A buying consortium managed by consultants in the procurement solutions group at A.T. Kearney helps member companies save up to 25% by leveraging their spending on indirect goods and services.

To help their clients negotiate lower pricing and improved service levels, the consultants created the buying consortium called the Leveraged Sourcing Network (LSN) in 1998. The executive director of the LSN is Jim Pearson, a vice president in the procurement solutions group.

Twelve companies in a variety of industries now belong to the consortium. This number can change as companies are added to or drop out of the consortium. Membership, which has an annual fee, entitles companies to benefits of agreements negotiated by LSN and member company teams on behalf of the consortium. Savings resulting from the leveraged purchases average 8-25%, depending on company size.

To be a member, Pearson recommends that a company have an annual spend of sufficient size to generate savings that justify an acceptable return on investment for the annual membership fee. Membership is confidential.

Consultants with A.T. Kearney negotiated the consortium's first agreements in 1999. Some goods and services initially purchased include office supplies, temporary labor, PCs, small package delivery services and printing services. The list later expanded to include promotional items, travel analytic services and some MRO items such as pipes, valves and fittings, fasteners and safety supplies. Later this year LSN is expected to include electrical components, general industrial supplies, uniforms and travel services. The consortium has no plans to add direct materials purchases.

Benefits of membership vary from agreement to agreement, says Mark Connar, director of supply management for equipment, materials and services, Air Products & Chemicals, a member of the consortium for nearly two years [PUR: May 2, '02; p. 16C38]. "We're using some of the agreements (office supplies, temporary labor and some MRO items) and find them to be quite successful. In some cases, we've seen double-digit cost reductions, depending on the commodity."

Members have bimonthly conference calls and meet at least once a year. This year, the members met in San Francisco, during the Institute for Supply Management's annual conference.

Based on feedback from members generated during conference calls and the annual meeting, the LSN team selects items to source through the consortium. After determining initial interest, they collect additional data on member company requirements through surveys and conference calls.

With the data, the LSN team begins the sourcing process, sending requests for proposals (RFPs) to potential suppliers. The team re-views response and then presents the data to members of the consortium in such a way that members do not see information provided by the others. Working with members interested in pursuing an agreement, LSN selects a supplier. The team puts together a "frame" agreement that outlines general terms and conditions. For requirements specific to participating companies, members develop subsidiary agreements with the supplier. Each member company manages its invoicing and payment process.

As part of the service, members receive ongoing category management, says Kearney's Pearson. "We continually work with suppliers to stay ahead of the market for pricing and service."

There's also a formal process for measuring supplier performance. "We work with each individual member to take into account any unique considerations they have in each category," he says.

Still, members are under no obligation to enter into the agreements. "Although there's a general commitment, there's a reasonable level of flexibility in the way the agreements are set up," says Connar of Air Products & Chemicals. "If you want to participate in the agreements you make your best efforts to get your company to use them."