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Should I join a buying group?

To join or not to join, that is the question… Joining a pharmacy buying group as an independent pharmacy is not an open and shut question.  Do I want to negotiate my own rates, or join a collective where we all work together, and allow the leadership of the group I join to pick our […]

To join or not to join, that is the question… Joining a pharmacy buying group as an independent pharmacy is not an open and shut question.  Do I want to negotiate my own rates, or join a collective where we all work together, and allow the leadership of the group I join to pick our collective supplier, and go with there decision, reaping the financial gains of the group.  Let’s do this Ben Franklin style and take a look at the pro’s and con’s.

 

Advantages of buying groups

Purchasing Power:

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You have massive increased purchasing power as part of a group.  This purchasing power allows you to help dictate what the prices are on the things you sell in your area.  Buying groups are localized for the most part, so the generics that move the most in the Northwest may be different that the generics that move the most in the Southeast.  This allows you to capitalize on location and the group can negotiate the wholesale prices on products that are most relevant to your region.

Rebates:

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You will get better rebates joining a buying group.  Some people may look at that extra 2-3% you get and think it is no big deal.  No, trust me IT IS A BIG DEAL.  We are talking an additional tens of thousands of dollars a year in profit to your store.  If you’re not a part of a buying group right now, joining one may cover the cost of an additional tech freeing up 10 hours a week for you.

Pooled Knowledge:

pooled knowledge

Pooling your knowledge with other pharmacists working with you allows you not only access to their buying power, but an understanding as to what they do in their day-to-day operations.  This puts you in contact with other people who are in the same boat as you, but geographically diverse enough that you are not in direct competition.  This is a great forum for you to share strategies, and get a real feel for other people doing the work you are, and bounce ideas and practices off each other.

 

Disadvantages of buying groups

Freedom:

freedom

You give up a lot of your buying freedom when signing with a trade group.  The contracts sometimes are evergreen, meaning they are renewing for you every year as long as you are a member of the group, and if you get out, the contract is usually on a cycle of two to three years meaning you will have to wait that long to negotiate prices with another distributor.  The suppliers give you these awesome rebates because they know you’re locked in, it’s a give and take.

Politics:

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Once you become part of a group, a political element enters your life that you did not have to deal with before.  There is a leadership element to the group you will participate in, and you may have to switch suppliers because it is what the group thinks is best, and maintain ratios on generics vs name brand that are not what you are used to.  Know going in that if you are part of the group, they are going to expect you participate in the guidelines they laid out as there game plan, and that you may have to stock certain items, and promote certain items you didn’t before.

People:

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When you join a buying group, you loose a little bit of control over who you are dealing with on a weekly basis for your supplier.  You may already have a relationship with one supplier rep, and really like her, but after you join the group you end up switching to someone else, and you don’t get along with your new rep as well. Or there may be support people you are used to dealing with, and now you have a whole new set, and are reluctant to go through the process of building those relationships.

 

In closing

 

_____________PROS___________CONS______________

Purchasing Power……………………………  Freedom

Rebates……………………………………………. Politics

Pooled Knowledge………………………………People

 

Long term, as an independent pharmacy owner, if you want to own multiple stores and become wealthy in this field, joining a buying group seems to be the way to go.  If you are a single store in a rural area, and are looking at maintaining your independence and keeping options open at all times, you may want to stay away from joining one.  You leave money on the table, but the ability to choose who, where, and how you buy may be worth it.  After talking with some of the field executives at one of the big three suppliers for research on this subject, they see both sides of it, but emphasize they have seen some really great growth and things come from the buying groups when they get together.

I think that overall the synergy and knowledge you get working with people in the same boat as you, and you all fighting the same fight against the chains together and pooling knowledge is really the most valuable resource you get out of a group.

For further reading if you’re already part of a group and meeting up with them at one of the big tradeshows coming up, attached is a link to an ebook we wrote about getting ready for the show.

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