As we envision a post-pandemic world, leaders find themselves challenged with ongoing global supply chain disruptions, increased market volatility, and a labor shortage. Meanwhile, conscious consumerism and the need for more resilient and sustainable supply chains have widened the procurement agenda as organizations look to procurement and supply chain leaders to drive sustainability, innovation, and digitization. Despite the upheaval, leaders must continue to deliver on cost savings and improvements.
With so much to do and so few resources to do it, the question remains: How do procurement teams achieve these goals? Although often overlooked, undermanaged spend categories remain essential to the efficient running of your business and may hold greater risk—and opportunity—than realized. When sufficiently mined for the opportunities they provide, traditionally undermanaged spend categories such as Maintenance Repair and Operations (MRO) and Freight and Logistics can unearth cost savings while safeguarding your continuity of business, operational efficiencies, and service levels.
By leveraging deep, long-standing partnerships and vast industry and market knowledge and expertise, group purchasing organizations (GPOs) can help procurement leaders gain tighter control of their forgotten spend categories. Harnessing your tail spend through the assistance of a GPO can have you delivering on cost reductions while mitigating your risks and preserving your efforts and resources to be spent on more direct spend categories and larger organizational initiatives.
Let's discuss how GPOs can assist with risk mitigation strategies across numerous spend categories.
The Lost Opportunities—and Hidden Risks—in Undermanaged Spend Categories
By its very nature, unmanaged spend creates inherently higher risk. Procurement leaders are responsible for managing spend across a vast array of categories. Although you're likely evaluating and mitigating your risks across your larger spend cubes— including that of inflation—not many have the time and resources to effectively manage the abundant risks that lay within their indirect and undermanaged spend categories.
Additionally, current market dynamics have flipped the tables, requiring new strategies and a realignment of priorities.
“Most procurement groups lack the staffing or internal impact to allocate resources to manage every spend category,” explained Mark Trowbridge, Principal at Strategic Procurement
Solutions. “Too often, they think that every category needs to be managed using the same ‘strategic sourcing’ approach, but that’s just not true. If a procurement group isn’t part of a leading consortium today for certain spend categories, they don’t have the right tools in their tool chest. A GPO is a fantastic tool that can quickly put in place pre-leveraged and negotiated supplier agreements for those undermanaged spend categories and also for complex ones where bandwidth or leverage is lacking; whether energy, pCard and vCard, employee prescriptions, MRO, or vehicle fleet management.”
Below we explore two high-impact categories and learn how group purchasing is helping procurement leaders navigate the disruption.
Freight & Logistics
In an upside-down market where demand outpaces supply, the value of these partnerships is not to be underestimated. GPOs help clients drive efficiency and resilience, strategize on new supply chain models, and secure reliable capacity across their various modes of transportation.
Transportation industry insider Conner Reed, OMNIA Partners Director of Partner Development gives us a closer look at this challenging spend category.
"A big issue continues to be driver shortages. We are supposed to have expanded our driver fleet, but over the last five to 10 years, it's shrunk,” explained Reed. “We also see a shortage in the actual equipment such as trucks and trailers. There are just simply not enough lanes for products to go through. This has led to suppliers holding all the cards and being able to pick and choose what business they're going to take, and the parameters they set around it."
As the laws of supply and demand dictate, the upturned market has led to significant price increases. "Obviously, they're probably going to take the shipments that are easier to handle but are also more expensive," Reed said. "So that's definitely led to skyrocketing costs. We're seeing container price increases across all the different markets, whether it's domestic, intermodal transit, across land, ocean, and even air."
However, OMNIA Partners' strategic long-term partnerships with industry giants have helped members navigate the challenges. Only just recently, a reliable shipper for less than-truckload (LTL) freight, helped a custom cover manufacturer source carriers despite a shortage of available lanes—and find cost savings as well. Another OMNIA Partners member, this one a potato farmer working with a supply chain optimization consultant, was able to improve their freight network and lane selection, secure savings by avoiding expedited shipment costs, negotiate better pricing, and improve margins through the supply chain.
Maintenance, Repair & Operations
MRO items often garner little attention from procurement teams. Instead, they get left to operations personnel or others to source and procure. But out of the thousands of potential parts, equipment, and supplies involved, it only takes one missing critical item to shut down a line and bring awareness to the criticality of this category.
Although MRO is subject to all the same risks plaguing other areas of spend due to its complexity and vast product and service areas, it covers further risk—and opportunity—lies in its management. Proper management through a GPO can safeguard your continuity of business and production efficiencies while lowering your costs.
"When COVID hit and really started to take effect within our membership, and within the U.S. and the world, we began to see a lot of shortages,” said Bryan Zickafoose, Managing Director of Facilities Management for OMNIA Partners. "One of the nice things about having the national or corporate program through OMNIA Partners was the preferential status with our suppliers to provide and receive goods and service."
How a GPO Can Help
Mark Trowbridge, Principal at Strategic Procurement Solutions, explains it well: “With inflation and the likelihood of an upcoming recession, the ‘new normal’ in procurement is probably going to be about ensuring continuity of supply. ‘Cost avoidance’ needs to be as important as ‘cost savings’ in a market where all costs seem to be rising because of governmental policies and global supply constraints. Most importantly, the move towards sustainable operations means that procurement needs to be responsible for managing risk across their entire portfolio of suppliers. Being part of the ‘big fish’ of a consortium like OMNIA Partners is one key-way to do all these things. OMNIA Partners, for example, has a fantastic supplier risk management solution which is 100% free to its member companies. That solution actively monitors the operational, financial, legal, and regulatory risk of every supplier a company uses.”
Supply availability is one of the biggest risks a large GPO can help to mitigate. “That’s a lot of purchasing synergy which gets the attention of leading suppliers and gains preferential treatment for the GPO members, not only in low prices but also preferred terms and treatment,” Trowbridge said.
By partnering with a GPO, you gain access to a wide-reaching supplier network of pre-qualified, industry-leading suppliers and pre-negotiated contracts, allowing you to simplify your buying process and optimize your output, letting you do more with less.
READY FOR PART TWO? Building Resistance & Mitigating Risk with a GPO