Category: Technology

Time is Money: Real-Time Rebates vs Supplier Reports

On March 4, 2021

Rebates are the lifeblood of your group.

The primary function of a buying group or purchasing cooperative is to maximize members’ rebates and lower the cost of goods sold (COGS) through selecting preferred vendors, negotiating effective programs, and accurately tracking rebates earned across all members.

Rebate “revenue” can make the difference between a profitable year or an unprofitable year for your members. Loyalty to your group is largely a factor of how successful a group’s rebate performance has been. Rebates also form the basis for operational budgets for a group as well as funding additional services the group provides for its members.

Given the importance of rebates, it would be fair to assume that buying groups and purchasing cooperatives would use software designed to increase the amount of rebates earned and decrease the level of (largely human) errors that steal money from your members’ pockets.

Unfortunately, that assumption is wrong.

The truth is that all too many groups rely on antiquated software, manual processes, and inaccurate data in order to manage rebates on behalf of their members.

Rebates are a best practice.

Rebates are a pricing best practice within a supply chain, and they should present a win-win-win scenario for a group, its members, and its suppliers.

Rebates allow suppliers to provide fair and accurate volume sales pricing to their customers. Without rebates, a supplier would base its volume discount on the past performance of a buyer combined with the promises of what that buyer will buy in the coming year. What happens when a buyer says they will buy $200M in product, but they only buy $75M? Or, what happens if a buyer promises to buy $200M in product, but they actually buy $300M? Rebates are used to price based on actual purchases rather than promised purchases.

Rebates also provide suppliers with a way to promote purchasing the products they want to sell more of. Does the supplier want to sell more items that have a large profit margin as opposed to lower profit items? Is the supplier introducing a new product line that they want to be successful? Does the supplier want to gain a stronger product mix within their customers’ stores? Each of these goals can be achieved through effective rebate programs.

In short, rebates are a best practice within a B2B supply chain to ensure that businesses receive the desired price, volume, and product mix. The role of buying groups and purchasing cooperatives is to maximize the rebate opportunity on behalf of their members.

Groups provide a way for individual businesses to leverage their purchasing power with other businesses within the same category in order to negotiate higher rebates. Using the example above, 100 buyers buying $200M each will have better success negotiating a higher rebate than one $200M buyer.

The “cost” of combining the purchasing power of independent businesses to increase rebate performance is having effective tools and systems in place to track and manage each program.

Most common rebate programs.

Purchase Percentage/Value per Units: This is perhaps the simplest and most common form of rebate program. These programs are not based on volume or growth, but apply to evenly to all purchases. For example, a 4% rebate on purchases would be calculated as total dollars purchased multiplied by 0.04. Or a $1.25 rebate per unit would be calculated as total units purchased multiplied by 1.25.
Volume Incentive/Plateau: This is one of the most effective programs for incentivizing higher purchasing amounts. Rebates increase as purchasing tiers are reached. For example, a program could have incentive targets of $100K, $500k, and $1M.

Purchases	Rebate %
$0-$100K	2%
$100K-$500K	4%
$500K-$1M	6%
>$1M	8%

Sample Volume Incentive/Plateau Program

So if a group purchased $200K of product, they would earn $8,000 in rebates.

Growth Incentives: As the name implies, growth incentives are based on achieving specific growth targets. Growth targets can be based on aggregate group growth or growth by specific members.

Growth over Previous Year	Rebate %
2%	2%
5%	4%
8%	6%
10%	8%

Sample Growth Incentive Program

Product Mix Incentive: This type of program provides an additional rebate on product X based on purchases of product Y. The intent is to provide an incentive to carry additional product lines from a supplier.

Purchases of Product Y	Additional Rebate on Product X
$0-$100K	2%
$100K-$500K	4%
$500K-$1M	6%
>$1M	8%

Sample Product Mix Incentive Program

In addition to the above standard types of programs, groups may choose to create rebate programs where the rebates earned go specifically to the group and not the member. The group may choose to pay their members at a lower rebate rate earned than the group earned. Or the group may pay the entire rebate earned to their membership.

Maximizing rebates.

The groups role is to analyze the purchasing patterns of their members and use this information to negotiate programs that result in the maximum amount of rebate revenue.

