How can B2B buyers collaborate across organizations? Why is joint purchasing something B2B buyers should consider?
Before the trade skirmishes and the Pandemic and inflation and war in Europe, the mandate for procurement was simple: cut costs. The oppressed, underappreciated procurement department labored to squeeze supplier pricing, even as they were excluded from important strategic discussions their expertise could have improved. Procurement as a function was difficult, time-consuming, and lacked status internally, notwithstanding the myriad, failed reports from consulting firms that every year would be the year in which procurement became a strategic role.
Even before the incessant supply chain turmoil, the buyer’s journey had changed. The Internet made information more readily available to all stakeholders. There was less reliance on suppliers for market intelligence and there was greater independence from the in-house category expertise in the procurement department. End users through senior management demanded greater influence over purchasing decisions, armed with facts and opinions discovered online. Building consensus remains difficult.
For procurement, there was no real sense of affiliation outside of the buyer organization. Buyers from one entity rarely (or only coincidentally) consulted with their colleagues from other organizations to share information and data.
The buying cycle was long and painful, an experience often made worse by the poor tools procurement staff had to use. Unable to justify the expense of sourcing modules built for larger, frequent buyers, many small and medium-size groups (including those inside larger enterprises) made do with legacy software or with email and spreadsheets. Even the large enterprise solutions needed supplementing.
Often, the biggest problem was a paucity of suppliers responding directly to the reverse auction in the form of an RFP or RFQ. An auction that fails to attract enough participants is a failed auction for its inability to generate sufficient competition on price and solution. Buyers end up overpaying for what can be a second-best solution.
Procurement lacked status. Procurement lacked affiliation. Procurement lacked the right tools.
Now, we are in the early innings of a massive disruption of all things supply chain in which the Board and the C-Suite are obsessing over the risk of the procurement decision. Procurement is in the spotlight.
Here’s a profile of Conagra in the Wall Street Journal:
“Mr. Marberger said he is spending about 30% more time in his role meeting with the procurement team to evaluate commodity costs, compared with January 2021. They now meet frequently throughout the month. Before the surge in inflation they met once a month.”
Collaborative purchasing in which procurement staff from different buyer organizations cooperate on acquiring specific goods and services addresses all these problems.
The typical way buyers have done this is with a GPO: a Group Purchasing Organization. Here’s a good definition from Omnia Partners:
“A group purchasing organization (GPO) combines the purchasing power of collective businesses to leverage better pricing, service levels, and account representation from suppliers. Leveraging a GPO increases your buying power and simplifies your buying process. The wide-reaching network of a GPO is challenging for an individual professional to match.” [Emphasis added]
The Group Purchasing Organization coordinates sourcing: searching, vetting, and screening suppliers and their offerings for a particular problem. The GPO will negotiate a contract on behalf of its members; all members enjoy the same terms and conditions, with the flexibility to add an appendix to the contract to reflect minor but necessary buyer-specific arrangements.
There are at least three obstacles to setting up a GPO.
First, there needs to be a network of buyers.
Second, the GPO requires suppliers that are willing to engage with this group of buyers in exchange for higher volumes. The GPO needs to be able to deliver them volume.
Third, suppliers and buyers must have a mechanism for collective sourcing and contracting.
Get this right and sourcing is faster, simpler, and more competitive on price and solution. There are no more failed auctions.
Traditionally, GPOs are private companies or non-profit entities organized for the purpose of coordinating this joint sourcing activity. The GPO charges its members fees for processing the allocation of benefits (e.g., in the form of rebates from suppliers once the GPO hits pre-set volume thresholds), as well as other administrative functions.
Buyers and suppliers pay these fees in exchange for their access to better pricing and an increased diversity of solutions, and in exchange for larger sales opportunities, respectively.
Naturally, GPO activity tends to focus on indirect expenditures: spending on goods and services that are ancillary to the cost of goods and services. For example, a chemical company’s direct spending would include its feedstock. This is strategically vital. The chemical company’s indirect spending spans a wide variety of things such as office furniture, IT, or catering services. These are necessary for the business to operate, but they are not particular to the company’s core reason to exist.
