Throughout my years as a consultant I have come across numerous innovative sourcing models designed to aggregate or leverage purchasing volume in exchange for price breaks/discounts/rebates from preferred suppliers. In fact, our own firm has even implemented a rebate program on behalf of a middle market OEM. There are several varietals of these models and with this post we’ll discuss three. In a follow-up post we’ll cover these models in greater depth.
The first model, and the one that MetalMiner readers probably have more familiarity with, centers around the concept of a GPO, or Group Purchasing Organization. The idea behind it remains simple and elegant in concept. When volume becomes leveraged preferred supplier (or preferred suppliers) can offer more competitive pricing. Often times (but not always) the program can be supported with a rebate. In the metals industry, the organization Prime Advantage probably best embodies this model. For a more detailed analysis of the Prime Advantage model, I’ll thank my husband Jason Busch who wrote a two-part post on this organization. You can read part one here and part two here. Jason articulates the benefits of these programs as well as anyone. He sees the benefits as both hard dollar cost savings and benchmarking as well as some qualitative benefits such as great networking and connections to drive other types of solutions.
The second model tackles the difficulties in the coordination of aggregated buying programs for an OEM and their suppliers. Those in the industry refer to this as a Resale program. Ford Motors has just such a program. The idea behind this model involves a very large OEM with significant purchases of, in this case, steel to control both costs and supply by purchasing steel directly from the mill or preferred supplier and then reselling the volume to the OEM’s external part suppliers. Enabling technologies such as those from Newview (formerly eSteel) offer req-to-check (requisition to financial settlement) and communication of internal and external demand requirements from the participating suppliers and OEM to the raw material supplier(s).
The third model which looks similar to the second model but we would argue more expansive, involves material aggregation across a range of materials for an OEM and its extended supply base. In this case, the model allows an OEM to gain full visibility and control over their Bills of Materials throughout the extended supply chain. This type of aggregation not only leverages purchasing volumes for common materials but also creates visibility into every element that contributes to the cost of a finished part. This process helps OEM’s identify, analyze and track all of these materials and look for opportunities to leverage spend. Supply Dynamics provides these types of solutions to large metal-buying OEMs.
Do you have experience working with one of these models? Drop us a line and tell us about it. We’d like to do some follow-up posts on these models in the near future.