Syndicated procurement is a purchasing method whereby a syndicate manager groups together multiple concurrent orders from multiple

buyers Procurement is the method of discovering and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. When a government agency buys goods or servi ...

with intent to reduce the purchase

price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the c ...

or facilitate delivery. Similar terms in use are "aggregation" and "collective buying". ''Example'': Five distinct government agencies each require 2,000 new ergonomic

office chair An office chair, or desk chair, is a type of chair that is designed for use at a desk in an office. It is usually a swivel chair, with a set of wheels for mobility and adjustable height. Modern office chairs typically use a single, distinctive l ...

s. For an order of 2,000 units, the chair manufacturer is willing to sell at $100 each. Hence, if procuring independently, each

government agency A government or state agency, sometimes an appointed commission, is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an administrati ...

will pay $100 per

chair A chair is a type of seat, typically designed for one person and consisting of one or more legs, a flat or slightly angled seat and a back-rest. They may be made of wood, metal, or synthetic materials, and may be padded or upholstered in vario ...

. However, for an order of 10,000 chairs, the

manufacturer Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to a ran ...

is willing to reduce the price to $70 per unit. The five agencies can therefore pool their

demand In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...

in order to lower the price by 30%. Note that the buyers will change nothing in their order, except that they procure in concert, through a syndicate manager.

Real-world examples

Auto industry

Competing German automobile manufacturers often procure steel in combined orders to reduce price.

Government

In early 2010

New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island count ...

’s Ministry of Social Development considered using syndicated procurement to purchase

computer A computer is a machine that can be programmed to Execution (computing), carry out sequences of arithmetic or logical operations (computation) automatically. Modern digital electronic computers can perform generic sets of operations known as C ...

s collectively with other New Zealand government agencies. In the United Kingdom,

Crown Commercial Service The Crown Commercial Service (CCS) is an executive agency and trading fund of the Cabinet Office (United Kingdom), Cabinet Office of the UK Government. The CCS is responsible for managing the government procurement, procurement of common goods a ...

(CCS) periodically arranges aggregation opportunities so that several public bodies can achieve savings through their consolidated buying power. Generally these opportunities operate as national further competitions (NFCs) using an existing government

framework agreement In the context of negotiations, a framework agreement is an agreement between two parties that recognizes that the parties have not come to a final agreement on all matters relevant to the relationship between them, but have come to agreement on en ...

to which all of the public bodies involved have access. CCS notes that the time involved in assembling a group of customers and collating their needs may mean the procurement process takes longer than it would if customers acted separately.

Construction

Australian building firms and contractors have begun to use syndicated procurement to purchase

building material Building material is material used for construction. Many naturally occurring substances, such as clay, rock (geology), rocks, sand, wood, and even twigs and leaves, have been used to construct buildings. Apart from naturally occurring materia ...

s. Procurement rounds have yielded price reductions of between 30% and 45%.

Legal considerations

In many jurisdictions syndicated procurement must be executed through a professional manager. Otherwise, competing firms placing orders together can be legally deemed to be price fixing, or artificially controlling market prices. However, syndicated procurement through a professional manager is the legal equivalent of purchasing through a wholesaler, and is therefore legally permissible. Professional syndicate managers also provide a forum for syndication to competing firms that otherwise might be uncomfortable working together (this benefit is much more relevant to the private sector than to government agencies and non-profits).

Efficiency

Syndicated procurement is potentially more efficient than traditional procurement, because the syndicate manager identifies the precise volume, time, and locus of demand before the order is placed. #Traditional procurement chains typically include

distributors A distributor is an enclosed rotating switch used in spark-ignition internal combustion engines that have mechanically timed ignition. The distributor's main function is to route high voltage current from the ignition coil to the spark plugs ...

and

wholesalers Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In ...

, who make bulk orders without precise knowledge of the volume of customer demand for a given product, which means that orders can be too large (leftover stock) or to small (unsatisfied customer demand). #Distributors and wholesalers do not know ''when'' demand will appear, and so risk having to stock items for undetermined periods of time, and incur associated costs (or, conversely, risk not procuring items for which demand exists, and then missing a sale). #Finally, distributors and wholesalers do not know precisely ''where'' demand will appear, and as a result unwittingly deliver merchandise to points of sale with low demand, while leaving locations with high demand undersupplied. The result is missed sales, or incurring the expense and time lag of transporting the article. Syndicate managers eliminate these three inefficiencies by knowing in advance exactly where, when, and how much of a given product will be needed.

Leadership and innovation

Facilitated by evolving telecommunications technologies and global logistics services, syndicated procurement is a fairly recent concept. A few pioneers are developing and establishing its methods and conventions:

Public sector

The New Zealand government has been a leader in introducing syndicated procurement among different government agencies. The New Zealand Ministry of Social Development has been particularly active in encouraging syndicated procurement.

References

{{DEFAULTSORT:Syndicated Procurement Procurement