Elemica- When Bigger Is Better

Elemica.comCopyright © 2016 Elemica. All rights reserved.

When Bigger is Better

How to Create Successful Collaborative Demand Aggregations

Maximize savings.

Increase market leverage.

Sharpen your competitive edge.

When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved.

Executive Summary

Sourcing aggregations are a collaborative activity between two or more independent organizations that aggregate their collective buying power to reap the benefits of increased economic leverage, quality, cost savings, and service provisions from their suppliers. In a volatile and globalized market characterized by interdependence, communication, and rapid innovation, aggregation has surfaced as a high-level strategy for gaining resource leverage.

Despite an attractive spectrum of advantages and opportunities resulting from aggregation, there is an ideal time and process for everything. In this paper, we navigate the timing and strategies required to attain the greatest reward from such collaborative sourcing efforts. We also examine how companies can cooperate to source, and how to select the best aggregation partners according to your business’s needs. Category expertise and strategic sourcing competency will enable you to unleash substantial yet often overlooked rewards.

2

When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved.

• Reduces procurement costs associated with gathering market information.

• Lowers prices through economies of scale.• Improves services due to visibility and better attention from suppliers.

3

The Advantages of Aggregation

Aggregation is common among many businesses in a wide spectrum of industries, although there are several exceptions where such collaborative projects may not be preferred. Such situations include environments where success is heavily based on competitive advantage, or when sharing information between organizations may create difficulties in terms of confidentiality and anti-trust regulation. Collaborative sourcing events have their share of challenges, certainly; however, given the right clients and commodities, aggregation is a strategy with notable advantages that can skyrocket a business’s success.

Proof There is [Purchasing] Power in Numbers

By joining forces, a consortia of businesses can obtain enough purchasing power to acquire discounts and benefits from suppliers which those businesses wouldn’t have been able to access individually. Group or consortia purchasing is popular in a wide spectrum of industries, and is most frequently used when purchasing indirect materials, services, and supplies. Some commodities that can be especially successful when aggregated include: facilities management, indirect materials and services, distribution and warehousing, and utilities in countries where there is a competitive market place. This is because, under the right circumstances, aggregation:

Minimize Costs

Aggregation can drastically help to minimize or maintain costs in tough spend categories. Key benefits are aggregated volume, improved buying power, improved market attention, and intelligence from intercompany benchmarking. Direct and indirect cost savings can be further achieved by harmonizing services across regions, by simplifying processes, by accumulating resources, and by introducing regional reporting and solutions. In this arena, aggregation:

• Enables price benchmarking within an organization and between other businesses in the market.

• Strengthens negotiating conditions when approaching and contracting with suppliers.

• Leverages power; an aggregation of demand furthermore provides opportunities for an aggregation of supply.

When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved.4

Improve Supplier Interactions, Networking Opportunities, and Market Attention

Aggregation sourcing projects leverage a larger pool of partners and suppliers, so that each company is able to gather more information more quickly in terms of benchmarking, supplier identification and qualification, and gathering supply market intelligence and pricing. By grouping suppliers and clients — whether via online platforms, round tables or live conferences — aggregations save considerable time, energy, and costs.

Furthermore, by encouraging a standardized process approach, rationalized and standardized consumption, and the engagement of all relevant stakeholders, aggregation also helps to guarantee a more secure, stable, and efficient environment for interactions and transactions.

Through aggregation projects, participant organizations also gain improved contract terms and conditions that would not otherwise be available to them. Aggregation partners are given an extremely sought-after and invaluable opportunity to exchange best practices and experiences, as they’re able to meeting and talk directly with other companies about their commodity strategies and business practices to benchmark and improve their own internal processes.

Third party service providers prove invaluable in such situations, facilitating the entire process by providing strategic guidance on how to harmonize business requirements for products and services through sourcing, how to enhance visibility in their purchasing spend and supply network, how to more easily assess future opportunities, and so forth. Working with a service provider experienced in collaborative sourcing practices:

• Provides a more consistent application of best practices.• Encourages better management of the market; promotes easier identification of constraints and challenges• Supports better management of the supply chain (i.e. by enlisting a prime contractor when bundling or via

vertically integrated supply).• Offers more opportunities for exploiting economies of scale (i.e. when there are substantial expenses shared

by different goods or services in a supply chain, such as the cost of enlisting specialized technical assistance).

"Cross-company collaborative activities are an extremely sought-after and invaluable opportunity to exchange best practices and experiences, as they’re able to meet and talk directly with other companies about their commodity strategies and business practices to benchmark and improve their own internal processes."

