Jeremy Ferrer
Webinar :
Cross-border Purchases and VAT: Optimization Strategies
Tuesday Sept. 10, 2024 at 11 am (France)
By definition, a purchasing center is a structure that brings together franchised businesses, wholesalers or retailers, distributors who take advantage of purchase offers at very low prices. It therefore buys products in bulk to give its members attractive prices. The latter are also called affiliates. They are hired by a fixed-term contract.
It is the franchisor who manages the purchases of its members. The latter carries out product studies, supplier searches and negotiations with suppliers. Other power plants also take care of organization, documentation and distribution.
Buying is a strategic action. Knowing how to buy contributes to optimizing the company's profit margin. Identifying and selecting the best suppliers requires experience and know-how. When it comes to ensuring the supply of raw materials, supplies, merchandise or consumable materials, cost analysis is essential.
It is for this reason that theoptimization of purchasing costs is very important to ensure the long-term profitability of the company. It is with this vision that purchasing centers were created. In this article, we will see the different types of central purchasing agencies, how they work, what are their advantages and disadvantages.
It was in 1930 that one of the pioneers of groups of buyers was created in France. It is Paridoc, which is a subsidiary of Auchan. Other purchasing centers then appeared on the market. We will see the 4 types of buyer groups in the following lines.
It is a mega-buying center. It makes a large volume of purchases, as its name suggests. It especially favors wholesalers and offers opportunities to industrial manufacturers.
It has an identical character to a public interest group. It brings together several cooperatives. Its objective is to minimize the long-term costs of affiliates while giving impetus to the local economy. Members win offers to buy at reduced prices and the local sector is growing thanks to purchases from the power plant.
This type of central purchasing agency brings together independent SMEs. Its particularity lies in the fact that its members save on part of their purchases while focusing on their core business. This grouping promotes close relationships that also involve the active participation of suppliers.
This type of central purchasing agency provides its members with branded points of sale. It is the employees who manage these points. However, they must follow the commercial policy of the parent company.
Private companies and public authorities take advantage of these purchasing groups to optimize their margin, because they can obtain wholesale prices from suppliers.
The functioning of a central purchasing center is more or less complex. The group manager, also called franchisor, is responsible for several tasks such as identifying suppliers based on tenders. It carries out an in-depth study of the characteristics of the product or merchandise. He negotiates to make purchases at a good price in order to satisfy his franchisees and allow them to have more margin when reselling. All product purchases are therefore centralized in one place. All affiliates or members have the same products at the same price.
The sector most present in purchasing centers is the large-scale distribution sector.
At the top of the list are food companies that face tough competition. Food purchasing centers are more and more numerous, such as Auchan central purchasing centers, Intermarkt purchasing centers, Carrefour purchasing centers and Super U purchasing centers.
We can distinguish several modes of operation of central purchasing agencies, namely:
The referral center acting like a broker. It selects and negotiates with suppliers in order to have preferential rates. Every negotiation is finalized by a contract. The suppliers are then listed in a catalog made available to the members of the power plant. Affiliates can thus make their purchases directly from suppliers. It is the suppliers who therefore regularly pay the power plant. This remuneration is based on the turnover generated by the members.
For its part, the commission buying center acts as an intermediary. It buys from suppliers for members of the power plant. This mode of operation is more or less opaque due to the fact that some suppliers are not aware that the purchases are for affiliates. This power plant is also paid on a commission basis.
The mandatary gathers the order forms from the members of the power plant. He then negotiates the rates with the suppliers. This type of central purchasing agency is also paid on a commission basis.
The wholesaler buys in bulk from suppliers and resells the products to affiliates at a profit margin.
Supply managers or managers are freed from the purchasing function and can focus on other strategic tasks such as winning new customers and growing the business. The efforts of managers are then concentrated on actions with higher added value.
The economy of scale provided by group purchases at preferential rates is significant. Buyers make every effort to provide affiliates with attractive rates that will have a considerable impact on their turnover.
Joining a central purchasing center for your purchases also means joining a group of companies. The company's professional network is expanding and other opportunities for collaboration may arise in the long term.
The use of group purchases allows a team to take care of orders. This brings a qualitative gain and a significant gain in time. In addition, for communities or small businesses that do not have qualified personnel or purchasing departments, groups of buyers will be for them a door offering multiple opportunities for their activities.
What most prevents managers from using a central purchasing center is the loss of control over a main function of the company. This decision must be carefully considered and its application requires close follow-up in order to avoid last-minute surprises.
It is also likely that we are facing a team that lacks know-how and experience in negotiating with suppliers. This can create misunderstandings that can have serious impacts on the company's finances given the volume and quantity of purchases made in purchasing centers. An order error can be worth a fortune. To avoid any problem, it is a good idea to find out about the group, its relationship and its communication with its suppliers. We need to know that there is no fixed formula or standard model of centralization of purchasing. We must carefully study each group, its preferential rates and conditions.
Having a clear idea of the relationship between producers and the group is an advantage in order to clearly identify the benefits of using this strategic solution.
Three points must then be considered if one wants to use centralized purchasing.
In fact, the financial gain obtained with the fall in prices leads to the reduction of the company's operating costs. This logically leads to an increase in sales margin and an improvement in offers to our target customers.
This solution can help managers considerably. However, the implementation of follow-up is strongly recommended to ensure the long-term success of the approach. The advantages of this approach are based on the choice of the power plant according to its type, commissions and other contract conditions.
