Bulk-buying power

Purchasing consortia are increasingly being established across a wide range of industries – and healthcare is no exception.  

Many cannot be spotted from the outside, but the suppliers are definitely aware that businesses are getting together to extract better deals.

In the NHS, growing numbers of GP practices are doing it and many of the trusts have banded together and pooled their needs, joining purchasing hubs that are able to negotiate improved terms because of the increased purchasing power.

An example outside healthcare is a group of five established London-based hotels groups who formed the Mayfair Consortium in 2007. Because of the clear financial benefits obtained here, three other groups are now seeking to join them to enjoy considerable savings.

More recently, some of the independent hospital providers have gathered in an informal consortium and tendered and let contracts in categories such as:

• Telecoms;
• Laundry;
• Merchant services;
• Clinical waste collection;
• Print and stationery.

Some clinical product categories have recently been added to the portfolio. Each of the contracts was valued at over £1m a year.

The experience has shown that 10% and more a year can be saved on the current contract values by doubling the annual spend with the successful contractor by joining a consortium.  

In 2008, HCA International participated in seven large contracts, joining with several of the other hospital providers. Most of these contracts were let for three years with fixed-price agreements and the total savings were considerable, with no reduction in the service or product quality.

So it might well be of real benefit to you and your practice to work with others to form a purchasing group and for everyone to enjoy lower prices on products you are all buying.

But what are the challenges and pitfalls that can be faced when working in such a group, and what are the tips and hints to being successful?

The participating partners involved must have senior level ‘buy in’ to ensure that it is fully supported, resourced and a priority. Without this, the venture will probably fail or flounder

Purchasing teams should not be made to feel threatened by such a venture, although it is natural to be worried that someone can buy better. If they feel a threat, then it will never get the support it needs.

You need to ensure the partners have a clear shared aim/target and plan of action. What are we seeking to save and by when? Scope the opportunity first.

There must be a willingness to fully share current price information with the partners to ensure that the new contract is better for everyone. Just share your prices because knowing what someone else pays is really helpful data.

Focus on the aim of saving money and not on whether you save more than anyone else. Share the spoils fairly and enjoy the benefits.

Swallow your pride and accept that, however good you think your current prices are, it can be improved by increasing the size of the contract value.  

Be willing to change your supplier to obtain the better deal for everyone’s benefit. If everyone insists that their current supplier is best, not much progress will be made.

Do not change all your suppliers at once because it can be very disruptive. Ensure the pain is worth the gain.

Learn to trust the other partners, as they are your side of the table and the suppliers are on the other.

Your partners may also be a local competitor too and that might cause some internal tension about working closely with the competition. In the end, we all need to buy basic products and services and usually this does not affect competitive issues much. Agree the boundaries early on.

While we should not seek to reduce quality of the service or product, consortium partners might use different products quite happily or simpler solutions that might be worthwhile adopting and also reduce cost. This is an added benefit.

You have to put effort and commitment in to ensure that you get the savings and being half-hearted will not help the group to succeed. Ensure that you review progress regularly.

Clive Horner (right) is director of purchasing and materials management, HCA International Ltd