Group Purchasing Organization Reaches Out to Small Firms
The saying "united we stand, divided we fall" may be the inspiration of Corporate United, a large business that's reaching out to small firms to join its collective-buying consortium.
The Cleveland, Ohio-based business was founded in 1997 with the intent of becoming an office-supplies buying consortium so that businesses could bid on a contract as a group in order to get a better price and improved terms.
Corporate United started with six companies with an eye on office supplies, but quickly expanded into other sectors. Today, it bills itself as the world's largest group purchasing organization. Most of its current members make the Fortune 500 or Fortune 1,000 lists.
They've chosen to bid for goods and services contracts in areas such as temporary staffing, pharmacy benefits management, industrial supplies and uniforms. Three projects currently running include contract bids for vendor-managed staffing, electrical supplies and janitorial services.
"The most basic component is clearly that you're thinking, 'I can get this for less by participating in this aggregated model than I could on my own,' but the value proposition goes well beyond that," said company Vice President David Clevenger.
He cites the virtual community where 600 individuals from member firms discuss issues they're facing. "You could post a message to say I'm a buyer at a company in Washington, D.C., and I've just been assigned a project to source immigration legal services. You don't know suppliers and you've never done it before so you're probably going to hire a legal consultant and start Googling for RFP templates."
Clevenger says that the message board has grown into a service that offers "literally tens of thousands of dollars of consulting knowledge."
There's a membership fee to join Corporate United, but the company's primary source of revenue are payments from the awarded suppliers.
A committee made up of member firms chooses the ultimate supplier in a particular field. For example, for vendor-managed staffing, Corporate United put together a committee of five member companies that helped guide the process. They reviewed a master list of suppliers and chose one. Corporate United is able to say to a supplier, "We represent 130 firms that may or may not use you, but here's five you'll definitely get," said Clevenger.
Small businesses that find the membership fee reasonable and are interested in the types of contracts bid on can leverage a contract power that includes billion-dollar firms and get a piece of that contract, no matter their size.
Consortium member Tuthill Coupling, a company based in Berea, Ohio, that makes quick-disconnect couplings found anywhere from jet airplanes to amusement park rides, said the savings on office products alone would justify its membership, but it has found savings elsewhere. The firm just put a roof on its factory from a member roofing bid that company president Brett Jaffe said was at a greatly reduced cost. Tuthill Coupling is a subsidiary of Tuthill, a global manufacturer based in Burr Ridge, Ill.
"I think the collective buying power could have more impact for smaller businesses because they have less buying power and...they don't have to become an expert on copiers for example and instead can focus on whatever their business really is," said Jaffe. "Contracts are negotiated in high volumes but you can order from them in the volume that suits your company."
By Sharon McLoone |
July 22, 2008; 10:29 AM ET
Profiles in Entrepreneurship
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