[Editor’s Note: Today’s article is a guest publication from UNA. Ardent Partners is happy to review and feature guest publications from authors across the procurement and supply management industry. If you or someone you know would like to become a guest contributor, please contact us at editor at cporising dot com. Thanks!]
Top suppliers have no problem in acquiring new customers. When they reach a certain size and dominate the market, or if they are the only supplier in a niche market, then it is a reasonable assumption that their sales team are concentrating on landing big contracts only.
Unfortunately for purchasers in medium-sized organizations who want to do business with large suppliers, this means that you’re simply not worth their time. RFPs are ignored, phone calls go unanswered, and there’s little to no chance of gaining the upper hand in any sort of negotiation when the power dynamic is so unequal.
That’s because Big prefers to work with Big. A large supplier won’t bother responding to an RFP if they consider the volume inadequate, nor will they engage in any sort of Supplier Relationship Management (SRM) if their time and resources are better spent chasing bigger fish. The problem lies with volume. Non-Fortune-500 companies simply won’t have a high enough volume of purchase to attract a large supplier’s attention, even if they consolidate purchasing orders across every department.
Any procurement professional working in an organization without a fully developed procurement team will have trouble proving their value to their company’s management team. Your failure to negotiate price discounts or associated benefits with big suppliers may lead your stakeholders to question why the procurement function even exists, if anyone could have acquired the product or service for exactly the same price.
So, What Can Be Done?
An article from Harvard Business Review suggests a number of options ranging from vertical integration, to creating a new supplier, to playing hardball by canceling current and future orders. But again, unless you’re a massive conglomerate, this would be a bit like an ant yelling threats at a giant – the giant is unlikely to even notice.
What’s really needed here is the ability to get bigger faster through some sort of miracle growth. Luckily, the solution exists in the form of Group Purchasing Organizations (GPOs).
Miracle Grow
Joining a GPO gives any organization access to bulk buying power and savings that you would never be able to negotiate on your own. By joining a group of other companies under the umbrella of the GPO, your collective might means that the largest suppliers will have no choice but to engage.
Alongside price discounts driven by bulk buying power, joining a GPO offers benefits including:
- price stability and contract monitoring
- more control, influence, and leverage in the conversation
- competitive inflation guarantees
- category expertise in areas where your team may lack experience.
Put simply, GPOs democratize the purchasing process. They give organizations of every size access to steeply discounted agreements (better contracts) that would typically be out of reach. Further savings can be found through efficiencies such as cutting down on time spent in issuing RFPs, and administrative cost savings.
But working with a GPO doesn’t mean relinquishing control of your relationship with suppliers. GPOs are another level of accountability, or a resource that can be called upon if you find yourself being ignored or bullied on price by a large supplier.
It’s a bit like a schoolkid being cornered by a bully. He or she may feel that there’s no way to escape and has no other options except to accept the bully’s demand … until their much larger big brother taps the bully on the shoulder. The bully, suddenly, realizes that they are matched (or even out-matched) and will subsequently be willing to negotiate.
So, How Much Does It Cost to Join a GPO?
Some GPOs, like UNA, do not charge buying organizations; they are paid by the suppliers from which the GPO sources. Joining a GPO will enable your organization to bulk up and re-balance the power equation with suppliers who may not otherwise engage with you. A GPO could be your “miracle growth” solution to unlocking greater buying power and bulk purchasing.
About the Author
Cindy Rittel is a National Account Executive at UNA, a group purchasing organization based in the U.S. Interested in learning more? Contact UNA to discuss the benefits of Group Purchasing.
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