Although it has long been a key tool in the hands of public sector procurement, the private sector has traditionally failed to take full advantage of the power of collective purchasing.
In the Indian healthcare sector, for example, public procurement has been harnessing the power of buying groups since the mid-90s. By pooling their resources buying groups have been able to secure lower costs for life-saving medication and critical medical supplies.
However, it’s taken until this year for a private company to replicate the method. As reported by The Hindu, the National Cancer Grid has been able to replicate the public procurement model. The organisation has been able to reduce the cost of “high-value, high-volume cancer and supportive care medicines through a pilot pooled procurement programme.”
The program has been an immediate success, according to Dr. C. S. Pramesh, Director of the Tata Memorial Hospital in Mumbai. He added that his team has already “received requests from more than 40 centres and several state governments for bulk procurement for their state hospitals.”
Group purchasing in private sector organisations that closely mirror their public sector industries (like healthcare and education) is a fairly straightforward source of easy wins. These benefits also compound on one another as the buying group grows in size and popularity. However, private sector buying groups have yet to take off in many markets. In the US, for example, the group-buying market is only valued at around $5 billion. It begs the question: why isn’t collective buying more widespread?
Collective buying to streamline procurement
More than simply using the power of group purchasing to drive down cost, entering into a collective buying group can meaningfully streamline the procurement process. This is an especially appealing benefit in a market where procurement is facing a known skills shortage.
The benefits of a buying group extend beyond simple cost containment. Many procurement teams in the US and Europe are facing skills shortages. The procurement sector is becoming increasingly strategic. As a result, more organisations are finding themselves overworked and underskilled. Buying groups can take on (for a fee) the workload associated with compliance, a major source of procurement pain points. These groups will also organise shipping and handling, and ensure a greater degree of security in the supply chain.
Membership fees are a meaningful cost as well. But the lower costs generated by membership in a buying group can usually offset these overheads.
More than in the past, a group purchasing organisation (GPO) is a strategic partner to its members. The group provides expertise, networking opportunities, and even legal assistance. For many SMEs, the benefits of collective buying are too large to ignore.
