Consortia, Buying Groups and Trends in Demand Aggregation

Purchasing consortiums are rapidly establishing themselves as a vital link in today ’ world-class supply chain strategies. There now exists a significant body of evidence indicating purchasing consortiums are commonly being utilized as a powerful tool to significantly drive down costs by supply chain managers in the best-run procurement organizations in Corporate America. This paper will review the recent history of group purchasing models and discuss the benefits and challenges to Supply Chain Managers and their suppliers. Consortium Defined A purchasing consortium consists of two or more independent organizations that join together, either formally or informally, or through an independent third party for the purpose of combining their individual requirements for purchased materials, services, and capital goods. The main goal of these alliances is to leverage aggregated purchasing power of the group to optimize cost reduction and value added contractual terms and conditions from the external supplier relationships. Recent History Although consortiums, co-ops, aggregation groups, purchasing alliances, group purchasing organizations, buying groups, etc … have been around in one form or another for hundreds of years, the last few years have seen an explosion in this type of procurement model. The rise of “dot com ” marketplaces/vertical consortiums since 1999 has been unprecedented, while at the same time a number of Horizontal Consortia and Master Buying Consortiums have sprung up. While most of the vertical “dot com’s ” have fallen by the way side during the dot com melt down, some of the strongest electronic marketplaces are at least still operating. A few Master Buying Consortiums are still operating, whereas the Horizontal consortiums seem to be the dominant model gaining the traction with Supply Mangers