THE FIFTH INSTALMENT OF “HARNESSING THE POWER”
As the group purchasing program becomes firmly established, there are some additional steps that can be taken that will further reduce acquisition costs to its membership.
(a) Many successful groups have their own private label lines of products. Groups are often able to obtain significant discounts when the manufacturer produces the products under the group’s private label, rather than their own branded name. One need only visit that grocery store and look down the aisles at the less expensively-priced house brand products to see that is true. Besides price point advantages, there are other advantages to a private label program. For instance, if a part with a private label brand goes bad, there is no mistaking the fact that it was sold by one of the group’s members. That, of course, is not true in the case of a branded product. Another important advantage is that if the group determines to change suppliers of a private label product, this can be done with very little disruption and the customers never know about it. The group can continue to use the same box and parts numbers for the substitute products.
(b) Some groups have developed their own national warehouses. The advantage of these warehouses is that they can receive huge quantities of product from a vendor at a time and receive a much lower price than if the vendor sold and delivered to the members individually. Typically, these discounts more than offset the costs of handling the goods with the warehouse. These warehouses are particularly well-suited to handle the private label products of the group.
(c) Another method that can yield a few extra rebate points for the group is to take on the billing responsibility for the vendors. In other words, the vendor will send one monthly invoice to the group for all of the sales made to the members and the group’s headquarters writes one check for all of their purchases. The vendor provides the group the information as to the amounts the individual members owe and then the group re-invoices the members accordingly. Terms of the invoice to the group need to allow enough time for the group to invoice and collect the payments from its membership. Therefore, the group may have 60-day terms and allow its members only 30 day terms. The group also needs to have a mechanism in place to protect itself against payment defaults by members. That can be done in several ways, but that consideration goes beyond the scope of this article.