For example, most suppliers separate their product into “items that are eligible for a rebate” and “items that are not”. A simple purchase percentage is then applied to rebateable items – for example 4% rebate on all eligible purchases, regardless of volume or SKU.

This is simple to negotiate and simple to track. The problem is that it leaves a lot on the table.

Not all product is the same. One product line may have a higher profit margin for the supplier than another. Given that a supplier wants to incentivise purchasing high profit margin items, wouldn’t it make sense to offer a higher rebate percentage on high profit margin items and a lower rebate percentage on low profit margin items? The net result could be higher gross rebates for your members.

Focusing on volume or growth incentive programs should result in increased rebates – especially combined with effective preferred supplier programs and monitoring purchase volume real time.

Rebate management software makes supplier negotiations easier and more effective.

The key to negotiating effective rebate programs is data. Groups need accurate and detailed purchase data of what their members are buying, from whom, when they are buying it, and for how much.

Groups need accurate and timely purchase data in an easily digestible form, delivered automatically without reliance on suppliers or members. This data should be delivered seamlessly real-time by the rebate management software used by the group.

Effective rebate management software must allow you to analyze purchase data, determine what products are being purchased more than others, what plateau levels are realistic, and what opportunities exist for product mix incentives. The software should also identify similar items sold by different suppliers and make recommendations of reducing the number of suppliers in order to increase rebate dollars.

Imagine entering a supplier negotiation knowing more about what your members have purchased than your suppliers do. Proper rebate management software makes that a reality.

Tracking rebates should be strategic and not administrative.

How does your group track rebates? Too often, groups rely on receiving purchasing reports from their suppliers to tell them what their members have bought.

There are many problems with this approach:

Supplier reports come too late. Typically a supplier will deliver purchase reports to a group 8 to 12 weeks after the fact, much too late for a group to do anything. Missed reaching a plateau level by $10K? Nothing you can do about it now.
Supplier reports are inaccurate. Suppliers often don’t have the ability to view individual businesses as part of a single group. They end up manually piecing together information from several different spreadsheets from different people into one, resulting in inaccuracies. Suppliers often have not invested in accurate rebate tracking software themselves, resulting in further inaccuracies.
Members don’t provide accurate data. Realizing that supplier data may be inaccurate, some groups rely on members to verify supplier reports. This adds work load to members, often resulting in time wasted following up on requests, reconciling member reports with supplier reports, and potentially confusing the numbers even more.
Managing rebates become an administrative task. This is the most dangerous trap for groups. Given how time consuming the process is and how ineffective it has been historically to impact rebates during a rebate cycle, groups become administrative bodies. The focus is on manually dealing with a huge number of supplier and member spreadsheets, manually consolidating and verifying data in order to come up with a somewhat accurate rebate payout for members.

Spending time administering rebates rather than managing them is wasteful in terms of labor costs, lost rebates, and opportunity costs of other value added programs. What other services could the group be providing their members if they weren’t spending so much time buried in rebate spreadsheets?

Effective rebate management software will free up a group so that they can start thinking strategically rather than administratively. This level of data is only available with real-time rebate management.

The concept of real-time rebate management.

Real-time rebate management is based on electronically capturing all invoices, debits, and credits from suppliers and using that data to calculate rebates earned down to the penny. This real-time data can be used to analyze current and historical purchasing patterns as well as forecast new trends, providing powerful information for negotiating, tracking, optimizing, and reconciling member and group rebates.

Creating an EDI-based marketplace in which suppliers send electronic invoices to members and members send electronic claims to suppliers. The accuracy of rebate processing depends entirely on the extent to which suppliers and members commit to the electronic exchange of trading documents.

The good news is that most suppliers recognize the efficiencies involved with EDI ordering and invoicing. Major suppliers already send electronic invoices to their customers so it will not be a major challenge to add your group to their network.

Once your EDI network has been established, you can begin making the switch to real-time processing. With the right software, you can begin this transition immediately, combining both after-the-fact reporting with real-time rebates as suppliers are rolled onto your EDI platform.

The move to real-time processing of rebates is a journey, and one that provides significant value at each stage. The end result is the building of a foundation that achieves the key objectives of rebate management: accurate reporting and strategic use of data.

