What Is a Purchasing Consortium?

A procurement alliance is a horizontal alliance formed by the joint procurement of two or more entities. Earlier in the public sector, such as health and education, the application of procurement alliances has been a huge success. Later in the retail industry, the development of purchasing alliances was also relatively rapid. In the field of manufacturing, purchasing alliances are increasingly favored by more and more enterprises.

Purchasing alliance

Right!

A procurement alliance is a horizontal alliance formed by the joint procurement of two or more entities. Earlier in the public sector, such as health and education, the application of procurement alliances has been a huge success. Later in the retail industry, the development of purchasing alliances was also relatively rapid. In the field of manufacturing, purchasing alliances are increasingly favored by more and more enterprises.

Chinese name

Purchasing alliance

Foreign name

Purchasing alliance

Belong to

Strategic Alliance

Form of cooperation

Formal, informal, independent third party

Nature

Intermediate organization, competitive cooperation, complementary assets

(1) The establishment of a procurement alliance is based on strategic considerations and has clear strategic goals. In other words, the basis of cooperation is based on the "common vision" of the parties in the future, not just for the immediate short-term or partial benefits. From this perspective, the procurement alliance is a strategic alliance, which is a kind of strategic alliance. ^[1]

Purchasing alliances are very complex in their own right, and they can be simultaneously expressed as an organizational form between enterprises and the market, the relationship of mutual cooperation between enterprises, the complementary system of assets between enterprises, and enterprises in order to obtain competitive advantages A strategic act taken. Therefore, we can understand its nature from different perspectives, such as corporate organization, corporate relations, corporate assets, and corporate behavior. ^[1]

Divided according to the form of cooperation: ^[2]

(1) Informal procurement alliance. The partners do not sign a binding agreement, and the two parties cooperate loosely through technical discussion, information exchange, and personnel exchange. Continuation and expansion of this approach will form a formal agreement.

(2) Contractual bribery alliance. Some form of binding formal agreement is reached between partners in this form, and the two parties act jointly in the procurement field in accordance with the relevant agreement. The asset size, organizational structure and management methods of the members of the contractual alliance have not changed, but only through the signing of agreements to agree on cooperation matters and cooperation time in the procurement field, members still maintain their independence, even outside the procurement field Fierce competition among other companies in other areas. Contract alliances emphasize the cooperation of related enterprises, and they are superior to joint venture procurement alliances in terms of operational flexibility and autonomy. But there are also problems such as poor corporate control over alliances, loose organizations lacking stability and long-term interest relationships, insufficient communication between members within the alliance, and low organizational efficiency.

(3) Joint venture procurement alliance. A new independent enterprise is jointly funded by the member companies of the alliance, and on the basis of this, the parties share risks and share benefits. However, this joint venture has some new characteristics compared with the joint venture in the general sense. It more reflects the strategic intentions of alliance enterprises, and is not limited to seeking higher investment returns. In order to ensure the relative independence and equal status of all parties in the alliance, cooperative enterprises with almost equal equity are usually pursued. Compared with the other two forms of cooperation, the joint venture alliance has established a stable organization, laid the foundation for long-term cooperation, improved organizational efficiency, and enhanced competitiveness. When cooperative projects are complex and large, joint venture procurement alliances are often used.

Divided by alliance strategy

(1) Complementary procurement alliance. Complementary procurement alliance means that member companies try to combine each other's assets in a complementary manner, so as to form a greater competitive advantage. Different enterprises may have different advantages in the field of procurement and have their own unique procurement assets (resources, capabilities and knowledge), but it is not possible for an enterprise to have all assets that can maintain a sustainable competitive advantage. Some other companies do not, and others do not. Through alliances, they complement each other's assets and form greater synergy.

(2) Reduce competitive procurement alliances. Reduction of competitive procurement alliances refers to the mutual restraint or monopoly cooperation between companies by forming alliances (similar to cartel alliances) to reduce competition and avoid mutual harm caused by excessive competition. In the supply market, companies have competed to seize supply resources. Competition could make the allocation of resources reach Pareto optimal, but competition is also limited. Competition such as blind competition, excessive competition, and unfair competition drives up prices, reduces the quality of procurement, and seriously affects the interests of purchasing companies . In order to reduce the harm caused by these competitive behaviors, buying companies for alliances is one of the effective strategic measures.

