Topic 15: Group (Consortium) purchasing in the public sector

AY 2022/ 2023
What is group (Consortium) purchasing?
It is a collaborative arrangement in which two or more organisations join together to combine their
individual requirements for goods, works or service.
Key objectives of coming together are to increase the buying power of the individual companies and
enhance savings by leveraging greater economies of scale and pre-negotiated prices with suppliers.
This purchasing model is generally considered more suitable for small and medium enterprises.
A consortium is a group made up of two or more individuals, companies, or governments that work
together to achieving a common objective.
Members are able to achieve alot of benefits that may not be possible to obtain individually.
Common in organizations such as hospitals, clinics, schools, non-profit organizations and businesses
of all sizes to procure goods and services at reduced costs.
Entities that participate in a consortium are required to adhere to contractual obligations that are set
out in the consortium's agreement (e.g pooling resources). Every entity under the consortium,
remains independent with regard to their normal business operations and has no say over another
member's operations that are not related to the consortium.
Origins of group (Consortium) purchasing
The concept of consortium purchasing has its roots in the practice of collective bargaining, which has
been used throughout history to achieve better outcomes in procurement and other areas. The idea
of pooling resources and leveraging collective purchasing power has been employed by different
organizations and industries in different forms over time.
One of the earliest examples of consortium purchasing can be traced back to medieval Europe, where
traders formed purchasing cooperatives to collectively procure goods and services for their members.
These cooperatives realised cost savings, negotiated better prices with suppliers, and access to
resources that may have been difficult to obtain individually.
In the 19th and early 20th centuries, agricultural cooperatives emerged as a way for farmers to
collectively purchase inputs e.g seeds, fertilizers and equipment. These cooperatives allowed farmers
to achieve economies of scale, access better pricing and reduce costs, which helped them compete
more effectively in the agricultural market.
Consortium purchasing gained prominence in the mid-20th century with the establishment of
purchasing consortia in various sectors. e.g, in USA, the National Joint Powers Alliance (NJPA) was
formed in 1978 as one of the first cooperative purchasing organizations for public agencies. It allowed
public agencies and non-profit organizations to collaborate and use their collective purchasing power
to achieve cost savings and efficient procurement.
In the healthcare industry, group purchasing organizations (GPOs) emerged in the 20th century as a
way for hospitals and other healthcare providers to collectively purchase medical supplies,
equipment, and services. GPOs negotiate contracts with suppliers on behalf of their members.
Over time, consortium purchasing has evolved with advances in technology, globalization, and
changing business landscapes. Today, consortium purchasing is widely used in various industries and
sectors as a strategic approach for organizations to optimize their procurement processes and achieve
cost-effective procurement outcomes.
Examples of consortia
Consortiums involve partnerships between institutions that are close to one another. They are often
found in the non-profit sector, e.g, educational institutions. Educational consortiums often pool
resources e.g libraries, research activities & professors and share them among members of the group
to benefit their students.
One of the most famous for-profit consortiums is the airline manufacturer Airbus, nowadays known
as Airbus SE, which is composed of the companies: British Aerospace, Aérospatiale, Construcciones
Aeronáuticas SA and DASA. It was founded in 1970 as a collaboration of European & American
aerospace manufacturing companies to develop and produce a wide-body aircraft. In here, European
aerospace manufacturers collaborate within the consortium to produce and sell commercial aircraft.
Around 80% of Airbus’ activity is sourced. It works with about 12,000 suppliers worldwide that
provide products and services for flying and non-flying parts. Airbus continuously develops its supplier
base, with an overall sourcing volume across the company valued at approximately €49.6 billion.
Airbus’ external procurement is equivalent to over two-thirds of the company’s revenues.
Another example of a consortium is Hulu, the video streaming service in USA, which is composed of
big media companies including Comcast, Time Warner, the Walt Disney Company & 21st Century Fox.
Its important to note that while consortiums tend to share resources, they act independently when it
comes to day-to-day operations. They are not like joint ventures where two or more parties generally
share ownership of a venture, along with risks, profits, losses and governance.
Examples of consortia in Uganda
Educational consortia often pool resources e.g libraries, research activities & professors and share
them among members of the group to benefit their students. e.g Consortium of Uganda University
Libraries whose purpose is to facilitate effective and efficient collaboration and resource sharing
among university and institutional libraries in Uganda in order to strengthen the library services
provided to the students, staff and other patronage of the institutions.
