Why Procurement Partnerships Fail
Why Procurement Partnerships Fail
Why Procurement Partnerships Fail
By Jeremy Kay, Satoshi Komiya, Jonathan Nipper, Konrad von Szczepanski, and Gözde Yalazı Özbek
As companies seek improved efficiencies and greater resilience to counter rising inflation and global
supply chain risks, many are becoming interested in procurement partnerships. Such partnerships face
long odds of success, however. BCG looked at five large procurement partnerships created by global
Fortune 500 companies, as well as drawing on our experience in related work with clients, to
understand what it takes to make them succeed. Of the five partnerships we examined, two took three
years or longer to generate meaningful savings, and only two remain in existence today. (See the
For this article, we analyzed five large procurement partnerships from the last decade
to distill key lessons. Our research is based on in-depth discussions with leaders of
procurement partnerships. The partnership examples are from automotive,
telecommunications, construction equipment, and beverage sectors and include joint
ventures, a joint procurement partnership, and a purchasing consortium. (See the
exhibit.)
Despite the challenges, the payoff can be significant. Successful procurement partnerships can deliver
cost savings of 3% to 10% or more of in-scope spending, due to increased purchasing power, economies
of scale, shared best practices, supply chain synergies, and the ability to standardize components.
Partnership Benefits
Companies with global supply chains have been working to improve their resilience in the face of new
risks stemming from growing geopolitical tensions and supply chain disruptions. The higher costs of
some resiliency measures—such as keeping more inventory—are heightening the imperative to find
savings to offset those costs.
In a well-run procurement partnership, the partnering companies can share procurement best
practices and buy the same parts or components, enabling them to increase their purchasing scale and
lower their costs. Partnerships can also help diversify the supply base and improve strategic flexibility,
and they can give companies the opportunity to share risky and costly strategic investments in
suppliers. For example, partnering auto companies could pool resources to invest in a supplier of
battery materials.
One of the most successful procurement partnerships is BuyIn, the worldwide biggest procurement
alliance in telecommunications. Founded in 2011 and jointly owned by Orange and Deutsche Telekom,
BuyIn has grown to cover $20 billion in spending on network technology, mobile devices, digital home
products, service platforms, and information technology. In addition to achieving overall savings of
more than 10%—although the numbers differ across domains—the partnership enabled the
companies to roll out new joint standards to suppliers more quickly.
Choose the right partner. It is essential to work with a partner that is broadly aligned in terms of
strategic objectives, sense of urgency, commitment, and company culture (or, if the cultures differ, a
willingness to adapt to a third culture for purposes of the procurement partnership). A mismatch on
any of these points can be fatal to a partnership.
Both of the partnerships we examined that still exist—BuyIn and the Renault Nissan Purchasing
Organization (RNPO)— began with well-selected partners. BuyIn’s owners, Deutsche Telekom and
Orange, operated in the same industry and region but were not direct competitors, and they had
already formed another joint venture, called EE, in the UK. For their part, before forming RNPO,
Renault and Nissan engaged in significant equity cross-investment. As a result, both companies had a
similar level of ambition and a strong interest in making the procurement partnership work.
Although these examples may be seen as special cases that cannot easily be replicated, they point to a
common lesson: each company considering a procurement partnership should recognize its unique
advantages and abilities to work well with potential partner companies based on their shared
circumstances.
In a less successful example, two American heavy equipment manufacturers entered into a
procurement partnership only to find that they had different strategic objectives in product
development, which undermined the partnership within two years.
Define the right scope. The scope of the partnership should be carefully gauged across key spending
areas, such as direct or indirect materials, product categories, and geographies. Leaders must consider
such strategic criteria as strategic importance, partner overlap, desired impact, time to impact, and
feasibility of sourcing supplies through the partnership. Not surprisingly, partnerships work better
when they do not focus on proprietary or highly competitive parts. BuyIn, the telecoms partnership,
had the advantage emphasizing indirect parts, such as networking equipment—where design is
generally less critical to competitive advantage—rather than direct materials for engineering-intensive
products, such as cars or trucks.
Develop a strong business case. Companies should develop a strong, unbiased business case
comparing the realistic, anticipated benefits of a proposed partnership to the next-best alternative—
which typically would be to make internal improvements using equivalent budget and resources. They
should base the benefit assessment on external benchmarks and an analysis of representative
procurement spending across partners, identifying specific opportunities and including a breakdown of
savings by product category, savings lever, and time required to implement the changes. The
A strong business case must reflect realistic timing expectations. RNPO found that standardizing
product designs—an important lever that drove most of the cost reduction as the partnership matured
—was a high-value objective but required alignment of the product development and procurement
processes and design and engineering standards, which took several years.
