How to Determine Whether Your Purchasing Strategy Is Working For You: Direct or GPO?
Procurement is the backbone of a mining operation and whether it happens in a large department committed to sourcing around the clock, or by those with other responsibilities rolled up under their title, every business needs a steady supply of goods and services to keep doors open and wheels turning.
The Fundamentals of Procurement Are Universal
The fundamentals of procurement in every sector, in every corner of the world, and in every sized operation are the same – (1) obtaining goods and services necessary for operation and (2) doing so at the best possible price.
Over time, regionality and familiarity can shape purchasing strategies. It is important for procurement specialists to survey the changing market on their doorstep, ensuring their procurement strategy is meeting the challenge of dollar and efficiency savings.
Getting the most bang for your buck
Determining whether your current purchasing strategy is still working for you begins with asking yourself a few key questions.
How do I unlock better pricing from my suppliers?
Suppliers’ pricing is based on several factors; the cost to serve, order volume, raw material costs, steady and reliable demand and competitive market dynamics. For many buyers it is difficult to tick all the boxes necessary to maximize savings.
Working with a GPO is another way to say we buy in bulk and get volume discounts.
Are you willing to consider suppliers beyond your existing list?
If contracting with the same supplier, regardless of price or service, is a linchpin for your operation it will be difficult to adopt better procurement practices.
Working with a GPO may include suppliers that you already work with and it may introduce you to new vendors. A benefit of working with a GPO is the knowledge that vendors have been vetted, are serving others in your area, and are ready to go with pre-negotiated contracts.
How much time do you have to spend on ongoing procurement?
Direct purchasing is time consuming. Making an effort to improve procurement on your own means conducting RFPs and evaluations, negotiating terms and onboarding new vendors.
Working with a GPO cuts out these time consuming steps. Contracts are already negotiated and the prices deliver savings because they’ve been negotiated with volume.
Wait – my mining procurement strategy needs to do more than just purchase materials…what about unique aspects like IBAs and other requirements?
A status-quo direct procurement strategy incorporates Impact and Benefit Agreements (IBAs) and ESG goals as well as specific technical requirements into its operation by design.
A GPO procurement strategy is also able to navigate IBAs, ESG requirements and technical needs when the GPO is industry specific and brings a depth of knowledge and expertise to the issue. In fact, the right GPOs help achieve IBA and ESG goals, bringing new partners to the table.
What about the importance of business relationships? We want our purchasing strategy to include solid relationships with our suppliers.
As a buyer you value connections with your suppliers - the ability to contact and troubleshoot issues with suppliers is key, and a direct procurement strategy supports this.
GPO assisted procurement is also based on relationships and GPOs are never meant to come between the supplier and the buyer. While a buyer shops contracts negotiated by a GPO to select ones that add value, the eventual signed contract is between the miner and the supplier, and the development of a strong relationship between them is in everyone’s best interest.
So how does a GPO fit in with my overall procurement strategy?
Developing a procurement strategy begins with taking stock of your current position in the market. Those with global purchasing power and dedicated global sourcing teams may find that direct procurement strategies are enough.
But for the vast majority of miners, working with a GPO is a shortcut to savings. It opens up access to savings through bulk pricing, does the work of finding and negotiating with suppliers, and ultimately, gives miners choice. Contracts are always available, never required or dictated, and simple to adopt.
If you are spending precious time on procurement without achieving meaningful savings, if you are prepared to expand your network of quality suppliers, and if you are interested in leveraging group buying power to unlock your own savings, your procurement strategy is ready to explore the addition of a GPO procurement strategy.