th century, you will be on the losing side…for the 21st Century”. This is so true, but until we change the language we use to describe this relationship that mindset will remain.
So, let’s start using more accurate terminology to describe a relationship of equals such as “shared profit” rather than “discount”, “collaboration” rather than “negotiation” and “partnership benefits” rather than “buyer (or supplier) power”.
What other terms do you think should be updated? Indeed – suggestions for an alternative to the rather one-sided description “pooled buying network” would also be very welcome.
Image courtesy of pakorn at FreeDigitalPhotos.net