The pooling of purchases plays an important role in improving the performance of franchised businesses.
The creation of a group of buyers by franchisors requires franchisees to supply some or all of their stocks.
This obligation leads to a standardization of the offer and better order management for affiliates. However, care must be taken, because in recent years franchisors are abusing this supply obligation and applying higher rates than suppliers. Which is illegal.
In the case of reference centers, management is transparent, but more cumbersome since franchisees place their purchase orders directly with suppliers.
Leclerc is a French retailer that works in mass distribution. Headquartered in Ivry-sur-Seine in Île-de-France, it is a cooperative of traders that, in 2014, extended its activities to other European countries. Historically, Leclerc opened its first store in Brittany in 1949. Over the years, the brand has started working with many brands of jewelry, cars and clothing and it even works in the parapharmaceutical sector.
The Leclerc central purchasing center operates as a cooperative made up of members, including traders, who number almost 500. They have the right to operate the brand as they wish provided that they respect a contract previously established between the two entities. It mentions, among other things, the various solidarity commitments of members, namely the fact of participating in collective life or even of guaranteeing new members. The brand's pricing policy is also included.
The life of the brand is structured on the basis of two poles:
- An association under the 1901 law that allows the president of the brand to keep and defend the values on which it is based. We are going to develop it a bit further down.
- A commercial, regional or national committee made up of members from all over France to plan tasks and manage the operational functions of the brand.
Members are required to respect the brand's contract. In stores, they are the only ones who can decide what strategy to adopt. E.Leclerc stores are organized differently from other purchasing centers such as the Carrefour central shopping center. The main difference is the fact that its members are autonomous.
The operation of the brand and its members is managed by 3 different structures.
This is the association we talked about above. It is made up of owner members, that is to say who all have shares in the brand. It is up to ACDLec to define the orientations and values of the movement.
Galec, or the Leclerc Centers Purchasing Group, is among other things the brand's commercial tool. It is the national power plant which is divided by field of activity, in particular white goods, fuels...
Galec includes around 600 stores, 600 drives and 2,400 stores that specialize in various fields. The central also has numerous websites to promote its stores. More than 800 employees work with the power plant, including 500 cooperators.
The members of the brand use this center to make purchases. The power plant is divided into 12 working groups, each of which has its own respective role. For example, there is the Marketing GT, which is in charge of everything related to the marketing field: commercial prospecting, market analyses...
Galec is at the center of the activities of the brand movement. That is even the reason for its existence. Its role is specific. He is required to negotiate with suppliers on the commercial conditions of the stores.
Recently, a major change has taken place within Leclerc, especially in terms of its various structures. The Galec power plant has had its organization chart redone. This restructuring was called Galec 2018-2022.
Two new divisions have been created for better organization, particularly in terms of supply chain and marketing. This reorganization perfectly reflects the new orientation of the brand, which is no longer focused on selling and no longer solely on buying.
Thus, if we take a quick look at Galec's organization chart, we find Olivier Huet at the head of the power plant. Sébastien Chellet is the managing director, with Alain Parent and Bertrand Nomdedeu in the purchasing and supply chain departments.
There are 16. In particular, they are responsible for purchasing and negotiating with the various suppliers at the regional level. These power plants provide approximately 60% of the supply.
The objective of launching the Carrefour central purchasing center is to be able to negotiate alone on the European market with its multiple international suppliers. After the end of its contract with System U, Carrefour started its own structure “Eureca”.
The centers are located in Madrid and the teams are ready to take over. The distributor plans to negotiate with agri-food giants such as Nestlé or Procter&Gamble for stores located in Belgium, France, Romania, Romania, Poland and Italy.
Eureca's mission is to buy and then resell items on the European market. On the supplier side, this initiative allows them to have a single point of contact, invoices and simplified administrative processes. The management of the group hopes to benefit from this in order to improve its organization on the European market and move to rapid and transparent decision-making.
It also plans to develop the modernization and streamlining of its supply chain. The choice of setting up offices in Madrid is strategic because of the expertise acquired there in the textile and food sector.Madrid thus becomes the unique gateway in Europe where its giant suppliers will enter.
An expert in the sector, Olivier Dauvers, says that the single front door was a dream. This will also happen for distributors. Eureca therefore plans to simplify negotiations at European level for its suppliers. In France, SMEs will continue their efforts with Carrefour France.
This new structure will launch negotiations on behalf of its subsidiaries present in Europe and represents 63 billion euros in sales. The first to be affected are the major suppliers who want to sell at European level. Alexandre Bompard, director of the group, is not looking for new partners. Preferring to walk alone, he denounced his alliances with Cora Match and Système U.
Now, 70 major suppliers will negotiate directly with Carrefour France teams in 2023, excluding giants such as Coca-Cola or Nestlé, who will benefit from the establishment of a new structure.
Small and medium-sized businesses, are your purchases becoming more important and consistent? Joining a group of buyers is an ideal solution. Other alternatives can also improve your performance, such as outsourcing your purchases to a professional. BME Consulting is specialized inoutsourcing your spot purchases. It provides you with purchasing experts with more than 10 years of experience including qualified suppliers, a tailor-made and personalized service, a dedicated team ready to listen to you and offer you the best offer adapted to your current and future needs.
BME Consulting accompanies you from the analysis of your purchasing function, to the implementation of an e-purchasing software allowing you to manage your supplies effectively and professionally.
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