Daily Archives: April 3, 2023

It’s Time for the Return of Purchasing Consortiums …

… but not the kind you think!

In the good ol’ days, before everyone had access to cheap and easy e-Auctions (when inflation was low, delivery guaranteed, and supply outstripped demand) or on-demand RFX sourcing platforms, the answer to better “purchasing” was consortiums that pooled demand and negotiated lower costs (hopefully lower landed costs, but you took what you could get). Except in a few industries (like healthcare, where product requirements are highly regulated, or utilities, where manufacturing requirements are exact), these have all but disappeared with the rapid rise in modern sourcing, procurement, and source-to-pay platforms over the past two decades.

While this may have appeared to be for the best, as you lost control over who you bought from, a third party controlled the relationship (and you couldn’t always go direct to get problems resolved), and you had to pay them a pretty golden penny for their problems, the pandemic has shown us that this is maybe not the case. Even though you want to control you purchasing as a buyer for your organization, you need reliable supply … and the pandemic has demonstrated (what many of us new, and blogged, about a decade ago; search the archives) that when you are outsourcing halfway around the world, reliability is a myth.

You need nearshore supply that you can easily get by truck and, preferably, train for large shipments (as modern trains can be more environmentally friendly from a GHG perspective), but every since McKinsey and the Big X (5/6/8/whatever) analyst companies that followed told you to go China, not only did you put most of your home-grown manufacturing plants out of business (which, I’m sad to say, wasn’t always as big of a loss as whiny politicians would have you think and definitely didn’t nail the coffin shut, but that’s another post), but you also put many near-shore manufacturing plants in Mexico (and other Central, Latin, and South American locations) out of business (which did!).

They needed to be resurrected the day pandemic restrictions started relaxing, and every day the need for their reactivation (and modernization) / replacement gets worse!

But unless you are a Fortune 100, you don’t have the spend on your own to convince anyone to even think about restarting a factory somewhere closer, more reliable, and safer. (And even then, the risk equation is not any better than continuing to outsource to China and hoping for the best!)

That’s why we need a return of the Purchasing Consortium, but with a new mandate to not only pool and guarantee enough demand to keep a new(ly) (revived/modernized) manufacturing operation sustainable and profitable but, in the absence of anyone in the target location willing to take the startup risk, manage a multi-shareholder investment on behalf of the Global 3000 parties that need such an operation and can afford to invest in one!

It’s a win-win regardless of whether or not anyone is willing to buy the operation once started. Either someone steps in and takes it off of the consortiums hands, giving the initial investors a return on their investment in addition to guaranteed supply, or the investors, who maintain control, can keep purchasing costs down (and the potential for profits up).

The question is, besides companies like Apple and Microsoft that can afford to build their own chip plants near shore (because what else are they going to do with the Billions they have in the bank?), who else is going to step up and bring it back to where it should be.


(Now, before you go bashing the grumpy old analyst for China bashing, this post is not about China bashing [although that’s a great rant topic], it’s about the insanity of going halfway around the world for something you can get [close to] home. If you’re selling in Asia, you should damn well be manufacturing in Asia, as it would be insane to manufacture something in Mexico and ship it to China if it’s easy to manufacture in China!)