Benefits

The benefits of real time rebate processing are significant and provide groups with a significant ROI in both operational savings and strategic advantage. Groups that have adopted this approach have experienced the following benefits.

This approach means groups will know when they are getting close to a plateau rebate level, allowing them time to reach out to members to enable them to make additional purchases, driving increased rebates from suppliers.
Item level reporting provides the opportunity for the group and their members to understand the true net-net item cost after all rebates have been taken into consideration. This information can be particularly helpful in both special order and special bid situations.
The real-time approach allows the group and members to gain control over rebates and not depend exclusively on supplier reporting, which is often late and subject to error.
Capturing invoices and calculating rebates in real-time, reduces the number of non-reported purchases, increasing the overall payout to members.
Because the group can report on rebates at the invoice line-item level, there is additional scope for creative rebate development, advanced rebate reconciliation and more effective rebate negotiations with suppliers.
Real-time rebates eliminate the need for members to audit their purchases; often a task that is time consuming and prone to error.
This approach provides the opportunity to track more creative rebates. For example, suppliers may offer rebates for very specific product categories which they wish to strategically market to the members, or for categories that have higher gross profit margins and consequently there is the ability to provide greater rebates.
This information shifts the power of knowledge from the supplier to the group, in rebate program negotiations.

Groups need rebate management software designed specifically for a group environment.

Buying groups and purchasing cooperatives are unique and require unique software. LBMX understands these unique needs since they have been focusing on providing software, services, and other technology for over twenty years. In fact, through consulting with groups large and small around the globe, active participation in cooperative associations including the NCBA CLUSA, the Business Council of Co-operatives and Mutuals, Cooperative Business New Zealand, and through hosting the largest annual global conference on group purchasing, LBMX has had a hand in writing the best practices for group rebate management.

Not all rebate management software works within a group environment. Often they do not provide functionality for paying out rebates to members, taking deductions, creating accurate rebate statements, or prepaying rebates to key members.

Beware of rebate software that simply promises to simplify your after-the-fact supplier reporting processes. Without real-time invoice data, these types of solutions bring the same mistakes and misreporting as your old spreadsheet system does. They do not provide you with actionable data that can make a significant increase in your members’ rebates.

A second trap groups fall into is the belief that they need to create their own rebate management software. They believe that because of their uniqueness, they need custom software. This may work in the short term but has serious long-term disadvantages. Software needs constant updates, making it more expensive than you think. Custom software rarely solves the problem with after-the-fact reporting. Custom solutions typically create a dependency on a single person within the group to maintain and operate it, resulting in significant problems should this person ever leave.

Groups need a real-time rebate solution created specifically for buying groups and purchasing cooperatives by someone with expertise in creating an electronic data interchange (EDI) marketplace.

The key to success

The key ingredient for success in real-time rebate management is for groups to secure the cooperation and participation of their suppliers to send electronic invoices. If groups do not have the will to ensure suppliers provide electronic invoices, members will become islands in an ever-increasing connected world. It is challenging to understand why boards do not demand their suppliers provide the same service they are providing their corporate competitors. Groups that acquiesce on this responsibility are not providing the leadership their members need to survive.

Time is money, and when it comes to rebates, real-time is more money in your members’ pockets.

One POS to Rule Them All?

By Steve_Seguin

On March 30, 2020

In Strategy, Technology

Wouldn’t life be easier if all of your members used the same POS and ERP system? Your purchasing cooperative could more easily capture sales data. You could more easily create customizations specific to your group. You could create training materials and best practices for your members.

Why wouldn’t every group want to adopt a common software system?

There are some downsides, however.

It may be difficult finding one system that satisfies all of your members. Smaller members have different needs and budgets than larger members. Some members focus more on B2B sales and others B2C. Some member-distributors belong to more than one vertical (and more than one buying group). Some members have a stronger need for eCommerce than others.

Even if there is a suitable system for everyone, it can be dangerous putting all of your eggs in one basket. Just like you wouldn’t rely on a single supplier for key products, you shouldn’t make your membership vulnerable to a single software provider. Costs and customer service change. Companies go out of business. A little competition is healthy.

