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When Bigger is Better

How to Create Successful Collaborative


Demand Aggregations

Sharpen your competitive edge.

Maximize savings.

Increase market leverage.

Elemica.com
Copyright © 2016 Elemica. All rights reserved.
Executive Summary

Sourcing aggregations are a collaborative activity between


two or more independent organizations that aggregate their
collective buying power to reap the benefits of increased
economic leverage, quality, cost savings, and service
provisions from their suppliers. In a volatile and globalized
market characterized by interdependence, communication,
and rapid innovation, aggregation has surfaced as a high-
level strategy for gaining resource leverage.

Despite an attractive spectrum of advantages and


opportunities resulting from aggregation, there is an ideal
time and process for everything. In this paper, we navigate
the timing and strategies required to attain the greatest
reward from such collaborative sourcing efforts. We also
examine how companies can cooperate to source, and how
to select the best aggregation partners according to your
business’s needs. Category expertise and strategic sourcing
competency will enable you to unleash substantial yet often
overlooked rewards.

2 When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved.
The Advantages of Aggregation

Aggregation is common among many businesses in a wide spectrum of


industries, although there are several exceptions where such collaborative
projects may not be preferred. Such situations include environments where
success is heavily based on competitive advantage, or when sharing
information between organizations may create difficulties in terms of
confidentiality and anti-trust regulation. Collaborative sourcing events have
their share of challenges, certainly; however, given the right clients and
commodities, aggregation is a strategy with notable advantages that can
skyrocket a business’s success.

Proof There is [Purchasing] Power in Numbers

By joining forces, a consortia of businesses can obtain enough purchasing


power to acquire discounts and benefits from suppliers which those
businesses wouldn’t have been able to access individually. Group or
consortia purchasing is popular in a wide spectrum of industries, and is
most frequently used when purchasing indirect materials, services, and
supplies. Some commodities that can be especially successful when
aggregated include: facilities management, indirect materials and services,
distribution and warehousing, and utilities in countries where there is a
competitive market place. This is because, under the right circumstances,
aggregation:

• Enables price benchmarking within an organization and between


other businesses in the market.
• Strengthens negotiating conditions when approaching and
contracting with suppliers.
• Leverages power; an aggregation of demand furthermore provides
opportunities for an aggregation of supply.

Minimize Costs

Aggregation can drastically help to minimize or maintain costs in tough


spend categories. Key benefits are aggregated volume, improved buying
power, improved market attention, and intelligence from intercompany
benchmarking. Direct and indirect cost savings can be further achieved
by harmonizing services across regions, by simplifying processes, by
accumulating resources, and by introducing regional reporting and
solutions. In this arena, aggregation:

• Reduces procurement costs associated with gathering market


information.
• Lowers prices through economies of scale.
• Improves services due to visibility and better attention from suppliers.

When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved. 3
Improve Supplier Interactions, Networking Opportunities, and
Market Attention

Aggregation sourcing projects leverage a larger pool of partners and


suppliers, so that each company is able to gather more information more
quickly in terms of benchmarking, supplier identification and qualification,
and gathering supply market intelligence and pricing. By grouping
suppliers and clients — whether via online platforms, round tables or live
conferences — aggregations save considerable time, energy, and costs. "Cross-company
collaborative activities are
Furthermore, by encouraging a standardized process approach,
rationalized and standardized consumption, and the engagement of all
an extremely sought-after
relevant stakeholders, aggregation also helps to guarantee a more secure, and invaluable opportunity
stable, and efficient environment for interactions and transactions. to exchange best practices
and experiences, as they’re
Through aggregation projects, participant organizations also gain
improved contract terms and conditions that would not otherwise be able to meet and talk
available to them. Aggregation partners are given an extremely sought- directly with other
after and invaluable opportunity to exchange best practices and companies about their
experiences, as they’re able to meeting and talk directly with other
commodity strategies and
companies about their commodity strategies and business practices to
benchmark and improve their own internal processes. business practices to
benchmark and improve
Third party service providers prove invaluable in such situations, facilitating their own internal
the entire process by providing strategic guidance on how to harmonize
business requirements for products and services through sourcing, how to
processes."
enhance visibility in their purchasing spend and supply network, how to
more easily assess future opportunities, and so forth. Working with a
service provider experienced in collaborative sourcing practices:

• Provides a more consistent application of best practices.


