Consortia – the other side

Jason Busch over on SpendMatters was talking recently about consortiums.  He was pretty positive about them – and praised their use as the “easiest way to save money while improving internal customer satisfaction inside a company”.

I’m not as convinced.

A few years ago, I was working for an organization that wanted to join a buying consortium.  The proposed result would be a buying entity that would supposedly garner savings as a result of larger purchases – thus passing along the cheaper per-unit costs to the consortium’s members… sorta’ like a Sam’s Club, Costco or BJ’s Warehouse – just at the large company level.  On its face, this sounds like a great idea.  Pay a small membership fee (someone has to get paid to manage the relationships), get large savings in a number of commodity purchases (paper products, general office supplies, etc).

Oh wait.  Did I say commodities?  Yes, yes I did.  Commodities are an excellent use for consortia buying.  They’re ubiquitous (everyone needs toilet paper and almost everyone’s buying the cheapest they can find), relatively easy to source (and hard to screw up), and bulk quantities clearly reduce overall expense.

But what if your consortia wants to offer something else… say, intellectual property?  Software, for example.  Now I think there’s a problem.  The member companies no longer have identical interests.  Your organization wants Exchange email… mine wants Groupwise.  You want an enterprise license … and I do, too, but my enterprise is 3x bigger than yours.  Consortia buying stumbles in the face of diversity of interests.

Another area where I personally had a lot of issues was the realm of cell phone and long-distance telephone plans.  The consortium wanted a cut of the plan revenue.  I didn’t want them to get money from me this way, as I would prefer to have more cost savings straight from the vendor.  Oh, and the consortium was buying a bulk group of “minutes” that were then allocated to the members.  If I didn’t meet my minimum usage requirements, I had to pony up (which is normal).  But the twist was that if any other member organization didn’t meet their minimum, I was also responsible for helping cover the shortfall.

So, how did I find out about all of these nits in the deal?  Well, me being me, I asked to negotiate the contract(s).  And what I got in return was a lot of static about how the contracts were already complete and that I simply needed to see/sign the Member Enrollment agreement to add us to the consortium.  I said no thanks – that I had specific needs and I wanted to have my own contract (where we could/would selectively incorporate terms from the consortium’s agreement).  Boy did that go over like a lead balloon.

What I learned by reading the consortium’s agreement (which they originally didn’t even want to give me) is that I’m ultimately paying for someone to negotiate a deal that’s good for them, not me.  When I wanted to change the terms with the vendors, they, of course, balked, too (they thought they had done-deals with the consortium and its members).

So the net result is that I’m not a huge fan of consortia buying.  Consortia are essentially negotiation and contracting outsourcers.  I don’t need help getting discounts or better deals… and I definitely don’t need “help” that only really benefits the consortium organization (and not the consortium members).  But I do see value in using a consortium to get the bulk-quantity ubiquitous products of everyday office living.  I suppose, as all else in life, the key is moderation and to read before you sign.

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3 thoughts on “Consortia – the other side

  1. Jason Busch

    Jeff,

    Fair enough, but for certain categories like office supplies and relocation services — and even for aggregating spend from sub-tier suppliers even in direct materials categories — consortia can save companies money without a huge effort. Joining or creating a purchasing coop is often a rapid and transparent process as well. Not a panacea for all categories of spend, but for the right ones, it can work.

    Reply
  2. Jeff

    Jason:

    Agreed… as I said, there are situations where I think it works well. I simply caution against the panacea approach. 🙂

    Thanks for taking the time to comment!

    Reply
  3. Pingback: Consortia Licensing: Is this an ideal way to license intellectual property? | Silicon Valley IP Licensing Law Blog

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