How to Use Centralized Purchasing to Obtain Volume Discounts
By Hugo Britt | July 13, 2021
Centralized procurement – or centralized purchasing – means that all goods and services for the company are purchased through a single department. While centralized teams can become too big to run efficiently, their benefits include standardized processes, more control, better visibility of spend data, and improved relationships with suppliers.
For many organizations, the key benefit of centralizing procurement is spend consolidation. Volume purchasing can be used to obtain greater discounts and better terms from suppliers.
With the help of a group purchasing organization, procurement teams can supercharge their volume purchasing strategy to levels that are well beyond the reach of any individual company.
Centralized purchasing by the numbers
To see how this works, let’s explore the volume numbers and discounts they unlock in three different scenarios for purchasing a common, indirect product like office paper.
Scenario 1: Decentralized procurement
Did you know that the average office worker uses 10,000 sheets of copy paper every year?
In a decentralized scenario, every team within the business is in charge of making sure they have enough office paper on hand. While the procurement team may have established some purchasing guidelines, this category is effectively unmanaged.
Usually, one of two things occur:
- Individuals go to the shops or order paper online on an ad-hoc basis which garners a 0% discount.
- Some teams may take the initiative to set up a paper subscription, which provides a small cost saving for that team only, usually around a 5% to 10% discount.
Scenario 2: Centralized procurement
In this scenario, the centralized procurement team analyzes the company-wide spend on paper and realizes that the organization’s 500 employees are churning through 5 million sheets of paper per year. In the long-term, this cost will need to be reduced through digitization, but a short-term solution requires urgent spend consolidation.
The next step is an RFP process to identify and choose a paper supplier that checks all the boxes in terms of price, reliability, quality, and sustainability. The central purchasing team discovers that the top-rated supplier is already on the books, but currently provides only 15% of the overall paper used.
The category manager calls the chosen supplier and asks them a simple question, “What sort of discount can you offer if we increase our volume from 750k to 5 million sheets of paper per year?”
The supplier may offer a 50% discount.
Scenario 3: Using a Group Purchasing Organization (GPO)
This is where the numbers begin to get really impressive. If an average worker uses 10,000 sheets of paper per year, and an average company with a procurement function has around 250 employees, then we’re looking at 2.5 million sheets of paper per year.
Then, imagine if 1,000 companies banded together under the umbrella of a group purchasing organization to combine their copy paper spend with a single, major supplier.
That’s 2.5 billion sheets of paper per year. No wonder GPOs like Una can access discounts of up to 81% on office supply items.
This is just one example of the awesome power of volume purchasing. Alongside the massive cost savings, GPO members save time and effort because the GPO has supplier agreements already in place. We’re not just about office supplies, either. By partnering with Una, companies can unlock buying power and access similar volume discounts across dozens of categories.
Contact Una today to learn how we enable astronomically higher cost savings than those created through centralized spend management.