• Encourages better management of the market; promotes easier identification of constraints and challenges
• Supports better management of the supply chain (i.e. by enlisting a prime contractor when bundling or via
vertically integrated supply).
• Offers more opportunities for exploiting economies of scale (i.e. when there are substantial expenses shared
by different goods or services in a supply chain, such as the cost of enlisting specialized technical assistance).

4 When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved.
Value for the Customer
Cost
Driver

Capability Capacity Leverage Sourcing


Network
Increase Increase Possibility Tools

Deciding When Aggregation Suits Your


Business
Collaborative sourcing aggregations can generate significant hard dollar
savings for the participating companies. But aggregation isn’t a one-size-
fits-all solution, and is best considered under specific circumstances. It can
become an invaluable component of your organization’s procurement
strategy when employed effectively. Remember not all commodities or
markets are suited for demand aggregation. Pricing model and revenue
management in some industries, like hotels for example, can run counter
intuitive in certain markets where increased volume doesn’t necessarily
lead to better prices.

When deliberating if and how aggregation would best serve your


business, it is essential to first assess and analyze the projected results.
What will offer you the best possible ROI on your resources, both in the
short and long term? Be sure to take into consideration your specific
services, products, industry, and market.

Cross-Company Teamwork: Best Practices for


Collaborative Sourcing Aggregation
Although advantageous in many aspects and situations, aggregations can
nonetheless be challenging for a number of reasons. Be sure to assess the
key issues and risks before deciding to participate in an aggregation.
Although no venture is ever risk-free, ensuring that you are informed,
aware, and prepare to deal with potential challenges is an essential first
step in morphing any obstacle into an opportunity.

When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved. 5
Here are two primary reasons why aggregations can be difficult, and how
to handle them:

The number of participants

It’s only logical that an increased number of stakeholders translates to an


increased number of opinions in terms of what’s the best way of doing
things. Further complications can arise from clashing corporate cultures,
different operating strategies, and differing methods and practices.
Consortiums and third party aggregation services providers such as
Elemica act as facilitators to help all participants achieve harmony and
results throughout the multilateral sourcing process. Best practice processes
give participating organizations several “opt-in, opt-out” gates throughout
the sourcing process, giving partners the option to discontinue or withdraw
at several predetermined decision-making points. There must also be great
emphasis on consistent, clear, and professional communication. As more
players are involved, it becomes all the more important to ensure that
everyone is on the same page, has the same information, and shares a
mutual understanding each step of the way.

It is essential to build a foundation of agreement upon the following


minimal requirements, which constitute a project’s success:

• The minimum savings to be targeted


• The list of material or service specifications and commercial
requirements
• The list of qualified suppliers to be targeted
• The critical terms and conditions of the final award contract, including
contract duration and payment terms

Limited flexibility

Aggregations allow for change — when handled well, they promote


creativity and innovation. But they are not for every business, or for every
phase of organizational maturity. There is limited flexibility, for instance,
when a company has agreed to work with other participants on a
common goal. If that company cannot maintain its commitment, it should
not participate; it will otherwise inevitably create problems for the other
participating companies as well as the suppliers.

The point of aggregations is to leverage economic power, simplify the


process, and eliminate that which is excessive, time-consuming, too
expensive, or unnecessary in the attainment of your procurement goals.
Thus, along with selective involvement and robust communication, it’s
important to have vision, focus, and transparency.

Choose to interact with aggregation partners with similar company


cultures — businesses that support collaboration, brainstorming, and
innovative processes. Seek environments which are well-structured and
organized, yet also open-minded and adaptable to your shifting market’s
demands. Before making any decision, it’s wise to do your research and
enlist the expert help of a trusted third party service partner.

