Sourcing and Procurement
Procurement Efficiency with Demand Aggregation
Value for money continues to be the focus of procurement teams. B2B brands have deployed various strategies and procurement efficiency levers to contain costs. Demand aggregation acts as a key efficiency lever leading to higher buying power for the buying organization, resulting in higher discounts and cost savings.
I reminiscence, how I used to go to different stores to buy groceries and other household essentials just a few years ago. As the years passed, all these items were available in a supermarket. Now, I could not only buy everything in one place but also choose from a wide variety of brands, volumes, and prices.
As a shopper, you could pick, add, pay and check out of the store in no time. This not only cut down the travel timeto different stores but offered shoppers - volume-based discounts, and a slew of attractive choices. The shift ultimately improved the frequency of purchase too.
But are we still buying in the same manner? Although we still have supermarkets, it is now a combination of physical and virtual stores like Amazon. The virtual marketplaces are taking over. They give us not only better pricing, but also the convenience of buying from home.
Simply put, virtual supermarkets became a superior shopping model.
Demand Aggregation for B2C and B2B Buyers
Here’s the point - as the selling model evolves, the buyer is naturally drawn to a new model with more benefits. In most cases, the new model is cost-effective, convenient, time-efficient, and relevant.
When we look back and analyze how the model has evolved, technology has played a vital role by catering to our changing lifestyle and demographics. Virtual marketplaces have cut down the divide between rural and urban buyers and bring in improved accessibility. Technology has also been instrumental in improving the overall shopping experience irrespective of the channel.
Similarly, buying models have evolved for B2B buyers too. Value for money continues to be the focus of procurement teams. B2B brands have deployed various strategies and procurement efficiency levers to contain costs.
Demand aggregation acts as a key efficiency lever leading to higher buying power for the organizations resulting in higher discounts and cost savings.
Aggregation is an established way of driving larger economies of scale.
1. It results in reduced costs and higher value from suppliers.
2. It lowers the cost of operations as a result of the reduced number of buying or sourcing events.
3. Standardization leads to inherent efficiencies in buying processes.
Demand aggregation could be simply at an organization level or even beyond the organization’s boundaries.
How Emerging Businesses Have Used Demand Aggregation for Procurement
Multiple businesses buy the same products or services, probably from the same supplier. But they may not get the benefits of the volume pricing or centralized delivery in the same period of time. Despite the advantages, businesses still struggle to aggregate business demand outside of their organization. One reason is, perhaps, the absence of a compliant layer or channel which can aggregate and fulfill the demand as per the policies of their procurement organization, such as Amazon or Walmart in the e-retail world.
Over the last few years, many emerging startups like Uber, Airbnb, and OYO, have focused on creating mobile and tech-enabled customer-facing marketplaces. This helps in aggregating customer demand efficiently.
In the B2B scenarios, too many businesses have deployed strategies to aggregate the demand and consolidate the supplier base. This has resulted in many significant suppliers restructuring themselves as aggregators. For instance, Grainger in the MRO space and managed service providers (MSPs) work to meet client demands with a bouquet of service/product portfolios.
The Role of Procurement Service Providers
Procurement service providers so far have focused on improving the efficiency and compliance of the process through technology, outsourcing, or automation. It has enabled us to change the game altogether and concentrate where the future value is going to come from.
Alternative buying models leveraging collaborative buying is an emerging opportunity where new age procurement service providers can play a significant role.
Issues like taxation laws, logistics, IP legislation, across and sometimes within borders, can add multiple layers of complexity. It can often act as a deterrent to demand aggregation. However, ambitious demand aggregators and collaborative partners have to invest time, effort and money to define and resolve the differences. It helps them establish a universally adaptable yet local model to sustain in the long run.