Aggregated procurement is a centralised purchasing model where two or more organisations (or a third party on behalf of those organisations) join together to combine their needs and leverage negotiating strength. We have written another article explaining the processes behind aggregated procurement and how it differs from purchasing which you can read here.
Imagine there are 3 small NFPs out there, looking to buy laptops at varying quantities. Let’s also assume that there are 3 laptop suppliers in the market. That’s 9 separate interactions between buyer and supplier to try and negotiate pricing and find the best deal. Each of these separate interactions will most likely be based around a relatively low value transaction as each individual NFPs needs will be relatively low. This gives power to the suppliers during the negotiating process. In this instance, the opportunity cost to the supplier of missing out on the sale is relatively low as it is easy for them to recuperate the dollar amount through another sale. Therefore, the chance of suppliers providing a better deal to each individual buyer is reduced as they have no incentive to improve the deals that they are making to each buyer assuming they all sell at market price.
Now let’s look at an aggregated procurement model. Each of the 3 small NFPs pool their resources and needs into the one negotiating body. This negotiating body then approaches the 3 suppliers on behalf of the 3 NFPs and presents its needs and budget. This not only reduces the number of transactions required within the marketplace, increasing efficiency, it also increases the value of each transaction between the NFP body and suppliers. The increase in value of each transaction increases the opportunity cost for each supplier increasing their need to win the sale. In order to do so, each supplier will be more willing to provide a better deal in order to win the bigger contract thus providing each of the 3 NFPs a better deal on the same laptop that they were looking to buy. Not only that, the time spent looking for suppliers is reduced as it has become a combined effort and the contract achieved by the negotiating body becomes available to each of its members.
This of course is a very simplistic model aimed at explaining how an aggregated procurement model works. In reality, this process is a lot more complicated and drawn out.
CR is an aggregated procurement solutions provider that exclusively services the not-for-profit sector. We understand the importance and opportunity cost of every extra minute and dollar spent and aim to maximise your time and money savings to allow your NFP to focus on your organisational goals. We leverage our 22,000 member base to gain better bargaining power on behalf of our members and aim to bring the best procurement solution to each individual organisations’ needs. Our solutions include: ICT-technology, foodservice, energy, travel, office supplies & consumables, communications, whitegoods, appliances & furniture, people and asset & property.
Becoming a member is FREE and members enjoy our expertise and offers across all of our solutions.
Click here to read more about the process of aggregated procurement.
If you would like to know more about Church Resources procurement solutions or have any comments, leave your details below and a CR representative will be in touch with you shortly.