Pick the right partnership model. Joint procurement can follow any of four archetypical structures:
a purely contractual collaboration; outsourcing to one partner; a formal procurement consortium; or a
procurement joint venture—a new legal entity that provides procurement services to and acts as an
agent for its parent companies. (See Exhibit 1.)
In deciding which partnership model to select, companies should consider such factors as the scope of
partnership activities, the number of product categories to be covered, legal implications related to
competition and the time required to implement the structure.
The procurement partnership that existed from 2011 to 2018 between Daimler and BMW involved
collaborating on a contractual basis to limit the risk of running afoul of antitrust rules. (The
partnership ultimately failed, but for reasons unrelated to the partnership model.)
BuyIn was eventually structured as a full joint venture because the partnering firms wanted to use it to
purchase high volumes of goods, and they wanted to act as a single entity to gain greater purchasing
leverage.
Obtain committed support from senior leadership across functions. Partnerships stand the best
chance of success when they have the support of senior leadership and when participants are
motivated to understand and work collaboratively with the counterparty. Visible senior-level
engagement is important to embed a sense of urgency and importance in the effort. Partnership
management should be assigned at a high level and not delegated.
For example, BuyIn’s success in its early days was due in large part to supportive and adaptable
leaders who took the time to learn about the other party’s culture. Leaders demonstrated their
commitment and helped build momentum and promote collaboration by frequently highlighting
examples of savings successes. The arrangement also benefitted from the strong rapport that
individual executive sponsors at the parent companies developed, enabling them to resolve
disagreements quickly and amicably. This leadership support and approach should exist across all key
functions involved (engineering, procurement, finance, and so on) and should not be just a shared
vision among senior leaders. A lack of leadership support or an alignment gap in any one function can
stall the effort, even if top leaders are aligned and want to pursue a partnership.
The collaborative leadership that prevailed at BuyIn also enabled the partnership to establish clear
processes and roles with detailed descriptions, which in turn boosted the procurement teams’
confidence. One notable example of this cooperative spirit—a step that promoted a sense of fairness
and helped build goodwill between the parties—was a one-time payment arrangement designed to
compensate for inequalities. Under this arrangement, if one party had a lower contract price going
into the joint venture, it would be reimbursed a share of the savings that accrued to the other party as
a result.
Implementation in stages is important for three reasons. First, such implementation will help control
risks—for example, from operational interruptions caused by untested procurement processes in the
partnership. Second, it will build support in the partnering organizations by demonstrating early
savings before the partnership expands to more complex supplies. Third, it will accommodate the
evolution of cost reduction levers over time.
In the first stage, which typically lasts 6 to 18 months, the partners should focus on avoiding
operational disruptions and securing quick wins by improving terms and conditions through new
visibility across partners’ existing procurement contracts. In the second stage, covering the next 12 to
24 months, the partnership should aim to expand the scope of spending it covers and deliver benefits
of scale while efforts to standardize on common parts and materials begin. In the third stage, the
partnership should focus on increasing the share of common parts and materials, which will drive
most of the savings.
During setup, BuyIn established a documented procurement process, which gave both partner
organizations the confidence that they were prepared to move forward, which proved to be an
important asset at the outset of the initiative. The partnership then established a very deliberate,
phased approach to implementation, starting with networking equipment for mobile and fixed lines
and expanding further after each success. This approach enabled BuyIn to demonstrate impact
quickly, building positive momentum and overcoming pockets of initial skepticism within the partnering
companies.
For RNPO, ramping up to cover the parent companies’ entire procurement scope took 8 years, and
reaching the point where full synergies were realized took 13 years. The partnership first focused on
comparatively easy commodity savings opportunities, such as subcomponents for common parts like
window glass, which allowed benefits to accumulate as the scope expanded to encompass more
processes and geographic regions.
For example, RNPO found that it was important to unify the parent companies' development
processes and standards before beginning the procurement partnership. Although that approach was
time-consuming, it resulted in the adoption of similar engineering processes on both sides.
Standardizing designs, which in the automotive industry involves hundreds of thousands of
components, helped unlock most of the savings that the partnership achieved after six years.
Satoshi Komiya
MANAGING DIRECTOR & SENIOR PARTNER
Tokyo
Jonathan Nipper
MANAGING DIRECTOR & PARTNER
Detroit
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