Advantages of a Group Purchasing Program vs. Self-Negotiated Supplier Discounts
Author: Brett Knox
March 16, 2023 - 4 MIN. READ
Two heads are better than one, especially when it comes to your electrical company’s purchasing decisions. Harness the power of group purchasing programs to save time, cut costs, and increase profit margins.
What is a group purchasing program?
In the broadest terms, group purchasing programs allow smaller businesses with similar interests, such as electrical contractors, to combine their buying power to negotiate competitive pricing from suppliers and manufacturers. This practice dates as far back as the 1910s, when several hospitals in New York combined their buying power to negotiate better pricing from manufacturers and suppliers.
There are three basic types of group purchasing programs:
- Vertical Market – a group purchasing organization that serves a specific sector. Some examples include healthcare, food service, hospitality, and manufacturing. These organizations are focused on the sector's needs.
- Horizontal Market – a group purchasing organization that serves many sectors buying the same goods and services.
- Master Buyer – a group purchasing organization in which one organization holds several contracts used by other organizations. These smaller organizations use the master buyer's purchasing skills to increase savings. Many car companies use this model, with the parent company as the master buyer. Dealerships, automotive shops, and other related companies use the contracts negotiated by the parent company.
Some organizations also rely on a variety of software-based programs to make these discounts and savings as accessible as possible. The following are some of the benefits of joining a group purchasing organization (GPO) that utilizes advanced procurement software:
- Purchasing Compliance. A digital purchasing platform or Marketplace can help your electrical contracting business save time and money by ensuring equipment and supplies are purchased strictly from the suppliers that the GPO has negotiated the deepest discounts from. Such platforms can increase purchasing compliance by as much as 55%.
- Risk Mitigation. Your risk of overbuying or running out of supplies is greatly lowered when utilizing a group purchasing platform. Ordering thresholds are set automatically, so you are not left with a shop full of supplies that you cannot immediately use, and you can reduce the risk of being unable to finish projects due to costly delays when ordering new supplies and equipment.
- Document Management. Purchasing contracts come with a host of paperwork. Equipment specifications, price-point ordering quantities, signature pages, delivery windows and quality control make up only a part of each contract. It is hard to manually manage all of these specifications without something slipping through the cracks. A digital group purchasing platform can help manage these contracts, saving you time and money.
- Audits. When the contract is due to expire, software programs compare your various vendors. The program shows you which suppliers should be considered for renewal based on their performance during the current contract and which ones have been associated with delays and breaches.
- Increased Productivity. When your purchasing staff no longer needs to chase down signatures for each and every supplier contract, they can divert the entirety of their knowledge and expertise to helping with quality control, inventory management, and electrical supply chain optimization.
Five advantages of joining a group purchasing program
If you are still on the fence about joining a group or cooperative purchasing program, consider the following five benefits:
- Volume makes all the difference. Your electrical contracting company will buy wire, cable, switchgear, conduit and equipment throughout the year. However, those purchases do not carry much weight when negotiating with suppliers who prefer the steady bulk made within a group purchasing program. Most are willing to shave their margins in exchange for higher volume since they can recover their profit in the guaranteed revenue stream a group purchasing program provides.
- Higher discounts on more items. Just as with your company, suppliers do not like having to hold inventory. Joint purchasing plans make sure suppliers know they will have a steady stream of outbound inventory. This safety net, combined with the large number of items a GPO purchases, allows suppliers to offer deeper supplier discounts to your group purchasing program.
- Priority access to a reliable supply. Group purchasing programs or GPOs also work to form relationships with their suppliers. These relationships increase the suppliers’ knowledge of the group’s purchasing practices as well as the overall reliability of the suppliers to meet their needs. Additionally, when inventory is tight, suppliers are more likely to work with their large base of steady customers before they worry about the needs of small, periodic buyers.
- Time management. It is time-consuming and frustrating for you or your purchasing team to negotiate terms and discounts from multiple suppliers, and as only one company, your chances of successfully negotiating the desired terms decreases greatly. A group purchasing program allows you to return the most precious asset to your purchasing team: time. This allows them to focus on other issues such as closing new business, improving the efficiency of installs and service work, and maximizing profit.
- Increased supplier attention. As a group purchasing program, manufacturers and suppliers hear your united voice above all others. Your group’s consistent purchasing provides suppliers greater volume and steadier revenue, making you the backbone of their business. This consistency encourages them to work with you, rather than against you, in an emergency situation by keeping pricing steady and supply readily available.
Raiven is your group purchasing program of choice
With its vast network of industry-leading suppliers and manufacturers, Raiven gives your electrical contracting company the purchasing power of a larger company by helping negotiate deep discounts and advantageous terms with the best suppliers in the industry. Additionally, the platform allows members to maintain relationships with suppliers already on your preferred supplier list and still benefit from the platform’s savings!
Raiven leverages its $500M+ in buying power to provide its members with the following benefits:
- Pre-negotiated discounts that are generating average client savings of 7-30%+ from big name suppliers like Graybar, Sonepar, Home Depot, Lowe’s, Sunbelt Rentals, Grainger, Office Depot, and more.
- Supply chain alerts for price and product availability changes on the items that matter to you most.
- Private marketplace houses all your preferred suppliers in one location for easy access to your discounts. No more bouncing around websites comparing prices.
- AI-powered purchasing tools that find the lowest prices even when employees shop outside your network.
Raiven is your one stop shop to save time and money. Visit Raiven to learn what we can do for you.
Raiven also provides purchasing software to help you and your employees make smart decisions regarding when it comes to the parts and supplies your business needs the most.
Contact us today to start improving your profit margins now!