Given the above, some groups attempt to create their own POS software, specific to their coop. On the surface, this seems to eliminate problems of cost and customer service while providing your members exactly what they need. Unfortunately, buying groups are not software companies and most such initiatives are doomed to failure – especially once employee turnover occurs.

Requiring a single POS or ERP system may also inhibit adding new members. Changing systems is expensive and disruptive, adding another barrier to joining your group. Invariably, exceptions get made for certain new members, defeating the purpose of a single system.

The nature of purchasing cooperatives and their independent members goes against the idea of a group-imposed software system. Members tend to be fiercely independent. It’s their biggest strength (and their biggest weakness). They know what is best for their business.

So what should a purchasing cooperative do?

Start by surveying your members and identify which POS/ERP systems they use, what they like about them, and what they dislike.

Next identify not only the functionality that your members need, but also the functionality that will advance your coop’s initiatives. This functionality should include:

· EDI capability. You will want all of your members invoices flowing electronically through your group so that you can accurately track rebates, assess preferred vendors, negotiate event buys, etc. You will also want electronic ordering to gain extra rebate revenue. Inexpensive integrations with your members’ ERP systems are crucial.

· Data feeds. As is commonly said, data is the new oil. If you can capture members’ sales data, you can more effectively run your group. Equally as important as getting data out of the system is getting data in. Do you intend to use a common PIM and send product data to your members?

· Common product numbers and product hierarchies. As a group, you can’t compare member category performance if your members use different product numbers or assign those products to a different merchandise hierarchy. Members will be reluctant to adopt a common taxonomy (see above comments regarding independence). However, a good system will allow you to assign a second product number and category in alternate fields. Make sure these fields are included in the sales data fields.

· Support for the group’s private label credit card or loyalty cards. Does your group accept Airmiles? Do you have a branded credit card? Make sure your members’ POS systems support it without manual keying.

Once you have your list of must-have functionality as well as your list of most common providers, treat them like you would any of your preferred suppliers. Negotiate a vendor buying agreement that includes costs, terms, and levels of service. Establish a rebate program. Work towards reducing the list down to 3 or 4 providers (as opposed to one) like you would in any other product category.

Remember, access to your annual or semi-annual shows is important to POS providers. It’s a key time for them to connect with their customers and generate revenue. Restrict access to these shows to preferred software providers.

Most importantly, make your list of functionality a requirement of becoming a preferred supplier. If a provider does not commit to providing the functionality you need, remove them from the list. There may be times where you need software customizations very specific to your group, and you may be required to pay for them. It will be more cost-effective negotiating on behalf of your members than for your members to do it themselves.

Make sure you maintain active relationships with your software providers. Include them in communications you would provide all of your other vendors. Take the time to understand their product and assign them scorecards like any other supplier.

By setting up a strict preferred supplier program with a small number of POS/ERP providers, your buying group can attain many of the same benefits as having a single provider without the risks.

Members Can’t Beat Amazon; Groups Can (Part 3 of 3)

By Steve_Seguin

On March 27, 2020

In Selling Cooperatives, Strategy, Technology

This is part three of a three part series. Part one outlined Amazon Business’s platform model and how the traditional strategies of member-distributors will not be competitive. Part two proposed a buying group-based strategy to compete through the creation of a new marketplace owned jointly by the membership. In part three, below, I outline more specific features of a marketplace allowing you to compete against Amazon.

Recreating Amazon’s marketplace is a sure route to failure. Sure, there are elements worth adopting – powerful search, user reviews, simple check out procedures, etc. – but rather than emulating Amazon, focus on your member-distributor’s strengths and Amazon’s weaknesses.

Amazon thrives in two areas – product information and data collection. While Amazon knows their customers, they do not know their customer’s business. Amazon doesn’t have the same level of expertise as your members do. Amazon doesn’t have your reputation and relationships within the marketplace.

A group-driven marketplace should include the following features:

1. B2C User Experience

Millennials will make up the majority of marketplace users, and they want their experience to be identical to their B2C shopping experience. An intuitive and user-friendly experience is a must. Personalization and predictive ordering are a must.

2. Helpful Product Content

The best way to attract more web traffic is to add more content and more helpful guidance to every product on your site. Create a blog where you discuss business topics of real concern to the people who use your products.

