A purchasing consortium is a group of two or more entities that come together for the purpose of combining their purchasing power and volume as a means of obtaining more competitive pricing for the goods and services they require. The general idea behind this type of consortium is to negotiate pricing through the collective group that in turn may be enjoyed by all the entities in the collective, regardless of the size and needs of each individual entity. By combining purchasing power into a central purchasing corporation, smaller companies can often obtain discounted pricing on all sorts of products that would normally only be extended to much larger business.
With many suppliers, the ability of a client to commit to some sort of large volume of usage makes it possible to supply goods and services at rates that are not readily available to businesses that generate lesser amounts of sales. For example, if a company can commit to purchasing one million widgets each month, the manufacturer is much more likely to offer volume discounted rates to that client than to one that only needs ten thousand widgets each month. The beauty of a purchasing consortium is that several of those small companies can combine their monthly purchases under a single purchasing cooperative and obtain the same type of rates that the million-a-month client receives.
The concept of a purchasing consortium not only saves smaller companies a great deal of money in the purchase of different goods and services, it also provides a degree of security for the vendors who choose to work with the consortiums. In order to lock in those competitive rates, most vendors will require a contractual commitment. The terms of the contract normally bind the consortium to delivering a certain amount of business volume on an annual basis in order to retain those lower rates. This means that the consortium will work hard to make sure all member companies actively participate in the program, and that the vendors can reasonably anticipate a certain amount of sales over the course of the calendar year. As a result, vendors working with purchasing consortiums create a stable income base that may or may not have been possible using other means.
There are no specific organizational models that must be used when creating a purchasing consortium. While the structure must be in compliance with any governmental regulations that apply to the creation of business organizations within a given jurisdiction, this type of collective may be very loosely organized with a governing board composed of representatives from each member company. A purchasing consortium may also be set up as an agency that is finely tuned and actively manages the client/vendor relationships on behalf of the member companies.