Group Purchasing Gives Buying Power to SMBs

Anyone who is in procurement knows that high-volume purchases mean discounts and oftentimes, leverage. Most small businesses don’t have the need – or the pocketbook – to achieve either.

However, when small businesses combine their resources for group purchasing, their negotiating position is significantly strengthened.

UNA, launched in 2012, is one of several group purchasing organizations (GPOs) that serve the electronics market. Although electronics currently represent a small portion of UNA’s transactions, the organization intends to become the preferred choice for companies struggling with indirect and unplanned spend. Distributor Allied Electronics, a U.S.-based division of the UK’s Electrocomponents plc, is a member of UNA.

“We don’t only want to save customers time and money,” said Anthony Clervi, president of UNA. “We want to make their lives easier.”

Anthony Clervi, president of UNA

GPOs have a long and largely successful history. The concept originated 50 years ago in the healthcare industry – collectively, hospitals procure huge volumes of medical supplies. Since then GPOs have expanded into other sectors. Another example is Prime Advantage, which focuses on mid-market manufacturing and is now part of Omnia Partners, a public sector purchasing collective.

“The best GPOs help your business get contracts and savings you would never be able to negotiate on your own. Jackpot discounts like UNA’s drastically increase your purchasing power,” said Clervi. “As one of the fastest-growing business GPOs in North America, UNA.com gives small and medium businesses (SBMs) a level of buying power they could never obtain by themselves. And for many businesses, when they save on expenses at these levels, they have more money to create jobs and gain competitive advantage.”

A few examples of UNA discounts:

Corporate hotel discounts with an average of 26 percent savings
$100 discount annually for each Adobe Creative Cloud subscription
Up to 80 percent discount for Office Depot and Staples products
Average of 20 percent discount for small parcel and international shipping
Up to 40 percent discount for rental cars
Up to 45 percent discount for janitorial and MRO supplies through Grainger and Home Depot
Total 22 percent average savings on direct and indirect spend across all categories

In 2011, according to SpendMatters.com, the average-sized GPO member was a company with roughly $750 million in revenue and about 5,000 employees. Today, a business with as few as one employee can get the same buying power from UNA.com. This “democratization of discounts” has led to UNA.com experiencing 150 percent year-over-year growth, and 97 percent customer retention, the company reported.

Electronics & unplanned spend

The current cycle in the electronics industry is a case study in how businesses can leverage volume. A shortage of electronic components is prompting suppliers and distributors to turn away new orders for allocated components. Existing – and the largest – customers move to the front of the line when devices are in short supply.

These shortages often lead companies to the so-called gray market, where excess components are bought and resold. This activity significantly increases the risk of procuring counterfeit components, and some suppliers won’t honor warranties for products bought in the gray market.

Like any procurement organization, UNA must ward off counterfeiters.

“We work with suppliers that don’t work in the gray areas,” said Clervi. “And we don’t cut corners. We are very selective in our suppliers, and we are very careful when we draw up contracts. We also research how these products are purchased, procured and delivered. We do everything aboveboard and it is all written into contracts."

However, UNA faces the same issue as Amazon.com when it comes to electronic component anti-counterfeiting measures. Electronics industry best practices advise customers to buy through authorized channels only. Amazon.com does not seek authorization from electronics suppliers and it isn’t something UNA has considered to date. Even if non-electronics outlets sought franchises, there would be considerable pushback from the authorized supply chain.

Clervi acknowledges models such as Amazon Business and Groupon compete, in some ways, with services such as UNA’s. “Let’s face it, the 800-pound gorilla in the room is Amazon. Everyone knows that Amazon will have the best prices. However, they are emphasizing the direct-spend portion of businesses, whereas we focus on indirect.” With Groupon, he added, users must buy something before they get a discount. UNA has no such requirement.

“We offer free membership to any business or association,” Clervi said. “We have taken millions of small orders and built our model around very specific offerings. We specifically took office supplies, furniture and technology and leveraged our volumes in those businesses. We derive revenue from administration fees after transactions are completed, and they are based on a discount you couldn’t achieve on your own.”

UNA is also differentiating itself in several other ways. “We are providing resources to help businesses understand the impact of unplanned spend,” Clervi said. “We’ve run into businesses that may have 50 offices in different places and none of them communicate or consolidate their spend. We are educating users free of charge so they have the authority to go to corporate and help them understand that, if they’re not using a GPO, then they are behind [the trend].

“Maybe they will join or maybe they will use us later down the road,” he added. “We also want to make the experience better—the service is better, the terms are fair, but the discount has to be there. If you are a small business you should know what’s available and what is coming.”

UNA is also investing in technology to make its community seamlessly connected, but they’ll accommodate the preference of any client. Some users want to use digital information and others want to use spreadsheets. “We make sure we can provide a cost analysis no matter how the data is provided,” Cervi said.

“The most important thing is we are always growing our understating of the needs of our customer,” he concluded. “You can be customer centric and customer focused, but [customers] also have to assume we will save you money. We want to double down and invest in original ways to serve customers, and in transacting around our core values. We want to lead by example by ensuring that the customer experience is fulfilling and outstanding, and by being thought leaders in the GPO marketplace.”