A chain is only as strong as its weakest link, but the whole is greater than the sum of its parts. It’s time for procurement to consider a procurement strategy angle it has never thought of before.
“Earth. Fire. Wind. Water. Heart. Go Planet!” “By your powers combined, I am Captain Planet!”
If you were a child of the 80s or early 90s, there’s a fair chance that you are familiar with these words. They are, of course, the words used to summon Captain Planet, via the power of five magic rings wielded by his “Planeteers”. The cartoon acted as an advocate for environmentalism and even spawned a charity.
What, I hear you cry, does a distinctly average 1990s cartoon have to do with procurement strategy? It’s not about how procurement can help to promote environmental sustainability. Need another clue?
Cast your mind back to settling down in front of your TV on a Saturday morning in the 1980s or 1990s. Did you ever watch Voltron? How about Power Rangers? If you did, and remember how our mighty heroes defeated their nemeses, you might be beginning to get the idea.
For the Power Rangers, it was creating the “Megazord”; in Voltron it was the combination of 5 robot lions (or 15 smaller vehicles depending on which series you preferred…). As we alluded to in our introduction, when people or organizations operate alone, they can be ignored or out-maneuvered. When they team up with others, then they wield much greater power that can be leveraged to create great benefits.
From Purchasing to Strategic Sourcing
Procurement may not face overwhelming opposition in the form of giant dinosaurs or evil polluters, but it faces its fair share of challenges. Elements such as maverick purchasing and non-compliance with processes serve to undermine procurement’s position as a strategic sourcing partner to the organization.
There is also the issue for small organizations that their procurement teams are seen by suppliers as non-strategic. Through this they may lose the opportunity to negotiate better terms in a contract, or end up being so far down the supplier’s priority list that they will never be viewed as an important customer.
A wealth of literature exists on why procurement should be creating better relationships with suppliers. Why shouldn’t procurement be looking to create closer relationships with other procurement departments and work together to improve their own strategic buying potential?
Think of your procurement team as one small part of the Voltron robot. If you join together with other small parts to create a procurement mega-bot, there’s little that will be able to stop you from achieving your goals. It’s no coincidence that we often refer to Group Purchasing as procurement’s “secret weapon”.
Here are the some of the benefits that can be reaped by combing your (purchasing) powers with other procurement organizations:
- Scale or Spend Leverage: Probably the most obvious benefit based on using greater, combined volumes to drive a better price. Also known as “buying power”.
- Price Alignment: Where one organization is paying more for a specific product than another organization, but then align their prices to the lower one. By working together and aligning prices, Police Forces in the UK have saved over £237 million ($339.5 million) in 3 years.
- Collective Negotiation: Similar to the idea of Collective Bargaining between organizations and employees, but in this case, procurement with other procurement teams. It extends the idea of leverage, giving even the smallest organization presence at the negotiating table.
The Power of Many
Centralized procurement is usually focused within a single organization, but who is to say that you couldn’t have centralized procurement activities as part of an overarching procurement strategy? The options are there that could make this a reality and turn your procurement team into the organizational equivalent of a power ring.
If you’re not sure where to start, then you don’t need to look much further than the potential for outsourcing procurement via one of the many procurement consulting houses. Or, if you are after procurement solutions that enable your organizations to keep more control, you may choose to investigate the option of a Group Purchasing Organization (GPO).
A GPO can offer organizations the benefits outlined above and can back up all of this with hard facts too. Savings on direct and indirect sourcing, access to pre-negotiated contracts and linking up with other organizations to really leverage scale and volume to create tangible savings.
As Captain Planet said at the end of each episode to the viewer at home, “The power is yours!” Now it’s up to you to decide how to use it and if you’ll join forces to overcome the myriad challenges facing procurement today.
Want to know more about GPOs? Contact UNA to discuss the benefits of Group Purchasing.