3. Offer Unique Products

Offer products that Amazon does not. This could be as simple as bundling a number of related products into a kit with a lower total price, or it could mean creating private label versions of existing high margin products.

4. Strong Customer Service

Customer service in the B2B world means solving problems. Dedicate knowledgeable sales reps who know their buyers and products to your site. Provide human touch points. Provide multi-location logistics. Strong customer service should not be anything new for your members – figure out how you can apply what your members already do to the web. Amazon cannot compete with a human experience.

5. Build a Hybrid Marketplace

B2B customers will always require an experience that includes both full service and online capabilities. Build a bridge between the online and offline worlds.

6. Maximize Your Data

Route your eCommerce data into a good business intelligence tool that will help you understand what is working and what does not.

7. Think About the Full Customer Experience

B2B eCommerce is not all about ordering products. How do your customers create claims? How do they deal with payment issues? Where do they discuss terms? Are they eligible for rebates? Where can they receive training? Are there product shows that they can attend? Make sure your marketplace makes the full customer experience a rich one.

The key to competing against Amazon is to bring the natural strengths of your member-distributors to the online world. A central group, owned by the members, can provide the leadership, guidance, and operational staff to creating a marketplace where members can compete on a level playing field.

Members Can’t Beat Amazon; Groups Can (Part 2 of 3)

By Steve_Seguin

On March 26, 2020

In Strategy, Technology

This is part two of a three part series. Part one outlined Amazon Business’s platform model and how the traditional strategies of member-distributors will not be competitive. In part two, below, I outline a buying group-based strategy to compete.

The B2B ecommerce stakes are high. Global B2B ecommerce sales are predicted to reach $3 trillion by 2024. Independent distributors, largely, have come late to the game, and their dual strategies of digital innovation and acquisitions are failing against the platform business model used by Amazon and others.

As described in part one of this article, the key to competing with Amazon is understanding their business model. Amazon’s platform allows Amazon to focus on selling a relatively small number of high volume items while leaving the rest to other suppliers on their platform. This model creates unprecedented depth to their catalogue of products while driving higher margins.

Individual distributors cannot compete with Amazon’s catalogue depth or create their own platform.

This is where purchasing co-operatives can step in.

Or, more specifically, sales co-operatives.

The idea of a sales co-operative is to take the notion of “one member, one vote” from the purchasing realm and apply it to selling online. Distributors in various industries could join together in a jointly funded initiative that can beat Amazon at the B2B game. Independents could leverage their strengths – services, customer relations, and product knowledge – in a way that Amazon could not.

Amazon is a generalist B2B marketplace. Given the size and fragmentation within B2B distribution industries, an opportunity exists for vertical-specific marketplaces. Groups – whether purchasing co-ops, buying groups, or sales co-ops – can take Amazon’s recipe for a marketplace and turn it to their members’ advantage.

It’s important to remember that a marketplace is not just a piece of technology. A marketplace is a business model. It creates value by bringing together distributors and consumers. Scale comes from growing an external network.

Adapting the purchasing co-operative model to build a niche marketplace would allow individual distributors to leverage their numbers and achieve an economy of scale necessary in the creation of a national marketplace. The sales co-operative could provide the technology and the staff to maintain the platform. It could gather the product information needed to populate the marketplace. It could drive the high standards necessary for such a marketplace to be competitive.

Most importantly, individual distributors could still compete against each other based on their own strengths, but on a level playing field.

Successfully Adopting Electronic Ordering within a Purchasing Cooperative

By Steve_Seguin

On October 11, 2017

In Strategy, Technology

Purchasing cooperatives struggle with moving from a decentralized or paper-based ordering network to a centralized electronic ordering platform. Even though electronic ordering benefits everyone in the buying group’s supply chain, numerous road blocks seem to deter groups from moving forward.

Why Electronic Ordering?

Electronic ordering (or e-ordering), if done correctly, can provide buying groups with valuable purchasing data that can be used to strengthen the coop through:

· Meaningful preferred vendor programs

· Improved rebate negotiations

· Knowledge of member performance and trends

· Ability to forecast rebate earnings

· Additional value-added shared services to members

· Improved relationships with suppliers

E-Ordering Strategy

A successful e-ordering strategy includes:

· adopting a flexible methodology that makes it easy for members with different capabilities to participate

· providing carrots for both member and supplier participation

· setting realistic adoption goals

· committing to provide feedback to both members and suppliers on an on-going basis of the results of the program.

