The Re-Emerging Value of Group Purchasing Presented by: David Clevenger | Corporate United.

The Re-Emerging Value of Group Purchasing

Presented by:

David Clevenger | Corporate United

Agenda

1 Corporate United Introduction 2 Brief History of Group Purchasing 3 A More Modern Approach 4 Procurement Challenges & GPO Solutions5 Summary & Open Discussion

2Corporate United 2008 – All Rights Reserved

Corporate United

The leader at employing collaboration to improve our members’ spend

management efforts, managing suppliers and facilitating an unrivaled

network of professionals

3

FOCUS LEVERAGE APPROACH

Horizontal

Indirect

Dollars

Knowledge

Collaboration

Lifecycle

With an aggregate total of more than $500 billion in revenue over

1.7 million employees, Corporate United is the world’s largest

virtual organization.Corporate United 2008 – All Rights Reserved

4

History

1980 1990 2000

Group purchasing takes a significant hold within the Academic and

Healthcare sectors, with nearly 75% of non-labor spend going through GPOs

Cooperative efforts move into the corporate space in the form of

vertical consortia

Vertical groups begin to fade do to competitive issues and lack of

support

Horizontal groups emerge to support market void left by verticals – and change their

fundamental approach

- Corporate United founded in 1997

Corporate United 2008 – All Rights Reserved

5

History

Industry Sector

EnergyAerospace

Tire and RubberRetail

Consumer Packaged GoodsAutomotiveHospitalityChemicals

Notable Consortia

PantellosExostarRubber NetworkWorldwide Retail ExchangeTransoraCovisintAvendraChemConnect

Participating companies spent more than $5 billion to seed more than 40 vertical consortia throughout the 1990’s, and by 2006 90% of them were defunct. Today, only Avendra continues to conduct true aggregate buying on a consistent basis.


6

Updating the Approach

The modern GPO incorporates the principles of the healthcare GPOs and the lessons learned by the vertical consortia.

Horizontal

Indirect

A multi-industry approach creates an environment conducive to best practice sharing, while limiting competitive issues.

Maintaining a focus on indirect goods and services ensures commonality of purpose, strong leverage opportunities, and avoidance of anti-trust violations.

Leveraging dollars and knowledge to achieve market-leading pricing and terms means an end to spend limitations knowing “just what you know.”

Realizing the speed-to-market advantage of pre-negotiated agreements means fast access to savings, a third-party to manage the full lifecycle of agreements means long-term value.


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The modern GPO is an evolving body, changing to meet the increasingly sophisticated needs of spend management organizations.

Updating the Approach


8

Savings Requirements

Economic conditions have led to declining volumes and rising resource constraints. With the CFO demanding more bottom-line improvements than ever before, how does spend management save more quickly?


9

Speed and Impact

The effectiveness of using leverage to impact pricing still ranks among the most important and visible values of belonging to a GPO.


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Speed and Impact

A modern GPO is not a sourcing consultant, they manage the process after the award is made to ensure members realize identified value.


Implementation StepsWeek 1

Week 2

Week 3

Week 4

Week 5

CMSA executed x Implementation Team is identified x Initial meeting is conducted between CU/Member/Supplier x Data requirements are established x Timeline established x eCommerce requirements defined x Billing process identified x Identify unique service / product requirements x Reporting / Savings metrics defined x Develop announcement strategy x Identify training requirements x Finalize data collection requirements x Develop survey requirements x Finalize billing / AP strategy x Finalize EC / ordering procedures x Finalize supplier / member communication strategy x Incorporate testing x Go live xIncorporate Quality Assurance survey X

Opportunity Assessment

Savings Identification

Contract Implementation

Supplier Management

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Internal Customers

In searching for opportunities to create value, most procurement departments come up against the challenge of business unit control over the spends they need to source. How does purchasing get support to influence stakeholders?


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Customer of Choice

By becoming an important customer you can achieve the improvements in service levels that appeal to your internal spend owners.

Office Supplies

Multi-Functional Devices

Industrial Supplies

Commercial Roofing

Safety Supplies

Temporary Staffing

Relocation Services

Top 5 Customer

Top 10 Customer


13

Resource Constraints

Most companies have highly skilled sourcing and supplier management personnel on staff, but with more than 150 categories of indirect spend and hundreds of suppliers to manage, how does procurement make a broad impact with limited resources?


14

Resource Flexibility

Participation in a GPO means extending the reach of your procurement organization by adding resources for whom non-core is a competency.

If one sourcing professional can source eight, $1 million categories in a year at an average implemented savings of 12%,

they will generate $960,000 in savings.

By participating on three leveraged agreements and realizing the same per project performance, the same company can generate

more than $1.3 million while expending the same resources.


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While some organizations have the resources to tackle sourcing, supplier and contract management activity can lead to shortfalls.


Year 1

Lowball pricing on customer’s core list to win business

Year 2

Change out 25-40% of catalog items and begin to shift usage

Year 3

Change another 25-40% and dramatically enhance margins

In the absence of proactive administrative and tactical supplier management, scope and price creep are a reality faced by too many procurement organizations. The GPO serves as an advocate for the

member, focusing strategic attention on a member’s non-critical spend.

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Beyond the tactical contract and supplier management, the ability to strategically manage categories and related supplier relationships is an important element of sophisticated spend management.


Identification of total cost of ownership factors

Managing the supplier into a more consultative and value-

added role

Implementation of continuous improvement

initiatives

The group purchasing organization dedicates time to working with a supplier and developing their approach to serving group members.

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Knowledge Limitations

An organization that is insulated from its peers is unlikely to be able to achieve best in class supplier qualification methods, negotiation strategies, or contract terms. How can this be overcome without costly benchmarking?


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Knowledge Share

RoadmapPlanning

CategoryR&D

Supplier Identification

Specification Development Negotiation Implementation

Category Recommendation

Contract Implementation

Committee Participation

Corporate United

Member

Collaborative buying means the aggregation of knowledge and experience, not just dollars; leading to best-in-class agreements.


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Other Benefits

• Because the group is constantly evaluating the agreements to determine the value of participation, contracts are benchmarked on an ongoing basis.

• Suppliers have an unprecedented opportunity to grow their business by actively participating with a GPO, and in many cases are willing to exchange margin erosion for volume growth.

• Participation in a diverse network of spend management professionals gives members a unique opportunity to interact with their peers and gain knowledge critical to their day-to-activities.

• Access to a series of events and materials designed to facilitate networking and education.


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Summary

Group purchasing today is probably not what you remember, evaluating an updated version may be worthwhile.

While participation in a group purchasing organization is not a solution to every challenge you are facing it can help in;

Achieving aggressive savings goalsSupporting alignment with business unitsProviding resource flexibility, andAffording access to an active peer network.

Before doing anything, consider whether or not your organization sees a value in collaborative activity, insular organizations make for a bad fit.


The Re-Emerging Value of Group Purchasing Presented by: David Clevenger | Corporate United.

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Transcript of The Re-Emerging Value of Group Purchasing Presented by: David Clevenger | Corporate United.