18 February 2010 | Andrew Cox
Buying collaboratively can work wonders for cost-saving schemes. Andrew Cox points out ways of approaching joint buying – and where the uninitiated might fall down on it
The theme of Procurement for Housing’s annual conference this year was “Collaboration: the mother of invention”. I explained to delegates that buying together can lead to innovative, cost-effective solutions in the public sector and specifically for social housing organisations.
But collaboration has great relevance for purchasing professionals across all industries. This is because partnering has often been seen as the panacea for all purchasing ills, and as evidence of a world-class professional competence.
But buyers should be warned. If collaboration is not properly understood and implemented then it can be more harmful than beneficial. They need to understand a key point when implementing collaboration: it can be horizontal as well as vertical.
Horizontal collaboration means buyers working together to pool their demand volumes for the same categories of spend. The aim is to get improved value for money by providing suppliers with larger volume orders, potentially over longer periods.
There are, however, a number of barriers to successful horizontal collaboration:
1. Profits are not shared.
2. Competition dilutes the willingness to collaborate.
3. Anti-monopoly or anti-trust rules.
4. Freeriding.
5. Egos and turf wars.
6. Standard operating procedures.
7. Annualised budgets.
8. Unsupportive national, regional and international regulations.
9. Incompatible requirements.
10. The initial learning and operating costs of collaboration.
These barriers explain why consortia buying often fails in practice. Unfortunately, vertical collaboration (for example, strategic alliances with vendors) can be even more problematic.
There is no doubt that it can provide tremendous long-term improvements in value for money for buyers. This normally arises from using the following techniques:
Joint demand planning and management, to allow volumes to be committed by buyers to first-tier suppliers, and then throughout the supply chain.
Joint research and development and other innovative investments that would not normally occur under short-term and arms-length relationships.
Joint product and service development.
Joint focus on waste reduction, reducing the costs of production and logistics delivery.
Shared learning and knowledge management.
Ironically, while vertical collaboration can lead to improvements in value for money, for the uninitiated (who lack the appropriate competencies and manpower) it can lead to failure in implementation, and also to a serious risk of dependency on suppliers. Collaboration, whether horizontal or vertical, is therefore not a quick fix.
To make it work effectively requires highly competent people, with the time and resources to make it happen, and who have been trained to the highest professional or academic standards.
Key points
• Horizontal collaboration is buyers pooling their demand volumes.
• Vertical collaboration involves a close relationship with a supplier.
• Both approaches can be risky if not thought through.
Andrew Cox is a professor and chairman of the advisory board, International Institute for Advanced Purchasing & Supply
