How to Maximize Buying Power: 5 Ways to Boost Your Purchasing Muscles

Have you ever tried to secure a better deal but lacked buying power?

Imagine, for example, customer number one is trying to buy a luxury car from a dealership. The sticker price is out of reach for their budget, but they are doing their best to negotiate a lower price. The dealer, however, is unimpressed. The reality is that – so long as the auto market is doing well – they don’t need to lower the price for this person, and if the disappointed customer walks away, someone else will come along and buy that car.

Customer number two, however, is different.

She’s buying on behalf of her business which needs to purchase a small fleet of vehicles. Like the previous customer, she doesn’t want to pay full price, but suddenly, the dealer is highly willing to negotiate. Customer number two wins a hefty discount per vehicle – she’s happy, her organization gets the cars it needs, and the dealer is delighted with the outcome.

What is buying power?

“Buying power" refers to an organization's ability to secure discounts by purchasing a product or service in large volumes. It is common in procurement for the price per unit to decrease as the volume purchased increases.

Smaller or medium-sized organizations often find that their requests for discounts from suppliers go unanswered, as their purchasing volume (particularly in indirect spend) is insufficient to warrant offering a reduced price.

This challenge isn’t limited to the smaller players: even the largest organizations can have varying degrees of buying power across different product categories. For example, a major printing company may have significant volume and access to excellent discounts for direct procurement items like paper and ink. However, when attempting to purchase something they don’t need in high volumes, such as solar panels, they may lack the buying power to negotiate a price reduction.

The challenge for procurement

As a procurement professional, you may have encountered the following challenges:

• Insufficient volume in a particular category to secure desired discounts.
• Managing a category you're not an expert in.
• Difficulty getting selected suppliers to cooperate.
• Lack of response to RFPs/RFQs.
• Struggling to achieve below-industry-rate increases and manage inflation.

Perhaps you've approached a major supplier and tried to negotiate an agreement, only to be ignored. Alternatively, you may have avoided that conversation altogether, fearing rejection.

You may also be juggling multiple providers within a given category. For example, if your team travels frequently, you don't have the time to negotiate a corporate hotel agreement with each location. Even if you did, your individual volume with each hotel chain would be insufficient to guarantee significant savings.

Whatever the scenario, procurement professionals often reach a point where they need more buying power, especially when managing various indirect spend categories like shipping, MRO, travel, or office supplies. Without volume spend in these areas, the lack of buying power makes procurement’s job (to drive down costs) impossible.

This is often the plight of the mid-sized company. Your business has grown enough to require a scaling procurement function, but you haven't yet built a fully developed procurement team. As your business expands, your costs increase, but you lack the contract negotiation power of a Fortune 500 company.

In other words, you're expected to achieve greater savings, but you have limited options. Don't despair, though – solutions may be closer than you think.

5 ways to maximize buying power

Let’s explore five ways to maximize buying power: spend consolidation, leveraging supplier relationships, getting strategic about sourcing, developing category expertise, and – the most effective of all – joining a Group Purchasing Organization (GPO).

But first…

You may have been avoiding this, but it has to be done. You need to conduct an analysis of your current spend. This can be a daunting process but it’s necessary to see where your company’s starting point is. Conducting a comprehensive spend analysis is crucial to identify opportunities for cost savings, optimize supplier relationships, and gain visibility into an organization's purchasing patterns and priorities.

Once you’re armed with some trustworthy spend data, here’s what you can do to boost your buying muscle.

1. Consolidate spending

Think big - enterprise-wide big. This means consolidating all that scattered departmental spend and leveraging it as one cohesive force. 

By bundling up similar purchase categories and negotiating master agreements, you present a united front to your suppliers. They'll sit up and pay attention when they see the full weight of your organization's collective wallet. No longer can they nickel and dime you with disparate deals - you'll be commanding their respect and securing more favorable terms across the board.

This technique works best for larger organizations that can discover bigger volumes by centralizing their spend. But for small and medium-sized businesses, even bundling all your volume may not be enough to make a supplier play ball.

2. Build and leverage supplier relationships

Maximizing buying power is about more than just flexing your financial muscle. It's also crucial to nurture those supplier relationships, transitioning from a transactional vendor arrangement to a true trusted partner dynamic.

Feed your suppliers accurate forecasts, commit to long-term volume commitments, and look for ways to collaborate on cost savings initiatives and innovative solutions. When they see you as a strategic ally rather than just another customer, that's when you'll really gain the upper hand during negotiations, contract renewals, and future sourcing events. And being a customer of choice counts in times of supply constraints.

3. Unleash the power of strategic sourcing

Let's not forget the sheer power of strategic sourcing. Market research, competitive bidding, total cost of ownership analysis – these are the essential tools that will help you drive down prices and uncover hidden value in your supply base.

After conducting a deep analysis of spend data, market trends, and supplier capabilities, strategic sourcing will help you identify and capitalize on opportunities to leverage your buying power. This may involve consolidating suppliers, negotiating more favorable contract terms, standardizing requirements, and implementing collaborative processes with suppliers.

4. Develop category management expertise

In the example at the top of this article, we mentioned that the car dealer doesn’t need to give the first customer a discount so long as the dealership business is thriving. But what if the savvy buyer approaches the dealer at just the right time, knowing that the sector is experiencing a downturn, or knowing that it’s the end of the quarter and the perfect moment to negotiate a discount?

Building deep, specialized expertise in your key spend categories is another piece of the puzzle. Understand those supply markets inside and out, track the ever-shifting cost drivers, and get inside the heads of your suppliers. There’s even procurement AI these days that will alert you to the perfect moment to make a purchase. That's how you stay one step ahead of the game and negotiate like a boss.

5. Join a group purchasing organization (GPO)

Finally, joining a group purchasing organization can be the number-one option to help you maximize buying power. GPOs leverage the collective buying power of their members to obtain volume discounts from suppliers and retailers. Pre-negotiated contracts offering the best pricing are already in place which saves you money, time, and effort.

By forming a partnership with a trusted GPO and increasing your buying power, you can take advantage of larger discounts you wouldn’t have been able to negotiate on your own without actually paying – or purchasing – more.

More benefits of joining a GPO

In addition to increased buying power, the benefits of working with a group purchasing organization include:

• Increased savings in several categories: Una members save an average of 18-22% per year
• Exclusive contracts: access contracts that aren’t available to the general business community
• Pre-Negotiated agreements: leverage existing agreements that you wouldn’t be able to obtain on your own
• Increased supplier accountability: group purchasing organizations help monitor supplier partners and ensure they remain compliant
• Save time & effort: since GPOs negotiate the agreements, you’re freed up to focus on more complex categories and other areas of concern
• Work with the nation's best suppliers: you’ll finally be able to work with your industry’s best
• Partner with category specialists: Una's sourcing advisors provide the expertise you need, and help you make the most of your contracts
• Better customer service: GPOs help mediate conflicts with suppliers and make sure you get what you need

In the end, working with a group purchasing organization helps your business scale and grow. Additionally, our team can help establish a strategic process for purchasing. Setting the standard for your company’s purchasing can ensure you continue to get the most out of your required spend.

Ready to maximize buying power for your organization? Contact Una to get started. Membership is always free and there are never any purchasing requirements or obligations.