Why don’t companies collaborate? The 7 most common reasons.
On paper, collaborative (consortium) purchasing is a low risk, effective method of saving money by pooling purchasing requirements with other companies to utilise larger economies of scale to achieve lower group pricing, so why don’t all companies use this strategy?
Collaborative purchasing appears to be a well-kept secret mainly within the public sector which has been utilising this strategy for almost a decade, companies in the private sector either have not heard of it or have limited, incorrect information so choose to ignore the benefits available.
This article will attempt to address a few of the numerous false assumptions and reasons business managers give for not pursuing a collaborative purchasing network.
Below are seven of the most common reasons against collaborative purchasing and how they are mis-representational of the true nature and benefits associated with model.
- I am confident we are getting the best price - As an individual entity the company may well be obtaining the best price for their situation, however with the increased buying power of several companies combining their purchasing requirement the agreed price reached may be significantly better.
- I have a well-established purchasing team - An established purchasing team may provide a well-developed purchasing strategy which supports the company’s growth and development; however, any strategy implemented will be centred on the business in isolation. Working collaboratively with other companies may not only provide good cost savings, but also open up previously unavailable opportunities to harness different strategies offered by other companies in the network.
- My company is large, and we leverage all our suppliers well - No matter how large an organisation is and how well it leverages its suppliers, the additional buying power generated by collaboratively working with other companies can produce significant cost savings. If the network is geographically localised, there is a reduced burden on the contracted suppliers (single deliveries, structured inventory etc.) which can in turn further reduce the cost for both sides.
- I am a strong negotiator; I don’t need any further help - Good negotiators will agree that negotiation alone can generally achieve a cost reduction on average between 2% and 5%. With any potential product/service portfolio to be purchased there is only so much movement available, with each side wanting to obtain the biggest slice of the purchase pie. By working with a collaborative network, the size of the pie is increased making a bigger slice for all.
- How complicated can stationery be to purchase? - The simple act of purchasing basic stationery (pens and paper) is not complicated. The wider area of stationary purchase including IT consumables, specialised stationery (design department, financial etc. requirements) is more complex. When rolled up with other similar categories of spend i.e. IT and communications, fleet management, utilities, janitorial supplies etc. the complexity is increased significantly, however the potential for cost rationalisation is also increased. When these categories are purchased collaboratively with other companies in a network, the complexity increases marginally whilst the opportunity for cost saving increases dramatically.
- I don’t want to lose control over the money I spend - Collaborative purchasing works by allowing companies to pool together purchasing requirements, the control over when, what and how is still strictly maintained by the individual company. If there is a true requirement which cannot be fulfilled by the framework an alternative source should be used. Although voluntary in nature, a collaborative network works best when all parties buy in to the premise and actively seek to strengthen its bonds.
- I don’t want to share confidential information with my competitors - When purchasing through a collaborative network managed by an independent entity (i.e. agent or consultant), the only information required is data relating to the purchasing habits within the defined categories of spend. This data is held confidentially under a Non-Disclosure Agreement between the two parties and is not shared between the network. For the purposes of reporting, data is sanitised and used anonymously (i.e. company A spent £xx on toilet rolls in quarter 1).
Collaborative purchasing has been commonplace in the public sector for almost 10 years, allowing for greater flexibility and significant cost savings on low level spending across all areas including local government, NHS, defence etc. This statement may appear counter intuitive with press coverage of recent public procurement issues i.e. Carillion, HS2. These issues relate to large scale single contract or project awards, the use of collaborative purchasing has been seen as a strong success (although there are always areas for improvement) freeing public bodies from the mountains of red tape associated with public purchasing and EU compliance.
Collaborative purchasing in the private sector has found little traction with most companies falling into one of three categories.
- Never heard of Collaborative purchasing - Collaborative purchasing is generally seen as a public or large multi-site organisation model with very little dissemination of information into the SME sector.
- Limited information or mis-informed - “A little knowledge is a dangerous thing”, with a small amount of limited or incorrect information regarding collaborative purchasing it is easy to “fill in the blanks” with incorrect assumptions, ultimately reaching the wrong conclusion and potentially missing out on the benefits available.
- Worried about sharing intellectual property with other businesses - The types of products and services normally included in a collaborative framework agreement (stationery, utilities, janitorial products etc.) will generally contain no business-critical information to share. With the use of an independent third party to manage the network all shared information will be covered by robust non-disclosure agreements.
Collaborative purchasing, if conducted correctly can offer a wealth of benefits from achievable cost savings to new opportunities from closer relationships with likeminded businesses. Working closely with neighbours may help make all companies involved become more competitive and flexible, able to grow and develop effectively as a harmonised network.