Pain Points in Procurement: How to Increase Buying Power
By Hugo Britt | June 22, 2021
Imagine having the following conversation with a toy manufacturer:
“How much does one fidget spinner cost?”
“Three dollars.”
“What if I buy 1,000?”
“Still three dollars each, sorry.”
“What if I buy 100,000?”
“100,000 units? That changes everything.”
Part of every sourcing hero’s job is to find ways to procure great-quality products and services at discounted prices. But even the world’s greatest negotiator will eventually come up against an inevitable barrier: the limits of your organization’s buying power.
What is buying power?
Buying power refers to an organization’s ability to access deep discounts by purchasing a product or service in high volumes.
It’s a common rule in procurement that the more you buy, the cheaper the item will be per unit. Unfortunately, small or mid-sized organizations attempting to negotiate a discount with a big supplier often find their requests ignored or dismissed because they simply do not have enough volume. There is little incentive for the supplier to attempt to win your business by offering a discount.
This challenge isn’t limited to SMEs, however. Even the biggest organizations have varying levels of buying power across different categories. A large printing company, for example, will have significant volume and be able to access great discounts for direct procurement categories like paper and ink.
But when they attempt to purchase something they do not need in high volumes, like a small number of delivery vans, for instance, they lack buying power and cannot access a price reduction.
How to increase buying power
The good news is that buying power can be increased. Let’s examine two ways to do so.
1. Spend consolidation
- The sales and consultancy teams in your organizations both travel frequently, but use different hotel chains when they travel. Combining the two by choosing a single hotel chain will increase the volume and provide an opportunity to negotiate a volume-based discount.
- Your company has several facilities around the city. Each site hires its own local cleaning contractor, but combining all these contracts into one will be easier to manage and more affordable overall.
2. Partnering with a Group Purchasing Organization
By partnering with a GPO, you are joining a massive buying club of sourcing heroes from hundreds of organizations representing billions of dollars of spend. This is spend consolidation on a massive scale, and it works.
When the volume is this high, suppliers are motivated to provide GPO members with discounted pricing. For example, Una offers its members deep discounts including:
- 30% to 50% off corporate rideshare services
- Up to 81% off office supplies
- 20% off shipping and freight
- 15% to 20% off food and food distribution.
Partnering with a GPO also saves time and effort by skipping the RFP process and leaving the heavy lifting (gathering data, interviewing, and negotiating with suppliers) to us.
With negotiated contracts with top suppliers already in place, all you have to do is pick your favorites and start saving.
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