The Re-Emerging Value of Group Purchasing

The Re-Emerging Value of Group Purchasing Presented by: David Clevenger | Corporate United

Agenda 1 Corporate United Introduction 2 Brief History of Group Purchasing 3 A More Modern Approach 4 Procurement Challenges & GPO Solutions 5 Summary & Open Discussion Corporate United 2008 – All Rights Reserved 2

Corporate United The leader at employing collaboration to improve our members’ spend management efforts, managing suppliers and facilitating an unrivaled network of professionals Horizontal Indirect Dollars Knowledge Collaboration Lifecycle FOCUS LEVERAGE APPROACH With an aggregate total of more than $500 billion in revenue over 1.7 million employees, Corporate United is the world’s largest virtual organization. Corporate United 2008 – All Rights Reserved 3

History Group purchasing takes a significant hold within the Academic and Healthcare sectors, with nearly 75% of non-labor spend going through GPOs Vertical groups begin to fade do to competitive issues and lack of support 1980 1990 2000 Cooperative efforts move into the corporate space in the form of vertical consortia Horizontal groups emerge to support market void left by verticals – and change their fundamental approach - Corporate United founded in 1997 Corporate United 2008 – All Rights Reserved

History Industry Sector Energy Aerospace Tire and Rubber Retail Consumer Packaged Goods Automotive Hospitality Chemicals Notable Consortia Pantellos Exostar Rubber Network Worldwide Retail Exchange Transora Covisint Avendra ChemConnect Participating companies spent more than $5 billion to seed more than 40 vertical consortia throughout the 1990’s, and by 2006 90% of them were defunct. Today, only Avendra continues to conduct true aggregate buying on a consistent basis. Corporate United 2008 – All Rights Reserved

Updating the Approach The modern GPO incorporates the principles of the healthcare GPOs and the lessons learned by the vertical consortia. A multi-industry approach creates an environment conducive to best practice sharing, while limiting competitive issues. Horizontal Indirect Maintaining a focus on indirect goods and services ensures commonality of purpose, strong leverage opportunities, and avoidance of anti-trust violations. Leveraging dollars and knowledge to achieve market-leading pricing and terms means an end to spend limitations knowing “just what you know.” Realizing the speed-to-market advantage of pre-negotiated agreements means fast access to savings, a third-party to manage the full lifecycle of agreements means long-term value. Corporate United 2008 – All Rights Reserved

Savings Requirements Economic conditions have led to declining volumes and rising resource constraints. With the CFO demanding more bottom-line improvements than ever before, how does spend management save more quickly? Corporate United 2008 – All Rights Reserved

Speed and Impact A modern GPO is not a sourcing consultant, they manage the process after the award is made to ensure members realize identified value. Opportunity Assessment Savings Identification Contract Implementation Supplier Management Corporate United 2008 – All Rights Reserved

Internal Customers In searching for opportunities to create value, most procurement departments come up against the challenge of business unit control over the spends they need to source. How does purchasing get support to influence stakeholders? Corporate United 2008 – All Rights Reserved

Customer of Choice By becoming an important customer you can achieve the improvements in service levels that appeal to your internal spend owners. Office Supplies Multi-Functional Devices Industrial Supplies Commercial Roofing Safety Supplies Temporary Staffing Relocation Services Top 5 Customer Top 10 Customer Corporate United 2008 – All Rights Reserved

Resource Constraints Most companies have highly skilled sourcing and supplier management personnel on staff, but with more than 150 categories of indirect spend and hundreds of suppliers to manage, how does procurement make a broad impact with limited resources? Corporate United 2008 – All Rights Reserved

Resource Flexibility Participation in a GPO means extending the reach of your procurement organization by adding resources for whom non-core is a competency. If one sourcing professional can source eight, $1 million categories in a year at an average implemented savings of 12%, they will generate $960,000 in savings. By participating on three leveraged agreements and realizing the same per project performance, the same company can generate more than $1.3 million while expending the same resources. Corporate United 2008 – All Rights Reserved

Resource Flexibility While some organizations have the resources to tackle sourcing, supplier and contract management activity can lead to shortfalls. Year 1 Lowball pricing on customer’s core list to win business Year 2 Change out 25-40% of catalog items and begin to shift usage Year 3 Change another 25-40% and dramatically enhance margins In the absence of proactive administrative and tactical supplier management, scope and price creep are a reality faced by too many procurement organizations. The GPO serves as an advocate for the member, focusing strategic attention on a member’s non-critical spend. Corporate United 2008 – All Rights Reserved

Resource Flexibility Beyond the tactical contract and supplier management, the ability to strategically manage categories and related supplier relationships is an important element of sophisticated spend management. Identification of total cost of ownership factors Managing the supplier into a more consultative and value-added role Implementation of continuous improvement initiatives The group purchasing organization dedicates time to working with a supplier and developing their approach to serving group members. Corporate United 2008 – All Rights Reserved

Knowledge Limitations An organization that is insulated from its peers is unlikely to be able to achieve best in class supplier qualification methods, negotiation strategies, or contract terms. How can this be overcome without costly benchmarking? Corporate United 2008 – All Rights Reserved

Knowledge Share Collaborative buying means the aggregation of knowledge and experience, not just dollars; leading to best-in-class agreements. Corporate United Roadmap Planning Category R&D Supplier Identification Specification Development Negotiation Implementation Member Contract Implementation Committee Participation Category Recommendation Corporate United 2008 – All Rights Reserved

Other Benefits • Because the group is constantly evaluating the agreements to determine the value of participation, contracts are benchmarked on an ongoing basis. • Suppliers have an unprecedented opportunity to grow their business by actively participating with a GPO, and in many cases are willing to exchange margin erosion for volume growth. • Participation in a diverse network of spend management professionals gives members a unique opportunity to interact with their peers and gain knowledge critical to their day-to-activities. • Access to a series of events and materials designed to facilitate networking and education. Corporate United 2008 – All Rights Reserved

Summary • Group purchasing today is probably not what you remember, evaluating an updated version may be worthwhile. • While participation in a group purchasing organization is not a solution to every challenge you are facing it can help in; • Achieving aggressive savings goals • Supporting alignment with business units • Providing resource flexibility, and • Affording access to an active peer network. • Before doing anything, consider whether or not your organization sees a value in collaborative activity, insular organizations make for a bad fit. Corporate United 2008 – All Rights Reserved

The Re-Emerging Value of Group Purchasing