Flexible Methodology

It’s a fact of life of buying groups that when it comes to technology, members have their own comfort zones, capabilities, and preferred way of doing things. Unless your members are strongly motivated to adopt e-ordering, attempts to impose a single way of doing things will fail.

There are three broad forms of e-ordering:

· A web-based ordering system where members manually key orders into an online catalogue

· Capturing orders generated from members’ ERP systems

· Converting other manual order mediums, such as emails, faxes, or spreadsheets, into an electronic (EDI) format

Each of these approaches have pros and cons, and no single approach will appeal to all of your members. However, by providing all of these options (or as many as possible), you will ensure that the maximum number of members participate.

Online Catalogues

An online catalogue is simply a web-based tool for members to view the product available from a supplier and manually key in orders.

This approach requires the most effort from your group, your suppliers, and your members. As a purchasing cooperative, you will need to work with your suppliers to provide product information in a format you can publish into a web-catalogue. Ideally this product information will include product images, rich descriptions, and relevant cost information. Where possible, the task of putting this information together should be pushed to the suppliers themselves, but your purchasing cooperative should be prepared to step in where needed.

Members will have to be willing to visit the group’s web catalogue and manually key in orders. If they are accustomed to keying in orders into their supplier web sites, this will not be a difficult transition. However, if the member is used to generating purchase orders directly from their ERP systems, then convincing them to re-key their orders will be an uphill battle.

One advantage of managing online catalogues is that you will have a rich repository of product data that can be used in analytics as well as member e-commerce. The other advantage is that there are no costs for the member to participate.

Capturing Member Orders

A far less labour-intensive approach to e-ordering is to allow members to enter purchase orders into their existing ERP software, as they are already doing, and then provide a way to access those orders electronically.

The most common approach is to provide integrations into the various ERP systems used by your members. Such integrations result in either a file exported that can be transmitted and mapped as an EDI file, or a direct API integration into your ordering platform.

Some online catalogue providers also have the ability to accept “punch outs” from various systems. With a punch out, the member can view the catalogue and place orders while staying within their own software platforms. This style of e-ordering is most common with larger systems such as Oracle or J.D. Edwards.

The benefit of this approach is that it is built upon your members’ existing ordering process and eliminates any need for re-keying. The downside is that there is usually a cost involved for the member to create the integration and on an ongoing basis for transmitting orders. Groups can help reduce these costs by funding ERP integrations on behalf of their members and by negotiating a group rate for the EDI traffic.

Other Mediums

Depending on your provider, it is also possible to capture purchase orders in other formats and convert them into EDI files.

If your members regularly email or fax their orders, some providers have tools to capture those transmissions and convert the PDF attachment or fax into usable data that can be translated into an EDI file. This practice, unfortunately, tends to be less accurate than traditional EDI methods and may result in an increased number of failed orders.

Members may also create orders in Excel spreadsheets or other file formats. As long as the format is consistent from order to order, these files can be mapped into traditional EDI files. This process is highly accurate and provides a very reliable form of electronic ordering. The downside is there will likely be an additional cost to the member for translation maps.

Carrots

For an e-ordering initiative to be successful, it is important to have buy-in from your members and suppliers. The first step in achieving this buy-in is to communicate very clearly why you are adopting e-ordering and what the benefits are for everyone participating.

Carrots for Members

Members will benefit from added efficiencies, improved customer service, and increased cost savings.

The added efficiencies enjoyed by your members will vary based on how they are currently placing orders and how they will be sending e-orders. In environments where members have to visit each individual supplier’s web site, remember a username and password, and login to key in an order, having a single, group-sponsored online catalogue for every supplier will be very appealing to members.

Online catalogues also open up the opportunity for providing product information to members to fuel their POS, ERP, and e-commerce solutions. Product data is gold, and its value to members should not be underestimated.

In environments where orders can be created and transmitted directly from their ERP systems as part of their normal ordering process, maximum efficiency is gained. There is no re-keying as purchase orders are created automatically.

