Creating a small business network and collaborating creatively within is a great way to reduce your costs.

September 15th, 2010

If you can’t beat them, maybe your best choice is to join them. If you think your volumes are too small to earn any extra discounts you’ve already lost.

So what the heck is collaboration and what are collaborative partners or networks relative to the supply chain. One thing is for sure, these terms roll of everyone’s tongue like we all know what we are talking about. So this author took a look at Wikipedia hoping to gain some insight and clarity.

According to Wikipedia, Collaboration is a recursive process where two or more people or organizations work together toward an intersection of common goals, and
An aggregate is a collection of items that are gathered together to form a total quantity.

Since collaboration only means different groups or organizations working together towards the same goal, that term can apply to just about any business function. However when we combine it with the word aggregate to form the collective e- procurement term Collaborative Aggregation which was coined by this author in 2006; we arrive at something potentially meaningful.

Collective buying organizations and sometimes share groups often combine purchasing volumes of like products to drive better discounts. Large companies often aggregate their purchases among departments and are more often today doing the same thing across different operating group’s or companies within a larger organizations to drive economy of scale in purchasing.

The unfortunate truth is that not much out of the box thinking is going on in this process. We are so involved in the process that we can not see the forest for the trees.

As an example let’s take a look at a small regional supermarket chain. Today they buy their products mostly from regional or national wholesalers who are able to aggregate the volumes of many small to medium size companies in order to earn enough discounts to pass on reasonable pricing to this retailer that is slightly better than the small chain might earn on their own.  The wholesaler also reserves a little for themselves in order to support their business. These products are normally for resale products. In the not for resale area or supplies, the regional retailer usually does business with local suppliers for a variety of supplies that can include everything from cleaning fluids to paper bags. The supplier normally does good job of managing these products against a number different cost structures to maintain a customer margin that is good for them. As an example if the price of oil is up and the resin market high, the supplier might be making less on plastic products such as plastic shopping bags, soup containers, trash can liners etc. The supplier may however also carry paper products and other supplies that can be mixed together to drive a total customer margin that is acceptable for their model. Retailers can do the same thing. Here’s a partial list of how collaborative aggregation can work.

1. Take a good look at the total list of supplies offered from your primary supplier.
2. Compare that to what you are buying from them.
3. Ask your e-procurement provider for a list of suppliers within a 50 mile radius that can provide the same products or some of the same products.
4. Look at local businesses within a five mile radius of your area that are not in your industry but buy some of the same products such as trash can liners, cleaning fluids, paper products etc.
5. Call them and explain how collaborating might save you all money.
6. Ask for the name of their supplier as they might be different from yours.
7. Determine a test group of products to request bids on.
8. Develop a standard specification.
9. Develop standard terms and conditions.
10. Bundle all products into one group.

SafeSourcing has a best practices program for this type of collaborative aggregation that is included in our event fees. For a complete list or more information please contact us at www.safesourcing.com.

We appreciate and look forward to your comments

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