Prime Advantage Blog

Buying Groups: The Value Beyond Cost Savings

Mike McDonald on Apr 3, 2015 11:18:00 AM

What’s in it for me besides saving money? 

value-of-buying-groupsThe main reason companies join buying groups is to save money and improve their overall cost structure. But the value realized once in the group can extend far beyond the economic advantages. For many, the ability to build qualified depth within the supply chain while gaining resources to develop professionally is just as important as beefing up that bottom line.

Large companies often employ commodity teams within their purchasing departments. These teams address categories, vet potential suppliers, negotiate contracts and identify primary as well as secondary suppliers. They are able to truly become expert category managers which helps leverage spend and build secure relationships with their vendors.

Small and mid-sized companies on the other hand, are usually forced to become generalists. They’re good at managing their top few spends while addressing the rest as best they can with their limited resources. So what do you do if you don’t have the luxury of commodity teams at your company?

That’s where buying groups come in.

At their core and regardless of the industry, buying groups exist to help small and mid-sized firms achieve economies of scale by banding these companies together to purchase from suppliers as one. They also provide a level of quality assurance as getting approved to be a supplier in a buying group is an arduous process. Suppliers typically need to pass through an audit to acquire entrance and then need to maintain a high standard to remain part of the group.

Because of this “only the best get in and stay in” method, the quality of supply available to members in the buying group improves and the quantity of top tier suppliers at their disposal skyrockets. This approach has been likened to an insurance policy for the supply chain. It creates a pool of top tier supplier partners without procurement having to do all of the legwork and research on their own.

buying-groups

Buying groups also provide professional development as well as access to key industry trends and information. Our Members often tell us that connecting with other purchasing professionals from various industries to share best practices and discuss current trends is invaluable.

Cutting costs is crucial and is certainly a key driver to why firms join buying groups. But the heartbeat that keeps buying groups vigorously alive pumps for the powerful relationships formed and the practice of leveraging the group well beyond the savings.

2015-cfo-survey-report  

Topics: Buying Groups and Group Purchasing Organizations

Mike McDonald

Posted by Mike McDonald

Mike is the Executive Vice President of Business Development for Prime Advantage, a Chicago based Group Purchasing Organization for mid-market manufacturers. Responsibilities include managing business development, marketing, and the GPO's Healthcare Cost Containment program. He’s been a featured speaker, published author, and recognized award winner within the supply chain community.

Search Our Blog

Subscribe to Blog

Stellar-Regular