6 When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved.
Strategic Sourcing Cycle

Profile
Develop Conduct
Assess internally Screen
Sourcing Supplier
opportunities and Suppliers
Strategy Selection
externally

Gate 1 – Commit on Project Gate 2 – Commit on Spend Gate 3 – Awarding Decision


Opt – In / Out Opt – in / Out Opt – in / Out

• Customer Meeting • Spend Details • Awarding Rules to be Clear


• Role Definition • Total Contract Value • Awarding Suppliers
• Supplier Meetings • Preparing the Right Event • Individual Discussions
• Communication to Countries • RFI / RFQ rounds • Countries Discussion
• Countries Update • Feedback Collection
• Final Meeting

Important Aggregation Process Steps:


• Aggregating members’ awareness and communications • Regional negotiations (standardization of FWA)
• Local involvement (awareness, local dynamics) • Country negotiations with preferred supplier

Making Your Choice: Five Cornerstones of


Choosing a Sourcing Service Provider
When enlisting the help of a third party sourcing service provider, it is
essential to ensure that your ally can enable you to leverage economic
power, minimize costs, and effectively strategize for success. Just as you
are an expert in your own field, you must demand the same respective
quality, assurance, and proficiency in theirs. When deliberating over a
sourcing service proposition and service provider partner, always consider
these five cornerstones of a successful sourcing partner:

Factors for choosing a Sourcing Service Provider

Global Proven Proficient &


Sourcing Flexible Sourcing Collaboration Confidentiality
Outreach
Expertise Methodology

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Proven Sourcing Expertise
• Do they have proven expertise in your industry and market?
• What is their focus and specialty?
• What is their track record of success?

Proficient and Flexible Sourcing Methodology


• What is their proven sourcing process or methodologies?
• How do they adapt to various procurement organization levels or
capabilities?
• Do they deliver any additional savings due to aggregations of volume?

Collaboration
• Do they draw information sharing and collaboration from historic
sourcing projects?
• What are their methods for sharing best practices and identifying
alternative supply services globally (workshops, peer meetings, round
table discussions)?
• Do they enlist experts? Are they updated on current best practices and
market trends? Are they familiar with the latest technology?

Confidentiality
• Do they ensure data security and confidentiality (among customers and
suppliers) as a third party?
• Are there internal processes in place to ensure that confidential data,
information and systems are secure and accessible only to key
resources?
• What is their process for assessing anti-trust hurdles and project viability
to ensure that aggregations are within the bounds of applicable law?

Global Outreach
• Is their span local, regional, national, or international?
• Are they capable of a global project execution?
• Do they bring an existing network of corporations that are compatible
partners for aggregations?

8 When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved.
Conclusion

Under the right circumstances and with collaborative corporations and


commodities, aggregation can become the ideal springboard for
catapulting your sourcing efforts towards greater value by increased
leverage, reduced costs, and improved market attention and support.
Further advantages include greater quantities and opportunities for
resource procurement, increased market information, strengthened
negotiation positions, and access to benefits and discounts.

To strategize for sustainable success, review the shifting market landscape


and its key catalysts in order to decide on the best sourcing solutions to
suit your own company’s demands. Recognize the challenges involved in
sourcing aggregations and choose collaborative partners that synergize
well with your goals – both organizations participating in the sourcing
activity and third party services providers – to ensure that you reap the
best possible value for money.

When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved. 9
Elemica | Bringing the Supply Chain to Your Enterprise

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processes, removal of transactional barriers, and seamless information flow between trading partners. We
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Access our free knowledge resources at http://resources.elemica.com

About Author

Kristie Beck

Kris is the Vice President of Product Management & Operations for Elemica’s
Sourcing business. She has over 17 years of supply chain and procurement
experience in industry and management consulting – spanning a wide spectrum of
sectors, including aviation, CPG, and financial services with depth in process,
industrial, and high tech manufacturing. She uses innovative analytics-driven
approaches and technologies to help companies deliver sustainable value,
operational performance, and measurable earnings impact.

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