Cut Costs for Small Businesses with a Purchasing Consortium
A purchasing consortium is an effective purchasing and supply chain management strategy for your small-to-medium B2B company. It’s impossible to accomplish your goals without the necessary goods, and purchasing consortia help you reduce costs of goods.
Many small-to-medium businesses spend approximately 70% of their revenue purchasing goods and services. Think of how much money you’d save if you could shave just one percentage point from that number. Depending on the size of your organization, each percentage point could be worth hundreds of thousands of dollars.
For this reason, you should consider the benefits of a purchasing consortium.
What is a Purchasing Consortium?
A purchasing consortium is two or more independent organizations joined together to increase their buying power. By combining their individual requirements for material, services, and capital goods, they leverage value-added pricing, from their external suppliers.
These collaborative arrangements combine individual requirements for goods and services to gain better prices, design, supply availability, and assurance benefits compared to if members purchase the goods or services alone.
By saving money on your delivery demands, you create more profits from your existing revenue lines. Efficient purchasing minimizes your risks, build relationships with new suppliers, and helps you find new customers.
- Procure the right products
- Produce the best goods or services
- Create at the best quality
- Deliver to right place for the best possible cost
Create more leverage for your business with a purchasing consortium. Instead of negotiating rates on an individualized level, you are able to take advantage of a greater leverage, and utilize free-market principles to lower your costs. Purchasing in higher quantities lowers your per-product cost, which increases your potential profit.
Reasons to Join a Consortium
When working with a purchasing consortium, much of the focus is on the dollars and cents. Saving money is only one reason why this cooperative relationship is important. Here are some additional reasons to consider purchasing consortiums.
Audit trail. Good purchasing practices encourage accountability. It gives stakeholders insight to fairness or equity in every transaction. You can prove that you are following the best practices in your industry.
Financial stability. Assure your organization that the best value possible is achieved whenever an order is placed.
Regulatory requirements. Some industries must follow specific regulatory requirements. An industry-specific purchasing consortium will ensure that you stay in compliance.
Maximized financial outlook. Annual budgets are important, as are 3-, 5-, and 10-year plans. By improving the value of your purchasing relationships today, you maximize the financial outlook of your organization in the future.
How to Join a Purchasing Consortium
There are two ways to join a purchasing consortium—create one with like-minded businesses or join an existing consortium.
When creating your own consortium, you may opt to stay within your industry or use a multi-industry approach. For an informal structure, setup specific criteria for the consortium structure to follow. Then, seek out networking relationships.
Joining a consortium does not have to be difficult. Networked purchasing consortiums make it easy to join existing consortia. Their networks allow you to make purchases or create custom products at lower rates than when you attempt to negotiate pricing or delivery on your own. You stay in control of procurement costs because you only place orders when you have purchasing needs.
You benefit because they handle the order process, from design to delivery, while experiencing cost-savings. Network consortia provide competitive pricing and give your business access to more assets and resources.
When selecting a networked purchasing consortium, look for these criteria.
- A careful selection of service providers. Are the suppliers well vetted for their history, reputation and financial stability?
- Clearly defined goals and measurements. Do suppliers meet specific requirements that are set forth from the first moment of contact?
- Contracts are clearly defined. While it’s tempting to jump at the first good deal that you see, that doesn’t mean it is the best possible deal that is out there. Are the master contracts executed in such a way that you benefit based on your individual organization need?
- Fulfillment tracking. Is the fulfillment process tracked for every order placed, including stock and custom orders, to ensure you receive the product, equipment, or service as anticipated?
As your procurement costs drop, profit increases. With a revenue increase, expect your business to grow. Business growth frequently creates cash flow issues. Allied Financial Corporation of Delaware Valley is here to help you with accounts receivable lines of credit and working capital when you need it. Contact us today.