Given persistent uncertainty in the economy, Chief Procurement Officers are being put on the hot seat at many global organizations, facing enormous pressure to reduce spend enterprise-wide and deliver increased savings year after year.
Given these pressures, some companies have been re-evaluating “Consortium-based Buying Models” (CBMs), hoping that this kind of group purchasing approach will help them achieve higher savings.
While creating and leveraging greater economies of scale is a sound principle, both our research and considerable experience — developed from sourcing more than $50 billion of spend for clients annually — has revealed time after time that group purchasing models do not maximize savings for large, global enterprises.
Make no mistake – CBMs can provide some organizations true value – namely small- and medium-sized enterprises (SMEs) and public sector agencies, where the economies of scales achieved are dramatic and decisionmaking is relatively simple.
However, at enterprises with revenues of more than $1 billion, the scale effects and actual savings achieved through CBMs are not only less impressive, but fail to deliver the realized savings of more individuated approaches.
The key is what we call “Implied Leverage” or “Economies of Knowledge.”