Purchasing Consortiums

From Suppliers Manual

A purchasing consortium can be defined as a collaborative arrangement in which two or more organisations join together to combine their individual requirements for goods, works or services to gain better prices, design, supply availability and assurance benefits compared to if each member purchased the goods or services alone. (Brian Farrington, 2006 and http://www.esourcingwiki.com/index.php/Purchasing_Consortia)

Modern Consortia often go beyond just helping a member’s buying power and ability to achieve low prices, many offer other benefits such as technology and support as well so there is no need to develop in house specialists. http://www.esourcingwiki.com/index.php/Purchasing_Consortia

There are many examples of purchasing consortia within the public sector for Councils, Further Education Colleges, Universities and many more. One such example is the CPC (Crescent Purchasing Consortium) which is owned and run on behalf of the Further Education Sector. The income generated from the CPC collaboration will be invested into facilitating better procurement in FE institutions. Members have access to 571 professionally arranged contracts covering a wide range of goods and services. http://www.cpc.salford.ac.uk/

There are advantages of being part of such a consortium, which include:-

• Economies of scale – allows members to benefit from a larger scale purchasing power than they could achieve individually.

• Lower transaction costs - The consortium can therefore negotiate much lower prices for goods and services and these savings can be significant (ranging from around 10% - 35% cheaper according to the buying support agency).

• Reduction of process time and work load – The consortium handles a number of buys on behalf of the organisations within it when searching for and ordering standard items so this streamlines the process and frees up time for the buyers to do other tasks.

• Better practices and shared expertise – this can be achieved because individual members can gain knowledge about how to succeed in particular functional areas or regions.

• Higher quality – this expertise helps make sure an organisation is using the best processes and information to make its decisions.

• Lower supply risk – the consortium is able to tap into all its members’ knowledge therefore having a better chance at identifying low risk suppliers.

However there are also some disadvantages to consider, which include:-

• Serving the needs of the majority – the consortium will be treated as a whole and is less likely to fulfil the specific needs of an individual member when dealing with one supplier.

• Set up costs – there are initial costs of identifying a consortium, negotiating a contract and developing a relationship with that consortium.

• Longer lead times – it may take longer to negotiate contracts when it has to be adapted to many different institutions.

• Need to communicate and monitor – liaising with the consortium and monitor the procurement process will ensure consistent results.

• Reduced flexibility – this is because individual members will not have full control over the term and conditions of the contract and member have to agree on which supplier is used.

• Resistance – There may be resistance internally if members believe the consortium does not know he business well enough to negotiate the best contracts for them. There may also be supplier resistance if they do not want to work with a consortium as the profit margins maybe smaller even though there is a bigger sale to be had overall.

• Loss of supplier relationship – the above may lose the personal touch of supplier relationships and result in working with suppliers that members have never worked with in the past. http://www.esourcingwiki.com/index.php/Purchasing_Consortia http://www.esourcingforum.com/archives/2007/09/26/the-benefits-of-purchasing-consortiums/

B. Farrington and K. Lysons, ‘Purchasing and Supply Chain Management’ (7th ed.), Pearson Education Ltd, 2006.