Health consortia in Uganda include: Community Consortium Uganda which covers livelihood
development, enterprise developmnet, Climate mitigation, climate adaptation, and wildlife
conservation
Another example is the Uganda Consortium on Corporate Accountabilty, which was established to
further the discourse on economic, social and cultural rights;
Uganda Key Population Consortium, which was aimed at building a community of united voices to
advocate for the health, human rights, and socio-economic justice of key populations in Uganda
Madhvani Group Consortium
In Uganda,
Chobe Safari Lodge - Murchison Falls National Park
East African Packaging Solutions - Njeru
East African Distributors Limited – furniture and hardware merchandising, Kampala
East African Glass Works Limited
Excel Construction Limited, Jinja
East African Underwriters Limited
Industrial Security Services Limited, Jinja
Kajjansi Roses Limited, Kajjansi
Kakira Airport, Kakira
Kakira Power Company
Kakira Sugar Works, Kakira
Kakira Sugar Works Hospital, Kakira
Silver Back Lodge, Bwindi Forest
Kakira Sweets & Confectioneries Limited, Kakira
Liberty Life Assurance Uganda Limited, Kampala
Madhvani Group Central Purchasing, Jinja
Madhvani Group Projects Limited, Kampala
Madhvani Group Steel Division – Jinja
Madhvani Properties Limited, Kampala, Uganda
Makepasi Match Limited Jinja, Uganda – the largest producers of wax safety matches in Africa
Marasa Holdings Limited, Kampala
Muljibhai Madhvani Foundation, Kakira
Mwera Tea Estate, Mityana District
Mweya Safari Lodge, Queen Elizabeth National Park
Nakigalala Tea Estate, Wakiso District
Paraa Safari Lodge, Murchison Falls National Park
Premier Safaris Limited, Jinja
Software Applications Uganda Limited, Kampala
Madhvani Group Steel Division, Jinja
TPSC Turbo Prop Service Centre Uganda Limited, Aircraft Maintenance, Kakira
Marasa Africa – Holding company for all hotels and safari lodges in Uganda, Kenya and Rwanda.
In South Sudan, Excel Construction Limited, Juba
In South Africa, Liberty Holdings Limited of South Africa
In Rwanda, Kabuye Sugar Works, Kabuye
Umabano Hotel – Kigali
In India, Marasa India Resorts and Hotels, Gujarat
Drivers/Benefits/Advantages of Group/Consortium Purchasing
Purchasing consortia/groups are set up to pool demand from many different companies and increase
the purchasing power of each of the individual member companies. Benefits include:
Cost savings: By pooling their purchasing power, members can negotiate better prices and terms with
suppliers, resulting in cost savings. This can be particularly beneficial for smaller organizations that
may not have the same bargaining power as larger entities.
Increased efficiency: Consortium purchasing can streamline procurement processes by consolidating
purchasing activities and reducing duplication of efforts. This can lead to increased efficiency in
procurement operations, such as reduced administrative overheads and improved supply chain
management.
Access to expertise: It allows organizations to tap into the collective knowledge and expertise of other
members, which helps in making informed procurement decisions. Members can share best practices,
market intelligence and supplier performance data to support each other in achieving their
procurement goals.
Enhanced supplier relationships: Consolidating purchases through a consortium can enable members
to build stronger relationships with suppliers, as they can collectively offer big business. This can lead
to improved supplier partnerships, better service levels and more favorable terms and conditions.
Collaboration and resource sharing: It promotes collaboration and resource sharing among members,
fostering a sense of community and cooperation. This can result in joint projects, shared resources,
and collaborative initiatives that benefit all consortium members.
Overall, consortium purchasing can be a strategic approach for organizations to optimize their
procurement processes, achieve cost savings, and leverage their collective purchasing power to
enhance their procurement outcomes
Key factors for effective consortium/group purchasing
Consortium purchasing can be effective for organizations when certain key factors are in place.
Clear objectives, goals and performance measures: A consortium must have clear, well defined
objectives and goals that align with the needs of its members. These should be communicated to all
members, ensuring that everyone is on the same page and working towards a common purpose.
These goals and objectives should be based on measurable metrics and performance. Clarity helps in
guiding the consortium's procurement activities and ensures that they are effective in achieving the
desired outcomes.
Involve the right members that share common values and interests, similar external challenges,
geographical proximity and a desire for group success to ensure members get the benefits they aspire
for.
