This is one of a 13-part series exploring Cooperation and Collaborative Business Models.
“If you want to go fast, go alone. If you want to go far, go together” – African Proverb
Procurement vs Purchasing
Procurement is a critically important part of any effort, large or small. In the simplest definition of the term, it means “the action of obtaining or acquiring something”. The act of procuring something can mean acquiring the right foods for a great dessert recipe or getting tickets to a highly anticipated concert. Procurement is sometimes confused with purchasing or used interchangeably, however, there is a subtle difference. According to Procurify, Procurement is the process of finding the product, selecting vendors, establishing terms, negotiating, and then purchasing. It is an umbrella term within which purchasing belongs. There is significant strategy involved in good procurement, whereas purchasing is just the exchange of monies for goods and services.
With this understanding of procurement in mind, there is enormous value in making procurement a collaborative endeavor. The costs of procuring a product are not just the price of the actual product, but the time and effort spent in getting the price and quality of that product. This amount of money, time, and effort are better spent when it is done in collaboration. Just think about Lotto Pools for instance. In many workplaces and families, people will pool their money, choose their favorite store to buy from, strategize on the numbers they will play, assign responsibilities to those who will collect the money and who will purchase the tickets, and form an agreement to follow if there are any winnings. The benefits of this type of collaborative procurement are the following: each person buys only one ticket, only one person needs to make the trip to purchase the tickets, and everyone benefits from their single investment giving them access to multiple tickets. This is just one way that many people have received benefits from collaborative procurement.
Collaboration in Procurement
In the professional world, procurement and supply chains are essential to having a viable business or organization. In the corporate world, procurement is a top priority. Supply Chain Management systems and specialists squeeze the most out of every effort to maximize quality products and high profits. According to the Harvard Business Review, procurement can be a major business strategy by itself. However, in the case of small business, the nonprofit sector, and municipal governments, effective procurement and supply chain management are often less of a priority, or sometimes, not even a topic of conversation. This should not be the case. It is those with the least to spend that should be the most interested in the benefits of strategic and collaborative procurement.
Collaborative Procurement can come in many forms, however, it has two basic roles. It can add to the supply chain that you buy from or it can add to the supply chain that you sell to. Let’s look at this from the most common way we think of procurement; who we buy from. For example, in the growing craft beverage industry in the Annapolis Valley, wineries, breweries, cideries, and distilleries are popping up everywhere in this prime agricultural area. These are mostly small owner/operator businesses that all run into the same challenges and need to purchase similar products and services to get their products to market. If these businesses were to identify a common need, such as glass bottles, they could look at a collaborative procurement plan. They could pool their money and cut costs by doing a bulk purchase from a glass fabrication company to benefit from economies of scale or they could even go as far as pooling their money and investing in or purchasing a glass fabrication business to create a guaranteed supply of bottles and further develop their industry. Depending on how deep they want their investment to be and how complex and long they want their collaboration to stretch, either option could significantly impact this type of identified need.
The other way in which collaborative procurement could impact supply chain is in adding to whom you sell to. For example, Eden Valley Poultry in Berwick, Nova Scotia. is a large federally inspected chicken and turkey abattoir that has two shareholders. One is the United Poultry Producers Incorporated, which is the primary shareholder, composed of the farmers who supply the chickens and turkeys to the abattoir. The other is Maple Lodge Holding Corporation, a private poultry corporation. This is an example of collaborative procurement in which the farmers came together to invest in developing a customer to sell to. They could have been like many small farms who use collaborative procurement to purchase a truck to ship their goods to an existing abattoir, but they chose instead to invest in the industry in their community.
Both this example and the previous craft beverage industry example illustrate effective collaborative procurement, however, not all are this large in scope and scale. You can also see it in the purchase of services; for example, many municipalities are too small to invest in some professional services, like Human Resources (HR). However, many have a large staff, and often over a $1 million in staffing costs, with no HR professional to help them manage important issues like labour compliance, performance management, and effective recruitment. This is where a collaborative solution could help a small collective of these municipalities either hire a shared HR Manager or contract this service from an HR firm at a reduced cost through a collaborative service agreement.
What it takes to have a successful Collaborative Procurement process
When you are looking to build any type of collaborative procurement, it is critically important to get the terms and legal implications worked out right from the start. Whether it is a lottery pool or a poultry abattoir, you need to have clear expectations and an understanding of what everyone involved can expect from the outcome of the purchase. Communication and trust in the collaboration are the essential next steps. In our previous article, we talked about the importance of having a Collaboration Commissioner when engaging in a collaborative service delivery to ensure that the collaboration is as well maintained as the service. There is a role for the relationship management of a Collaboration Commissioner in a collaborative procurement as well; however, their involvement would need to be reflective of the depth and complexity of the procurement itself.
How can the “little guy” compete with the big players? Through collaboration! To scale up or purchase large assets, increase the stability of your supply chain, and invest in your industry, you need capital. This can be attained through a collaborative procurement effort, but only if you set clear expectations at the beginning and invest in maintaining the relationships of those involved right out of the gate.
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