THE SECOND INSTALMENT OF “HARNESSING THE POWER”
In order to win meaningful concessions from the vendor, the group must give them something they don’t already have. They must be able to deliver significant additional volume to them. In some rare instances, it may make sense to have two or three vendors of similar lines be ‘approved’ or ‘preferred’ vendors in exchange for ‘group’ deals without the requirement of any particular amount of support from the group for any of their programs. But in most cases, the group can do much better if they would direct substantially all of their volume towards just one of those vendors and make them the sole approved vendor.
The buying group can do better if they direct substantially of their volume towards one vendor.
Having the group unite behind just one vendor is much easier said than done. Each member is an independently-owned business and is accustomed to making its own decisions. Highly treasured benefits that come with entrepreneurship are independence and freedom of choice. Many business relationships with vendors develop into deep friendships. In addition, it is much easier to stay the course than to fight the inertia and business interruption that come with changing a line of products. It requires a significant amount of effort to make the changeover. Catalogs need to be changed, new prices must be entered, etc. In short, it is going to take a lot of hard work and discipline on the part of each of the members to get the group moving in the right direction.
In order to bring the group to where it needs to be, the membership should agree upon and comply with some simple (but not necessarily easy), straightforward rules governing the extent to which each member must participate in the purchasing program and the percentage of votes required from the membership before a vendor is deemed approved by the group.
Membership should agree upon and comply with some simple, straightforward governing rules.
It is not practical or even legal to adopt a rule that would require the members to make 100% of their purchases from a particular vendor. There will be times when a vendor cannot ship a certain product or it is just more convenient to purchase products from another vendor from time to time. Also, a commitment from the members to purchase 100% of the products becomes a group boycott against all other vendors. That is per se illegal.
As the old saying goes, one must learn to crawl before he can walk and to walk before he can run. Accordingly, it would be wise to phase the group into these rules over a period of three to five years. For instance, the percentage of approved vendors which must be the primary vendors of a member would be considerably lower in year one than it might be in year five. As these rules are implemented, the group will become a much more powerful bargainer with its vendors. The vendors will recognize that there will be significant volume to be gained or lost, depending on how well they can compete against the other vendors in their class. America’s competition at its finest!
In the next installment, we will discuss the additional benefits that groups typically negotiate from vendors as part of the group program.
TO BE CONTINUED