Active participation and commitment from members: The success of a consortium purchasing
initiative relies on active participation and commitment from all members. Each member should be
actively engaged in the consortium's procurement activities, contribute their expertise, and be
committed to following the agreed-upon processes and procedures. Active participation and
commitment from members foster a collaborative environment where everyone works together
towards achieving the consortium's goals.
Careful selection of providers that are capable of meeting the demand at the required level of quality
and service. The consortium should ensure that the providers are financially sound with low risk to
members.
Robust governance and decision-making processes: A consortium should have a well-defined
governance structure and decision-making processes in place. This includes establishing clear roles,
responsibilities, and decision-making authority among members, as well as developing mechanisms
for dispute resolution and conflict management. Strong governance ensures that the consortium
operates efficiently, effectively, and in a transparent manner, leading to successful procurement
outcomes.
Supplier management and performance monitoring: Effective consortium purchasing requires robust
supplier management and performance monitoring processes. This includes selecting and evaluating
suppliers, managing contracts, monitoring supplier performance, and addressing any issues that may
arise. Proactive supplier management helps ensure that the consortium members are getting the best
value from their suppliers and that suppliers are meeting their contractual obligations.
Shared resources and knowledge sharing: Consortium purchasing is strengthened when members
actively share resources, best practices, and market intelligence. This collaboration fosters a culture of
knowledge sharing, where members learn from each other's experiences, share lessons learned, and
collectively improve their procurement practices. This can lead to continuous improvement and
increased effectiveness of the consortium's procurement activities.
Flexibility and adaptability: Consortium purchasing initiatives should be flexible and adaptable to
changing circumstances,e.g changes in member requirements, market conditions, or regulatory
requirements. The ability to adapt and respond to changing situations is crucial for the effectiveness
of a consortium purchasing approach, as it ensures that the consortium remains relevant and
continues to deliver value to its members.Overall, effective consortium purchasing requires clear
objectives, active participation and commitment from members, aggregated purchasing volume,
robust governance and decision-making processes, supplier management and performance
monitoring, shared resources and knowledge sharing, and flexibility and adaptability. When these
factors are in place, consortium purchasing can result in cost savings, increased efficiency, and other
benefits for the participating organizations.
Supplier involvement: suppliers can provide market information, track order cycles and consumption
rates, provide supply cost data and recommend affordable alternatives. Take advantage of the
knowledge and capabilities of suppliers
Trust and cooperation: full commitment and trust from each member is required, so that there is
general acceptance of the outcome

Challenges of implementing consortium/group purchasing strategy

Even though consortia may be perceived to bring benefits that cannot be attained by other routes,
members in the consortium can be exposed to:
Lack of adequate resources such as finance, inventory, human skills, raw materials and information
technology affects consortium strategy implementation
incur additional costs such as initial costs of setting up including identifying a consortium, negotiating
a contract, setting up the relationship, cleaning up processes, documenting processes and effecting
the change, so its important to understand the costs upfront and evaluate costs against benefits.
Selected suppliers may have longer lead times as the needs of many outweigh the needs of the few,
so its impotant to outsource those items that are not required for just in time delivery, or members
can choose the consortium that is capable of negotiating contracts that are adaptable to each
member.
Poor monitoring and lack of effective communication may slowly erode the value of the investment
over time.
Reduced flexibility as members agree to use whichever supplier is selected. Members are locked into
the contract and do not have full control over the agreed upon terms and conditions. Members may
not be able to break or renegotiate the contract.
Resistance within the organisation against using a third party (the consortium)
New risks e.g fear of loss of intellectual property/confidential information; or fear that there are no
additional value arises from using consortium purchasing
Supplier resistance especially if they are currently realising
high profits by dealing with individual organisations
encounter fundamental ideological differences due to diversity, setting of unrealistic goals,
inconsistency and lack of clarity on roles
leadership challenges; who leads the negotiations and management of the contractcompetition
between partners
lack of information and experience,
cultural mismatch between organisations: differing culture and values embedded in organizations can
bring conflict and friction in some consortium models.
power imbalances
sometimes the consortium may be too small with few members that it does not have enough
bargaining power to be effective
Consortium is too large with alot of members that individual organisation needs may not be met and
the purchasing process may become inefficient and slow.
Consortium may be too diverse with diverse needs and philosophies, which may result in complexity
and dysfunction
There is a belief that being part of a consortium may benefit more the competition than the
organisation