(3) Competitive response procurement alliance. Competitive response procurement alliance refers to the establishment of an enterprise in order to respond to competitors. The strong purchasing and supply capabilities of competitors have caused great competitive pressure on enterprises. In order to respond to the "threat" of competitors and enhance their "position" in competition, companies have formed alliances in the field of procurement. For example, the entry of large foreign retailers into China has brought an impact on Chinese small and medium-sized retailers. Foreign retail giants' low purchase prices and the quality of products provided by suppliers have challenged the purchase of domestic retail enterprises. In order to meet the challenges, domestic small and medium-sized retailers have formed purchasing alliances to improve their performance in the procurement field and enhance their competitiveness.

(4) Avoid or reduce risk-based procurement alliances. The risk aversion procurement alliance mainly refers to the large amount of capital, personnel, technology and equipment that must be invested in procurement, which brings greater risks to the enterprise. In order to avoid and reduce this kind of risk, we jointly invest in the relevant procurement elements with other companies, and share the risks with multiple companies to reduce the risk of a single company. There are two main situations in which such alliances occur: one is that an enterprise already has certain procurement assets, while others do not, and other companies are afraid of the risks brought by the new assets, and form alliances with this enterprise to take advantage of The company's existing assets. First, the company does not have certain assets and must newly invest in these assets, but the new investment is relatively risky. In order to reduce the risk, the enterprises join together and invest together. Therefore, evading or reducing risk-based procurement alliances often occur when it is necessary to invest in purchasing specific assets. In the first case, the procurement alliance is often a contractual alliance; in the second case, the procurement alliance is often a joint venture.

(5) Eliminate supplier monopoly procurement alliances. Eliminating supplier-monopoly procurement alliances means that in the case of suppliers monopolizing resources, purchasing companies form alliances to improve negotiation power and eliminate supplier monopolies. Some resources are monopolized by several suppliers and have the right to speak on price setting. Individual purchasing companies are weak and unable to respond. The alliance of purchasing companies has increased the speaking power of purchasing companies, forcing suppliers to stop "whatever they want." For example, at the beginning of 2005, foreign iron ore supply giants announced that they would raise the price of iron ore by 71.5%, setting off a strong "earthquake" in the Chinese industry, prompting Chinese steel companies to suddenly realize that only alliances can be "externally" . Chinese steel companies quickly formed alliances to participate in the negotiations and achieved positive results.

Divided by alliance formation

According to the formation of alliances, procurement alliances can be divided into static procurement alliances and dynamic procurement alliances. The so-called static procurement alliance mainly refers to the fact that once the procurement alliance is formed, its number and structure do not change easily and maintain relative stability; the number and structure of members of a dynamic procurement alliance often change, and it forms quickly and agilely according to a certain cooperation purpose Purchasing alliance, once the purpose is achieved, the alliance will soon dissolve, and the alliance has strong dynamics.

Divided by number of members

According to the number of members, procurement alliances can be divided into two-party procurement alliances and multi-party procurement alliances. The two-party procurement alliance refers to a procurement alliance consisting of two companies, and the multi-party procurement alliance refers to a procurement alliance consisting of three or more enterprises. Compared with the two-party alliance, multi-party alliances are prone to disputes and looser connections, but they pose the greatest threat to companies outside the alliance.

Divided by means of communication among members

Purchasing alliances can be divided into traditional purchasing alliances and online purchasing alliances depending on the means of communication between members. Traditional purchasing alliances refer to purchasing alliances that use communication methods such as telephone, fax, and door-to-door visits, while online purchasing alliances refer to purchasing alliances that use the Internet as the main communication method. For purchasing alliances, in addition to reducing the costs of procurement, improving the efficiency of procurement, promoting standardized management of procurement channels, and promoting more effective procurement supervision, it can also reduce coordination costs between member companies and improve coordination efficiency. To strengthen communication between members and promote the stability of the alliance. Therefore, online procurement is the main operation mode of the procurement alliance in the future.