Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Company Used Supplier Consortiums to Beat Inflation
Transcript
- Lucas: There's this assumption in procurement that if you're a small or mid-size buyer, you're just going to get beat on price. That inflation hits you harder because you don't have the volume leverage of a Toyota or a Walmart. Luna: And honestly, that's been true for a long time. The big guys get the tier-one pricing, everyone else fights over scraps. Lucas: Right. But over the last eighteen months I've been watching a counter-trend gain real traction. Mid-market manufacturers are forming what are called supplier consortiums — groups of non-competing companies that band together to negotiate shared contracts for raw materials or common components. Luna: Non-competing being the key word. You're not sharing a supplier with your direct rival. Lucas: Exactly. And this isn't just a theory. There's a 150-person industrial parts company based in Ohio — I'll call them Midwest Precision, not their real name — that did exactly this in 2024. Luna: What was their situation? Lucas: They make custom metal brackets and housings for agricultural equipment. Their two biggest inputs are steel and aluminum. In 2023 they saw their material costs jump about 18 percent year over year, and their procurement director — a woman named Sarah — realized they had no leverage. They were buying maybe 200 tons of steel a year. That's nothing to a mill. Luna: So she went out and found other companies in the same boat. Lucas: She did. She reached out to three other manufacturers within a 200-mile radius — a furniture maker, a HVAC duct fabricator, and a company that makes storage shelving. None of them compete directly. But all of them use hot-rolled steel and aluminum sheet. Luna: And they agreed to combine their volumes into a single annual contract with one supplier. Lucas: That's the core idea. They formed what they called the Midwest Materials Consortium. Each company still placed its own individual orders, but they aggregated their total volume — about 1,100 tons of steel and 400 tons of aluminum — and went to market together. They ran an RFP as a group. Luna: And the result? Lucas: They locked in a nine percent reduction on steel and eleven percent on aluminum compared to what they'd been paying individually. And this was in early 2025, when spot prices for both metals were actually rising — steel up about 12 percent year over year at that point. Luna: So they beat the market by a huge margin. That's not just negotiating skill — that's structural. Lucas: And I think that's exactly the right word. Structural. They changed the power dynamic. And here's where I want to pause for a second, because this isn't just a cool procurement story — it connects to something bigger about how this show works. Luna: Go on. Lucas: We do about 300 episodes a year across the Fexingo network. No ads, no sponsors. And the only reason that's possible is that a small group of listeners chips in monthly through buy me a coffee dot com slash fexingo. It's not a huge number, but it's enough to keep the lights on. Luna: Yeah, and it means we never have to tailor content to an advertiser's interests. We follow the story where it leads. Lucas: Exactly. So if you've gotten value from episodes like this — or any of the other shows on the network — and you want to keep it ad-free, that's the way. No pressure, just wanted to name it. Now, back to Sarah's consortium. Luna: So they got the price. What about the logistics? Because consortiums sound great on paper, but I can imagine a hundred ways they fall apart. Lucas: You're right to ask. The biggest challenge is trust. Sarah told me the first three months were basically relationship-building. They had to share cost data — which most companies treat as a state secret — and agree on a common specification for the steel and aluminum. Luna: So they had to standardise. That alone is hard. Lucas: It is. The furniture maker used a different grade of steel than the HVAC company. They compromised by agreeing on a middle-grade spec that met everyone's minimum requirements. And they signed a simple legal agreement — nothing fancy — that outlined how they'd share the savings proportionally based on volume contributed. Luna: And the supplier was willing to play ball? Because a mill that sells to a single 200-ton buyer might not care, but 1,100 tons gets their attention. Lucas: Exactly. They approached three mills. Two of them submitted bids. The winning mill gave them a tier-two pricing structure — not the absolute best in the industry, but far better than any of them could get alone. And the mill liked it because it locked in a multi-year volume commitment. Luna: So it was a win-win. The mill gets certainty, the buyers get lower cost. Lucas: That's the theory, and it held here. But I want to be careful not to oversell it. Consortiums aren't a magic bullet. They only work when you have a few conditions in place. Luna: What are those conditions? Lucas: First, the buyers need to be non-competing — or at least not direct competitors in the same end market. Second, they need a common raw material or component that represents a meaningful cost. Third, and maybe most important, they need a champion — someone like Sarah who's willing to do the legwork of finding partners, building trust, and managing the administrative overhead. Luna: So it's not something you can just throw together in a week. Lucas: No. Sarah estimated she spent about 30 percent of her time over six months getting the consortium off the ground. But the payoff — nine percent savings on materials — translated to roughly a three-point margin improvement for her company. For a small manufacturer, that's huge. Luna: And I've seen similar models popping up in other industries. Packaging, for instance — small food companies pooling corrugate buys. Lucas: Absolutely. There's a consortium in the Pacific Northwest that brings together craft beverage producers — breweries, cideries, distilleries — to buy glass bottles and labels as a group. They claim savings of 15 to 20 percent on glass alone. Luna: And electronics components. I've heard of small hardware startups combining orders for semiconductors or connectors. Lucas: Right. The pattern is the same: find a shared input, standardise the spec, aggregate volume, negotiate together. It sounds simple, but culturally it's a shift. Most procurement teams are trained to protect their own data, not share it. Luna: So what changed? Why is it happening more now? Lucas: I think two things. One is the inflation shock of 2021 through 2023 — that forced a lot of mid-market companies to look for creative solutions because the old playbook wasn't working. Two is the rise of digital platforms that make it easier to find and vet potential consortium partners. There are now specialised matchmaking services — think of them as a dating app for procurement. Luna: Are there any legal or antitrust risks? Lucas: Great question. In the US, the Department of Justice and the FTC have issued guidelines that generally allow joint purchasing agreements as long as they don't lead to price fixing in the downstream market. The key is that the consortium members don't compete with each other in the sale of their products. If you combine to buy steel but then sell completely different things — farm equipment, office furniture, ductwork — there's no horizontal collusion concern. Luna: So as long as the cooperation is strictly on the buy side, it's usually fine. Lucas: That's the rule of thumb. But any company considering this should talk to an antitrust lawyer. The guidelines are clear but the facts matter. Luna: And what about the longer-term viability? Does the consortium from Ohio still exist? Lucas: It does. They renewed their contract for 2026. In fact, they've added a fifth member — a company that makes metal office partitions. And they're now exploring whether they can extend the model to other shared needs, like logistics and freight. Luna: That's interesting because freight is a huge cost for small manufacturers too. Lucas: Exactly. They're looking at combining their outbound LTL shipments into full truckloads. If they can pull that off, the savings could be significant. But it's early days. Luna: So what's the one takeaway you'd want a listener to walk away with? Lucas: That leverage isn't just about size. It's about structure. A small company that finds three or four like-minded peers and builds a real consortium can effectively operate at a scale that commands attention from suppliers. And in an environment where input costs remain volatile, that's a tool worth exploring. Luna: I think the key word is 'build'. It takes work, but the payoff can be real. Lucas: It does. And if you're in procurement and you've been thinking about this, start small. Find one other company. Share one commodity. See if the trust holds. That's how the Ohio consortium started — with a single conversation at a trade show. Luna: And now they're five companies deep. It's a good reminder that sometimes the smartest procurement move isn't negotiating harder — it's negotiating together. Lucas: Exactly. That's the episode. Thanks for listening.