My thoughts on the use of e-procurement tools by retail collective buying organizations.

July 22nd, 2008

These business structures have been around for a long time. Many have evolved to use cutting edge e- procurement tools. Do their retailers also benefit from their use of these tools in order to reduce their net landed costs?

These business structures have been around for a long time. Many have evolved to use cutting edge e- procurement tools. Do their retailers also benefit from their use of these tools in order to reduce their net landed costs?

This author remembers being a young salesperson over 30 years ago (ouch!). I convinced a customer to buy some new point of sale equipment. I was really excited when I took the contract to the customer for signature. Once there, the retailer told me I had to get a purchase order from Cressy Dockham who was their wholesaler and they would tell me how much discount the retailer was to receive. Cressy Dockham is no longer in business today. They were located in Americus Georgia. I worked in Boston. Thus began a long relationship with collective buyers across all segments of the industry. Explanation of fees was always a part of the discussion.

These types of organization can go by a lot of different names such wholesaler, collective buyer, consortium, cooperative, share groups and more. They all have one thing in common. They consolidate purchasing volumes for a wide array of groups that may have very similar business structures, but can also be wildly different. Some retailers may actually belong to several different buying groups because their primary group does not offer expertise in a certain area.

Obviously, these organizations are not in business to lose money. There are some non profit membership organizations that do return earnings to their members on a pre-planned basis such as quarterly or annually.

As a result of volume consolidation or aggregation, these organizations often qualify for much larger discounts from manufacturers and suppliers than do their independent retailer partners. In many cases the full discount is not passed on to retailers in order to cover the cost of administering the programs. Additionally, other service fees may also be added to invoices.

Today’s advanced e-procurement tools make it much easier to accomplish collective buying. Large and small retailers alike now have the capability of viewing a much broader universe of suppliers while also coordinating and participating in collaborative events from hundreds if not thousands of miles away. Suppliers now have an opportunity to earn business they could never compete for in the past.

Retailers should ask their collective buyers how they plan to make the use of these tools available and how many suppliers they have to choose from by category.

I look forward to your comments.

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