Members with the ability to already generate EDI orders from their ERP systems may have already launched their own e-ordering campaign. These efforts by individual members are generally time consuming and expensive, usually resulting in only a handful of suppliers being onboarded. A group-initiated e-ordering campaign eliminates these duplicated efforts among members, and result in a much higher level of supplier participation at far less cost and effort for each member.

Electronic ordering typically includes electronic acknowledgements and advance shipping notices. This will provide your members with timely information about out of stocks, back orders, product substitutions and shipping dates that can be vital when dealing with trade customers.

Finally, e-ordering can be used to negotiate increased rebates or discounts from your suppliers. E-ordering will save your suppliers money and will generally increase their sales. This can be used as a basis for negotiating additional rebates that can be passed along to your members. These rebates will sometimes cover any EDI costs the member may incur.

Carrots for Suppliers

Suppliers enjoy many cost savings and revenue generating opportunities when orders are placed electronically.

Electronic orders are fed directly into their ERP systems without the need for human processing. Their automatic processes are able to take the order, acknowledge it, fulfill it, and invoice it far more efficiently than if it arrived by other means.

Combining e-ordering with e-invoicing will provide further incentives for suppliers to participate. Studies show that e-invoicing greatly reduces the time to pay, putting money in your suppliers’ pockets sooner.

Offering a central billing program for some or all of your suppliers will also make them more eager to participate. If your group is paying invoices on behalf of your members, your suppliers will feel more confident of prompt payment. A single payer also streamlines their payment processes. With e-ordering and the right software tools, you will have visibility of what your members are ordering and be able to control any credit risks associated with central billing. The benefits of central billing to your suppliers will often cause them to provide you with better terms discounts which can introduce further savings for your members or generate revenue for your group.

Onboarding

Onboarding suppliers onto an electronic ordering platform is as much an art as it is a science. Treat it as you would any other major group initiative – talk about it in all your communications, measure it, and build a marketing initiative around it.

Tackle your low-hanging fruit first. Identify your suppliers who already support e-ordering and who are eager to participate. Early wins will help build confidence in the program and build momentum.

Next focus on your bigger suppliers, the ones with the greatest purchase volume from your group. They have the most to gain and will provide the biggest benefit to your members.

On the member-side, identify the most common ERP systems in use by your members and work to create integrations with them. Recruit members who will act as champions for your campaign and will be willing to talk with suppliers and other members.

If you will be creating online catalogues, make sure you have adequate staff in place. No matter how good your catalogue tools are, you will need staff to maintain products and catalogues on an on-going basis.

Set realistic goals and timelines for the number of suppliers and members participating in the program. It is unrealistic to expect 100% participation. Decide what numbers make sense for you.

Reporting

Once your e-ordering platform is up and running, continue to follow up on it. Continue to add suppliers to the platform. If possible, encourage your members to place orders for non-group suppliers as well so that you can capture data about those purchases.

Run reports every quarter, showing member purchases from suppliers and provide this feedback to your trading partners. Historically, purchases from suppliers who participate in e-ordering will increase over time. It is good practice to show this trend to your suppliers.

You can also use purchase data when evaluating your preferred vendor programs as well as tracking your members’ participation in your programs. Access to line item information may also help you when considering container buys or white label product lines.

Solution Providers

Moving to an e-ordering platform requires a knowledgeable partner who understands the uniqueness of the buying group model, has the appropriate software tools, and has experience building an EDI exchange within a supply chain.

Can You Afford Free Software?

By Steve_Seguin

On August 23, 2016

In Technology

Purchasing Cooperatives

Purchasing cooperatives are masters at piecing together a hodge-podge of free software tools to help them do their jobs. Need to do a mass mailing? Use Mailchimp. Need to collaborate across different home offices? There’s Google Docs. Need to make a conference call? Use UberConference.
SurveyMonkey, Doodle, HootSuite, Trello, Prezi… There’s lots of great free software out there. For buying groups with a limited operational budget and a high need to simply get the job done, these tools seem like a life saver.

But as a purchasing cooperative you have a unique responsibility when it comes to recommending free software to your members.

Nothing is Free

We all know that there is no such thing as “free as a business model”. So how do the creators of free software hope to make their money? Well, there are two models driving free software.

