We show you how you can pool your requirements and make processes more efficient – all by cooperating on procurement.
Whether it’s to purchase office space, software services or CEP services, teaming up with other companies can help to achieve better prices and conditions. Sounds tempting, doesn’t it? But in reality, there are always issues facing procurement groups; the personal relationships between companies especially play a crucial role.
Generally, many buyers do see the clear advantages of cross-company procurement. A buyer at a leading trading firm describes the benefits: “I gain expertise, get better prices and even forge new supplier relationships, depending on the product range.” Exchanging knowledge and cultivating relationships, on top of the clear price benefits, represent a clear win for many buyers. Moreover, companies also see the opportunity to standardise processes and make them more efficient at the same time. But the million dollar question is who is the right partner for a procurement group?
There are many concerns about procurement groups within the industry itself
Companies are apprehensive towards cooperating with direct competitors, because they could seize valuable expertise. Other companies don’t like the idea of losing their suppliers, because they supposedly offer them special conditions and are not keen on sharing such competitive advantages with the competition.
Andre Leise, Head of Procurement at COMPO EXPERT, a leading manufacturer of specialist fertilisers, has a clear idea of the partners he would work with: “We are very open in our private equity company. Everybody is on the move in different sectors, so nobody’s afraid of contact. As a procurement cooperative which operates through a trade association, we are somewhat more reserved. You can only believe half of what you’re told, because everyone is trying to gain an advantage for themselves and competitors then lose out. That’s why it doesn’t work very often.”
Sometimes, procurement cooperatives within the same sector especially can seem like a circus of vanities and sensitivities. Everyone has their own ideas of the perfect partner or wants to pursue personal relationships with long-time suppliers. The procurement manager of a company in the food service industry reveals his expectations: “With smaller restaurants, we are unable to form any kind of cooperation. We would only consider larger hotel chains or other larger restaurant chains that are not direct competitors. Because our partners must be on par with us and have a procurement set-up that is at least as professional as our own. We have often seen partners who, despite having a higher turnover, are in a much weaker position in their procurement than us.”
MRO goods particularly well suited
As well as the question of ‘who do I buy with?’, the second key issue is ‘what do I buy as part of this cooperative?’. Many companies see recurring MRO goods – such as office supplies and facility management – as being particularly well suited to a procurement cooperative. Other indirect areas where procurement groups generally work well are IT and telecommunications, logistics and energy. When it comes to gaining an upper hand over the competition, these areas are hardly ever thought of, because they have nothing to do with the core business. Nevertheless, they offer great potential for cost reductions.
One major hurdle in centrally procuring MRO goods is the lack of transparency over the requirements. Many companies are unable to enter into a cooperative because they don’t know what the requirements are across the company. This is especially the case if specialist departments procure their MRO goods without liaising with the Procurement department itself. Yet, in order to set up a procurement cooperative, transparency over the requirements is imperative.
The more specific the desired product is, the more difficult it is to find a cooperation partner requiring exactly the same product. The automotive industry is actually one of the few sectors which procures its direct goods – such as standard components – as a cooperative, therefore working with direct competitors. In this case, renowned German automotive groups join forces and procure aluminium plates, chemicals and any other components in large quantities. This especially covers materials that are not specific to any one model, such as electric engines or seat frames, because these have no influence on the different trims available or special features in the final product.
“I firmly believe that the consumer products industry and the food industry are under the same price pressures as the automotive industry. But when it comes to specifications, the automotive industry is in a very strong position and pulls all the strings for development, production and logistics to always secure the best cooperation,” says a buyer in the sector.
Private equity firms paving the way
Private equity companies have already found success in pooling the MRO goods requirements of their portfolio companies. After all, requirements such as IT hardware and software, energy and office supplies don’t really vary, regardless of the sectors and locations the individual portfolio companies operate in. However, a partnership founded on trust between the portfolio companies is essential for the cooperation to be successful. If a private equity company manages to convince all of its stakeholders that they will benefit from cooperation, then better conditions, prices and contract details can be negotiated. Uniformly negotiated quality standards and an enhanced pool of suppliers can then be enjoyed by all involved.
On top of that, a successful cooperation in procuring MRO goods can lead to operations being simplified. Because it creates more transparency over figures, data and requirements, and involves a greater commitment to the supplier relationships through clearly specified contracts.
Conclusion: How do you get started with a cooperation?
Procurement cooperatives are often unsustainable, because they are influenced by the people involved, not the companies. If, for example, a buyer leaves a given company and their successor is no longer interested in a cooperation, in many cases it will cease to exist. That means many procurement cooperatives are often a one-off or short-term event, and buyers then face the question of whether they should dare try again. If you are looking to start a procurement cooperative , you should first prepare yourself individually. It all starts with structuring and standardising procurement in your own company. Then, the standard requirements involving a high procurement volume need to be identified.
Next, companies need to gradually migrate towards the model of procurement cooperative that is right for them. Sharing information with other companies, for example within the framework of an association, can reveal insights and opportunities to find suitable partners. A high degree of trust, willingness to compromise, motivation and commitment of everyone involved are essential for an arrangement that works for all. An external, objective mediator can support the process of forming the cooperation and mediating in any conflicts between the parties.
Once the preparations are completed, a central point of contact should be agreed on. Ideally, this will be a common group of representatives of the partners involved in the cooperative or a body set up for this purpose. In order to prevent conflicts, arrangements must be precisely defined in advance. Finally, efforts to form a cooperative contribute to a procurement manager’s personal development, who – thanks to the exchange of expertise – gains experience, consolidates their position in the company and is able to expand their professional network.
Factors for a successful procurement cooperative:
- Transparency over requirements
- Commitment and willingness to comprise by all stakeholders
- Financially-attractive procurement volume through pooling
- Ability to resolve conflicts between the partners
- No loss of flexibility in the supply
- Professionalism on the part of the cooperative partners
- Coordinated implementation of the procurement cooperative
- Focus on MRO goods