Why it is important to understand the difference between direct and indirect procurement.
Many small business owners do not realize what kind of power they wield. To utilize their purchasing power, business owners need to be able to track their spending on a monthly basis. Once they have a purchase history , they can renegotiate based on their volume.
Here are some recommendations for immediate purchasing power:
1). Chambers & Associations – Local chambers and member associations are a great resource for purchasing power. As a result of volume with an individual supplier, members are able to take advantage of preferred pricing. Though the chamber or association might not have the staff on site to handle a project like this, they can partner with a vendor or group purchasing organization where the chamber/association can also receive a rebate or revenue share as an added benefit.
2). Group Purchasing Organization – Procurement Concepts, is a Group Purchasing Organization (GPO) that combines the purchasing volume of their membership base to achieve extreme discounts. For example, Procurement Concepts partnered exclusively with Staples for office related products after going through a rigorous proposal process with the largest office related products vendors. Due to Procurement Concepts’ combined purchasing volume with Staples, members are able to save up to 83% off list price. In addition, Staples is able to increase their business by acquiring new customers. It truly is a win-win situation.
3). Shop the Buyer’s Market – Vendors are all dedicated to keeping customers loyal and active. If your cleaning supply vendor knows you are shopping your price around, they will likely hope to keep your business and match or beat any other offers. I highly recommend auditing your spending habits each quarter or bi-yearly so you can take advantage of market changes and developments.
These are just a few ways to take advantage of your purchasing power for a competitive advantage. Of course, keep in mind that relationships are extremely important and that quality of products and services can trump low prices. Remember, you get what you pay for.
Many small to mid-sized business owners don't have time to think about procurement. And, it makes sense... they are focusing on the product or service that they provide. So, when it comes time to purchase coffee, office supplies, business cards, or travel, they either run to the store or order online. Or, maybe an account rep contacted your company and put you on your own corporate account (but discounts are not extreme).
Procurement Concepts believes that small to mid-sized businesses should not spend more per item than the "big dogs." That is why we aggregate our members spend together to create purchasing power. We then select one vendor in each category (Staples, Vistaprint, etc). There are no costs to join, no minimum spend requirements, and no contracts to sign. All a small to mid-sized business owner needs to do is provide us with a little bit of information (name, phone, address, email) and we can provide them with usernames and passwords so they can take advantage of extreme discounts.
In addition, Vistaprint is offering a great promotion for new members. They are offering 50% off most items. Just go to our co-branded store Vistaprint and enter the code PROCUREMENT50 when you checkout.
Our goal is to help small businesses control costs. Take a look at our marketplace and feel free to enroll in any of our programs at no cost!
What do you think of when you think of procurement? If you are like many people, you think of cost savings and/or contract negotiations. But the new era of procurement has become more strategic in nature. Procurement professionals can not just look at old price and new price anymore. They need to understand the total cost of ownership.
At Procurement Concepts, we believe that you get what you pay for, especially in the professional services industry. Let's use law firms as an example. To simplify this, imagine your company is owed $1 million by a client who refuses to pay. You solicit bids from 3 law firms.
- Firm A: Proposes an hourly rate of $150/hour and estimates 150 hours ($22,500)
- Firm B: Proposes an hourly rate of $200/hour and estimates 200 hours ($40,000)
- Firm C: Proposes a $300/hour and estimates 250 hours ($75,000)
Before answering the question, we highly suggest looking at the probability of success and the reputation of the law firm. Ask the firm a few questions around performance and service levels. For example, based on historic data, what is the probability of recovering all $1 million? What other fees will we incur (mileage, copies, filing fees, etc)? Who will be working on the case (partner, associate or paralegal)? How can we be sure your firm won't bill more than the proposed hours?
What if firm A is able only able to collect $500,000 within the hours proposed? Then your company nets $477,500. If Firm C is able to collect all $1 million within the hours proposed, paying the highest price of $75,000 is definitely worth it. In our experience, many companies would just look at cost (and would have selected firm A).
In addition to costs, Procurement Concepts analyzes service levels, performance requirements, and success rates for our clients. Please let us know how we can help your company reduce costs while increasing performance!