When Bigger is Better - A whitepaper by Elemica - Copyright © 2016 Elemica. All rights reserved. 5

NetworkCapability Increase

Leverage Possibility

SourcingTools

Value for the CustomerCost

Driver

CapacityIncrease

Deciding When Aggregation Suits Your Business

Collaborative sourcing aggregations can generate significant hard dollar savings for the participating companies. But aggregation isn’t a one-size-fits-all solution, and is best considered under specific circumstances. It can become an invaluable component of your organization’s procurement strategy when employed effectively. Remember not all commodities or markets are suited for demand aggregation. Pricing model and revenue management in some industries, like hotels for example, can run counter intuitive in certain markets where increased volume doesn’t necessarily lead to better prices.

When deliberating if and how aggregation would best serve your business, it is essential to first assess and analyze the projected results. What will offer you the best possible ROI on your resources, both in the short and long term? Be sure to take into consideration your specific services, products, industry, and market.

Cross-Company Teamwork: Best Practices for Collaborative Sourcing Aggregation

Although advantageous in many aspects and situations, aggregations can nonetheless be challenging for a number of reasons. Be sure to assess the key issues and risks before deciding to participate in an aggregation. Although no venture is ever risk-free, ensuring that you are informed, aware, and prepare to deal with potential challenges is an essential first step in morphing any obstacle into an opportunity.


Here are two primary reasons why aggregations can be difficult, and how to handle them:

The number of participants

It’s only logical that an increased number of stakeholders translates to an increased number of opinions in terms of what’s the best way of doing things. Further complications can arise from clashing corporate cultures, different operating strategies, and differing methods and practices. Consortiums and third party aggregation services providers such as Elemica act as facilitators to help all participants achieve harmony and results throughout the multilateral sourcing process. Best practice processes give participating organizations several “opt-in, opt-out” gates throughout the sourcing process, giving partners the option to discontinue or withdraw at several predetermined decision-making points. There must also be great emphasis on consistent, clear, and professional communication. As more players are involved, it becomes all the more important to ensure that everyone is on the same page, has the same information, and shares a mutual understanding each step of the way.

It is essential to build a foundation of agreement upon the following minimal requirements, which constitute a project’s success:

• The minimum savings to be targeted• The list of material or service specifications and commercial

requirements• The list of qualified suppliers to be targeted• The critical terms and conditions of the final award contract, including

contract duration and payment terms

Limited flexibility

Aggregations allow for change — when handled well, they promote creativity and innovation. But they are not for every business, or for every phase of organizational maturity. There is limited flexibility, for instance, when a company has agreed to work with other participants on a common goal. If that company cannot maintain its commitment, it should not participate; it will otherwise inevitably create problems for the other participating companies as well as the suppliers.

The point of aggregations is to leverage economic power, simplify the process, and eliminate that which is excessive, time-consuming, too expensive, or unnecessary in the attainment of your procurement goals. Thus, along with selective involvement and robust communication, it’s important to have vision, focus, and transparency.

Choose to interact with aggregation partners with similar company cultures — businesses that support collaboration, brainstorming, and innovative processes. Seek environments which are well-structured and organized, yet also open-minded and adaptable to your shifting market’s demands. Before making any decision, it’s wise to do your research and enlist the expert help of a trusted third party service partner.


Making Your Choice: Five Cornerstones of Choosing a Sourcing Service Provider

When enlisting the help of a third party sourcing service provider, it is essential to ensure that your ally can enable you to leverage economic power, minimize costs, and effectively strategize for success. Just as you are an expert in your own field, you must demand the same respective quality, assurance, and proficiency in theirs. When deliberating over a sourcing service proposition and service provider partner, always consider these five cornerstones of a successful sourcing partner:

Conduct Supplier Selection

Screen Suppliers

Develop Sourcing Strategy

Profile internally

and externally

Assess opportunities

Gate 1 – Commit on ProjectOpt – In / Out

• Customer Meeting• Role Definition• Supplier Meetings• Communication to Countries

Gate 2 – Commit on SpendOpt – in / Out

• Spend Details• Total Contract Value• Preparing the Right Event• RFI / RFQ rounds• Countries Update

Gate 3 – Awarding DecisionOpt – in / Out

• Awarding Rules to be Clear• Awarding Suppliers• Individual Discussions• Countries Discussion• Feedback Collection• Final Meeting

Strategic Sourcing Cycle

Important Aggregation Process Steps:• Aggregating members’ awareness and communications• Local involvement (awareness, local dynamics)

• Regional negotiations (standardization of FWA)• Country negotiations with preferred supplier

GlobalOutreach

Proven Sourcing Expertise

Factors for choosing a Sourcing Service Provider

Proficient & Flexible Sourcing

MethodologyCollaboration Confidentiality


Proven Sourcing Expertise• Do they have proven expertise in your industry and market?• What is their focus and specialty? • What is their track record of success?

