Platt Perspective on Business and Technology

Online store, online market space – part 30: developing B to B partnerships and collaborations to gain better collective terms from suppliers 3

Posted in startups, strategy and planning by Timothy Platt on October 15, 2013

This is the thirtieth installment in a series on building an online store as a new business (see Startups and Early Stage Businesses, postings 20 and loosely following for Parts 1-29.) This is also my third installment to more fully discuss business to business collaborations, and how they can bring value to all participants.

I have in turn been addressing three questions in these more recent postings:

1. What types of business would benefit from this type of collaborative agreement? (See Part 28.)
2. What criteria should they use when selecting potential partners and negotiating with them in setting up and running these agreements? (See Part 29.)
3. What types of goods and/or services would make the most sense for them to collaboratively buy together and under what terms?

And with this posting I come to the third of these questions, and my goal for this installment is to at least begin to offer an answer to it. As a starting point for that, I explicitly repeat an observation that I made in Parts 28 and 29 of this series that the primary purpose for these collaborations is to develop increased competitive strength by entering into agreements that would offer even smaller businesses the buying power advantages of their large, high-volume competitors.

• The point here is not necessarily one of how large a collective purchase this business to business collaboration would generate for a seller for some specific stock keeping unit (SKU) or other specific item-type offered.
• The most important point is that this purchasing collaboration be able to collectively make large enough overall purchases so as to compel a selling business to offer its members big client discounts, and regardless of how varied their collective shopping cart is for range of products and or services collectively purchased.
• So while some large purchase discounts and some preferred customer terms of sale might only apply when a large minimum purchase order is entered into for select specific types of product offerings, effort should be made in negotiating costs and terms to allow for purchasing flexibility with big buyer discounts – so long as overall ongoing transactions with this seller consistently surpass some agreed to threshold volume of business required for that.
• Think through what terms and agreed-to requirements would have to be met in order to gain and retain preferred buyer status and negotiate a best set of purchasing agreement terms with any prospective business to business partners that your business would enter into collaborative buying arrangements with. Find an approach and arrive at an agreement that all involved partners can work with and keep to and then bring that to the negotiating table with the seller that you seek collective preferred customer status with.

So my approach to answering question three above, is not so much about specifically what would be collaboratively purchased, except insofar as these agreements would only be entered into if genuine savings could be realized through collaborative purchasing. This is more about arriving at terms with purchasing-collaboration partner businesses that all collaborating businesses would find beneficial, and that they would not renege on or back out of, and that the selling business would agree to and want to honor too.

• So this posting is in fact all about negotiations, and with that firmly grounded in knowing what terms your business would find beneficial, and where they would not offer sufficient value.
• And this is about thinking through and entering into at least two sets of negotiations: one when setting up a purchasing-power collaboration itself, and the other when that group collectively negotiates with large selling businesses.

And this leaves me with one final question:

• Who should manage these negotiations? And here I split this off into two distinct if related topic areas: selecting and negotiating with potential purchasing collaboration partners, and negotiating with selling businesses, that a collaboration would seek better purchasing terms from.

I am going to discuss some of the issues that would go into answering that in the specific instance in my next series installment. In anticipation of that, I note here that I will look in more detail into the negotiations that need to take place for this to work, and then into who might best conduct them. Meanwhile, you can find this series and related postings at Startups and Early Stage Businesses and also at Business Strategy and Operations and its continuation pages Business Strategy and Operations – 2 and Business Strategy and Operations – 3.

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