Most commonly, the GPO will conduct a reverse auction on behalf of its members and sign a contract that the winning supplier is willing to offer on to any buyer on the GPO platform.
With a GPO, there is the comfort of others. A B2B buyer can trust that the GPO has done the heavy lifting to discover, vet, and screen suppliers, negotiating a price that is deemed to be competitive. The buyer can execute in a fraction of the time, minimizing transactions costs. The GPO becomes a procurement channel. It is like stepping into someone else’s catalog.
For most types of indirect spend, there are good GPOs. There are even sector-specific GPOs, e.g., in healthcare. They offer ready contracts. They are a decent solution, particularly for smaller purchases than the size of acquisition that require an RFP or RFQ.
The GPO’s list of offerings constrains the buyer; they can only buy what the GPO facilitates. When it comes to indirect spend, there are an infinite number of goods and services buyers source, only a subset of which appear in the typical GPO arrangement.
For most of these things, B2B procurement staff will execute a reverse auction independently, issuing an RFP or RFQ themselves. This requires time, market intelligence, and supplier participation, each of which is costly.
What if we could set up a one-off group for a single purchase to generate competition on price and solution, to share suppliers, and to pool market intelligence gathering, while speeding up the process and lowering transactions costs? Think of this as a Joint Purchase, or even as a “synthetic” GPO without an organization formed for the purpose.
The biggest obstacle to joint purchasing of this type is finding other buyers with whom to collaborate. Right behind it in terms of difficulty is the coordination of the solicitation process across multiple buyers, each with their own varied constituencies.
A buyer who wants to purchase collaboratively with one or more others must find others who are also in the market for the same product, pool their market intelligence, and develop collectively the bid solicitation document. The solicitation itself is similar to a standard single buyer reverse auction with an RFP or RFQ; the lead buyer can perform this administrative task.
Then, the buyers must coordinate consensus building in two dimensions: across organizations, and within organizations.
When multiple buyers collaborate to issue an RFP or RFQ jointly, it converts a one-to-many process into a many-to-many process with the attendant increase in benefits, offset by higher complexity. What if we could reduce the complexity to that of a regular RFP or RFQ?
To make joint collaborative reverse auctions for indirect spend work, we would need to develop networks of buyers across industries. We would need to make it easy for them to find one another and develop trust.
These buyers would also require a mechanism for cooperating on the development of the Statement of Work. This means access to market intelligence.
Buyers would need a way to vet and onboard suppliers rapidly, as they share their existing vendor bases and attract new ones to drive an increase in responses.
Buyers should offer suppliers an accelerated sales cycle, with a larger opportunity, and the prospect of further knock-on sales from other buyers at the same terms in the future to drive supplier engagement.
Most importantly, the buyers require a way to coordinate the input of multiple internal stakeholders across the various buyer organizations, ideally weighted by organization and by role, with a way to roll up the reviews of supplier proposals into an efficient recommendation.
That’s what we’ve built at EdgeworthBox.
We have stapled a social network to data repositories and a central clearinghouse of vendor risk management. And now we have a collaborative purchasing tool.
Buyers can speak with one another and share their own structured data (and leverage its value internally). Marry that with a tool that permits multiple stakeholders to review supplier proposals and to roll up the results with the data sliced multiple ways.
Note that this kind of tools is also a useful supplement for the GPO itself as part of its sourcing process.
EdgeworthBox is a platform that helps buyers purchase the right solution, from the right supplier, at the right price. We have a social network in the form of profile pages and messaging. Buyers can check out supplier marketing materials without triggering digital marketing alerts. Anyone on the platform can message anyone else. Buyers can obtain market intelligence from other buyers, suppliers can partner with other suppliers, and buyers and suppliers can get to know one another. We have public and private repositories of structured data related to live RFPs, historic RFPs, and historic contracts. See how others put together their Statements of Work and what they paid, across hundreds of categories. Suppliers control a “lockbox” of answers to standard due diligence questions and supporting documents that they release to buyers upon request. Our product development pipeline includes AI tools for automatic SoW generation and supplier response generation, as well as Web3 smart contracting for commoditized products and vendor identify management. Buyers and suppliers join for free. Buyers pay a small fee to execute reverse auctions.