Proficient and Flexible Sourcing Methodology• What is their proven sourcing process or methodologies?• How do they adapt to various procurement organization levels or

capabilities?• Do they deliver any additional savings due to aggregations of volume?

Collaboration• Do they draw information sharing and collaboration from historic

sourcing projects?• What are their methods for sharing best practices and identifying

alternative supply services globally (workshops, peer meetings, round table discussions)?

• Do they enlist experts? Are they updated on current best practices and market trends? Are they familiar with the latest technology?

Confidentiality• Do they ensure data security and confidentiality (among customers and

suppliers) as a third party?• Are there internal processes in place to ensure that confidential data,

information and systems are secure and accessible only to key resources?

• What is their process for assessing anti-trust hurdles and project viability to ensure that aggregations are within the bounds of applicable law?

Global Outreach• Is their span local, regional, national, or international? • Are they capable of a global project execution?• Do they bring an existing network of corporations that are compatible

partners for aggregations?


Conclusion

Under the right circumstances and with collaborative corporations and commodities, aggregation can become the ideal springboard for catapulting your sourcing efforts towards greater value by increased leverage, reduced costs, and improved market attention and support. Further advantages include greater quantities and opportunities for resource procurement, increased market information, strengthened negotiation positions, and access to benefits and discounts.

To strategize for sustainable success, review the shifting market landscape and its key catalysts in order to decide on the best sourcing solutions to suit your own company’s demands. Recognize the challenges involved in sourcing aggregations and choose collaborative partners that synergize well with your goals – both organizations participating in the sourcing activity and third party services providers – to ensure that you reap the best possible value for money.

North America

Global HeadquartersElemica | Philadelphia, PA550 E Swedesford RoadSuite 310Wayne, PA 19087, USAPhone: +1 484 253 4674

Elemica | Atlanta, Georgia780 Johnson Ferry RoadSuite 400Atlanta, Georgia 30342, USAPhone: +1 678 514 3700

Europe

Elemica | Frankfurt, Germany5th floorHerriotstraße 160528Frankfurt am Main, GermanyPhone: +49 69 66123 0

Elemica | Amsterdam, The NetherlandsBuilding Officia IDe Boelelaan 7, 7th Floor1083 HJ AmsterdamThe NetherlandsPhone: +31 20 504 1500

Elemica | London, United Kingdom180 PiccadillyLondon, UKW1J9HFPhone: +44 20 7917 2816

Asia Pacific

Elemica | Tokyo, JapanKY Kojimachi Building 1F5 Chome-4 Kōjimachi Chiyoda-kuTokyo, Japan 102-0083Phone: +81 3 3238 5721

Elemica | Singapore9 Battery Road11/F, Straits Trading BuildingSingapore 049910Republic of SingaporePhone: +65 6597 0964

Elemica | Seoul, KoreaFloor 12, Gongdeok BuildingSaechang-ro 11, Mapo-guSeoul 121-812KoreaPhone: +82 2 561 0825

Copyright © 2016 ELEMICA, All Rights Reserved

Contact Us

Elemica | Bringing the Supply Chain to Your Enterprise

Elemica is the leading Supply Chain Operating Network for the process industries. Launched in 2000, we drive bottom line results by promoting reduced cost operations, faster process execution, automation of key business processes, removal of transactional barriers, and seamless information flow between trading partners. We transform supply chains by replacing manual and complex approaches with efficient, effective, and reliable ones. Our clients process nearly $400 billion in commerce value annually on our networking, including rockstarcompanies like BASF, BP, Continental, The Dow Chemical Company, DuPont, Exxon Mobil, The Goodyear Tire & Rubber Company, Michelin, Shell, Sumitomo Chemical, Wacker, and many more.

Access our free knowledge resources at http://resources.elemica.com

About Author

Kristie Beck

Kris is the Vice President of Product Management & Operations for Elemica’sSourcing business. She has over 17 years of supply chain and procurementexperience in industry and management consulting – spanning a wide spectrum ofsectors, including aviation, CPG, and financial services with depth in process,industrial, and high tech manufacturing. She uses innovative analytics-drivenapproaches and technologies to help companies deliver sustainable value,operational performance, and measurable earnings impact.

http://resources.elemica.com/

Documents

Elemica- When Bigger Is Better