In every business, there is a necessity to acquire or obtain goods and services to keep business operations running smoothly. The process of procurement involves a lot of work from purchase planning to determining standards, specifications development to researching and selecting suppliers, value analysis to financing, negotiating prices and making the purchase, administering the supply contract, controlling an inventory and even coming up with a disposal system.
The amount of work involved requires businesses to come up with a procurement model that will be appropriate for their company’s operations. Following the right procurement model enables businesses to continue their operations and ensures that a company will be able to profit. A business whose price of procurement is more than its profit will certainly not survive in a competitive economy, so it is crucial that chief procurement officers (CPOs) make use of a model that’s best for their business.
Top Two Procurement Models
The Group Purchasing Organisation or GPO and the Consultancy model are two approaches that CPOs can work by to enhance their procurement functions.
The GPO Model. In the GPO model, a company utilises the services of a group purchasing organization. The GPO can oversee the buying power of businesses, allowing it to obtain discounts from manufacturers, distributors, and other vendors or suppliers based on the collective purchasing power of the businesses under the GPO.
In essence, GPOs can pool the purchasing volume—or bulk orders—from several businesses and use this to get lower prices for goods, services, and equipment. By following a GPO model, businesses will be able to spend less for goods through a purchasing contract negotiated by the GPO.
The Consultancy Model. On the other hand, in the consultancy model, businesses acquire the services of third-party consultants who are skilled in the process of procurement. These consultants help businesses in developing or improving their procurement practices, evaluate and reconsider how they manage their supply chains, and even reduce risk in their procurement transactions.
By using this model, businesses are able to adjust and enhance their procurement process to benefit their company and in accordance with the company’s strategic aims as well as operational needs, leading to improved performance, optimal efficiency, greater accountability, and reduced costs. Consultants can also guide businesses in the right direction when it comes to procuring supplies from sustainable and ethical sources.
In the GPO model, businesses rely on an expert entity to negotiate prices for them, reducing time spent on discussing and agreeing on prices. GPOs or aggregators have extensive experience or proficiency in the indirect spend category, which many CPOs don’t really want to spend time on.
In the consultancy model, companies hire professionals with expertise in the field they are in or the subject matter they are dealing with. These third-party consultants focus on helping their clients optimise their own procurement function.
As you can see, the two models differ in how they deal with the process of procurement. One works like a mediator between companies and suppliers to drive prices down; the other seeks to improve companies’ procurement practices so they can work out their purchasing strategy and increase profit. Whichever model your company chooses, keep in mind that at the end of the day, the success of your business would depend on following a practice that is effective for you.