Thus far in the series, we’ve shared some dirty tricks – Phantom Leverage and the Car Mirror Discount – that we’ve been refamiliarized with as we conducted our own office supplies sourcing initiative. Today, we’ll share how we arrived at our selection of our new office supply vendor.

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We received bids from the major players in the office supply industry. And Staples appeared to have the most attractive proposal from a cost perspective.

We had begun preliminary discussions with them. And then, there was a sudden twist to the story.

Through a sponsor of this blog, SourceOne, we learned about a brand-spanking-new office supplies discount program they just began offering through their sister Web site, masternegotiator.com. Masternegotiator.com offered anyone who registers through their site the ability to get deep discounts on office supplies from Staples.

I’ve blogged about masternegotiator.com before without having been privy to their pricing arrangements. This would be the ultimate test. Are these discounts really as good as they sound?

So, one day, we called our contact from Staples, told them about masternegotiator.com and asked them what was the better deal for Next Level Purchasing: the deal they put on the table or the deal available through masternegotiator.com? Our contact at the time was not familiar with the masternegotiator.com deal – it was literally days old – so she had to get back to us.

Days later, our Staples rep and her director visited us and said, “We have to be honest with you. The Master Negotiator deal offers better pricing than what we’ve proposed.”

So, we signed up through masternegotiator.com and got access to the pricing. We wanted to compare the proposal pricing to what we had gotten through our rigorous sourcing process. We spent dozens of hours on this process, issuing a formal RFP, and doing all the things typically done to maximize competitive pressures. We wanted to decide for ourselves what the better deal was.

The deal through masternegotiator.com beat every bid except for Staples’ original bid. Many of the items were priced the same as Staples’ original proposal. A few were slightly lower, a few were slightly higher. Some of the lower-priced items were our lower usage items and some of the higher-priced items were our higher-usage items. So, the masternegotiator.com deal, out of the box, actually appeared to be slightly higher priced than the deal we got on our own.

How much higher?

Uh, $159.47 in annual spend.

Yep, that’s it. And our annual spend on office supplies is in the several thousands.

Was it worth our time to source on our own instead of just taking the masternegotiator.com deal?

Technically, from a pure cost standpoint, it was not worth the resources we dedicated to sourcing. If we weren’t doing this exercise for blog material, we would have been better off just going with the deal on masternegotiator.com and not spending our time sourcing.

You may have thought from Part I of this series that I’d recommend steering clear of leveraged buying arrangements. But, in this case, a leveraged buying arrangement was the least total cost solution when factoring in the cost of our time spent sourcing!

Surprise, surprise!

There are several lessons that I want to emphasize:

1. As I’ve written before, I’ve seen leveraged deals that sound good but should be verified and not blindly trusted. While saving sourcing time is a valiant pursuit, one should really think through the premium they are willing to pay to not have to source. There is a sweet spot in terms of amount of spend that result in leveraged buying arrangements making a ton of sense without having to source on your own. There is also a threshold where it behooves you to spend the time on some independent benchmarking. Just to be clear, that is not saying to avoid the leveraged buying model. It is saying source your outsourced sourcing as carefully as you’d source any other service. And it is saying that an independent benchmark can be valuable.
2. Just like I encourage you to do independent benchmarking of leveraged buying arrangement pricing (if time and resources permit) so that you can tell whether it is a good deal or not, I also encourage you to investigate leveraged buying pricing when you do source on your own. Either way, it is not necessarily in your company’s best interests to discount one or the other without an honest investigation. Many companies swear by GPO’s. Maybe you will, too. But you’ll never know unless you explore that option.
3. Not all leveraged buying arrangements are created equal. Companies like SourceOne are skilled at sourcing. They’ve been doing it every day for years. They know a good deal from a bad one. The same can’t be said for many chambers of commerce, or even a Costco-type supplier, who may jump on the first arrangement offered to them or select their partners based on whoever gives them the best deal, not necessarily the best supplier for you. Don’t judge one aggregator’s capabilities by the performance of another’s.

Now, let me rewind to a previous statement in this blog. I wrote: “[T]he masternegotiator.com deal, out of the box, appeared to be slightly higher priced than the deal we got on our own.” Did you notice the word “appeared?”

Yeah, there is a reason for that. It has to do with another, well, I don’t want to call it a dirty trick, but another not-explicitly-obvious characteristic of office supply vendor proposals.

Could the masternegotiator.com deal have saved us more than Staples’ original proposal, even without factoring in the cost of our time?

The answer will be in Part IV next Thursday (April 9, 2009).