Advertising as a Business Model

The first model is “advertising as a business model”. By this, I don’t mean displaying ads on the page in hopes that you’ll click them. The return rate on this type of advertising is so small (fractions of a penny per click) that the site has to be as popular as Facebook or YouTube to be profitable.

By advertising as a business model, I mean the creator of the software is offering free use of the software in hopes that you will buy something else. That something else may be a paid version of the software with increased functionality, or it may be a completely different service or product.

On its own, as long as everyone is honest and up-front, this model is relatively benign. The downsides for you as a buying group include:

The software may not include all the functionality you need.
There’s no support for the software if you have questions or problems.
Because the software is a marketing device and not an end-product, it may not be updated with new features as often as you would like, and it becomes stagnant over time.
If the company is not successful with its primary line of revenue, the software may disappear or may be converted into pay-per-use.

Surveillance as a Business Model

The second model is “surveillance as a business model”. In this model, the creator of the software reserves the right to sell any private information it gains from you for commercial purposes.

In our personal lives, we’ve all grown accustomed to giving away private data. But as a purchasing cooperative the data you are giving away doesn’t belong to you.

It belongs to your members.

Whenever you use free software in your purchasing cooperative, you need to ask yourself whether you are giving away information that your members consider private. Are you putting your members’ sales, order, or customer data in someone else’s hands? It is hard enough to be an independent business these days without having the details of your business sold to your competitors.

The challenge is that there is no way of truly knowing if the company providing your free software is selling your information. Most terms of agreements contain vague clauses that would allow your data to be sold. Terms of agreements and licenses also change over time, often without you knowing it. Even if the founders of a company are adamant that they will not sell your data, the third party investors that fund the company may have other plans.

And remember, the two business models are not exclusive. In most cases, both are being used. And if they aren’t now, they will be in the future.

When is it OK to use Free Software?

I still use free software at work, with the following guidelines. I only use free software if:

It is not mission critical. Any task that is truly important to my company’s success is paid for.
It doesn’t involve sensitive data. That survey I send out once a year? I’d be fine if that information got out. My new product specifications? I’ll keep those off of Google Docs, thank you.
It’s not a task I do every day. I edit sound files a couple times a year for marketing projects. Audacity works great for that. I’m work with spreadsheets every day – I’m going to pay for Excel.
It’s not something that I will need help doing. LinkedIn is pretty simple. I’m not going to have to phone someone for help.

Most importantly, I’m not going to rely on free software for anything that may affect my customers. At that point, free would be too expensive.

Tech Strategies for Buying Groups

By Steve_Seguin

On April 6, 2016

In Technology

Are you using software simply as an operational tool or are you using it to drive your buying group forward?

One of the biggest mistakes I see buying groups and purchasing cooperatives making is investing too much time, energy, and money on technology projects that are operational conveniences. Upgrades to accounting systems, cosmetic improvements to your web portal, and even adopting online ordering tools all have value, but will they help you meet your core objective of significantly improving your membership’s bottom line?

The technology you use should be aligned with the core objectives of your group. For example, a traditional purchasing group focuses on leveraging the buying power of their members. The goal is to reduce the overall cost of goods through discounts and rebates in order to significantly improve their member’s bottom line. There may be other secondary goals, but if this main goal is not consistently achieved, membership in the group has little value.

How can you use technology to drive your strategy? Your highest priority should be on getting accurate and complete real-time data about what your members are purchasing. Groups who capture category and item data real-time have a distinct advantage over other groups. They typically pay higher rebates out to their members. Their negotiations with vendors are smoother. They provide more creative services to their members. Member turnover is smaller, and as a whole the group is more resistant to the impact of corporate competitors.

Given how overworked most groups are, it can be tempting to think that increasing operational efficiency is a strategic goal. Tech projects can be frustrating and distracting for a lean buying group. That makes it even more crucial to focus on the right projects first. By focusing on operational efficiency, your group risks becoming an administrative body. Instead, focus on the larger goals of your group when choosing a tech project, and use these projects to distinguish yourself from other competing groups in your sector while adding value to your members.

For a full discussion on this subject, check out this recent webinar conducted with LBMX and the National Cooperative Business Association CLUSA International: https://goo.gl/W9nr4W