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Telephone: (312) 782-1829 Telefax: (312) 782-4868 E-Mail: kkrlaw@kkrlaw.com Web: www.kkrlaw.com |
Cost Savings Through Purchasing Alliances
Joint purchasing of materials needed for production by a group of manufacturers may represent a significant economic opportunity to achieve a stable supply at a reasonable cost. Group efforts can result in efficiencies and serve as a hedge against market uncertainties.For example, a purchasing alliance received a favorable Department of Justice ruling that the agency does not intend to challenge such a venture under the antitrust laws. An official noted that the venture would likely be pro-competitive because it could create efficiencies that would result in lower prices for both the raw material and the manufacturer's finished goods.
Three manufacturers jointly formed a for-profit purchasing alliance to negotiate and purchase a primary metal used in their manufacturing process. The alliance arranged for the resale, warehousing, storing, insuring and shipping of the raw material to its members. Basic features of the alliance are summarized below:
Purpose: Collective purchasing enables the Alliance members to negotiate volume discounts for the primary metal prices and to ensure a steady supply of the material at a relatively stable price. Significant costs savings are achievable since the raw materials represent anywhere from 25% to 70% of the price of the finished products manufactured by the members.
Organization: An independent administrator negotiates with suppliers and provides services for daily operations. The administrator is not an employee of any member. The Alliance board approves all contracts. Negotiations are conducted by the administrator.
Membership: Membership is open to all U.S. purchasers using the primary metal to provide a finished product. The Alliance is owned by its members. Discounts received and Alliance profits on operations are generally distributed pro rata to its members, based on the member's volume of purchases made through the Alliance.
Members are not obligated to purchase through the Alliance. They are free to purchase from whatever source they wish. Members are requested to make a purchase commitment in order to facilitate contract negotiations by the administrator.
The Alliance must keep company specific or competitively sensitive information confidential (e.g., volume purchased by members, purchase commitments, etc.). Meetings of members are conducted with the customary association-type legal safeguards, with guidance from legal counsel.
The Alliance must be operated as a separate business, with the marketing and pricing of the members' finished products left strictly to each member, acting independently.
Keeley, Kuenn & Reid, a Chicago based law firm with government relations affiliates in Washington, D.C., is engaged in the practice of business law, commercial litigation, employment law, taxation, antitrust, product liability, estate planning and legislative matters. Through its affiliates, the firm also meets its clients' needs in protecting intellectual property rights and international commercial law matters.
Keeley, Kuenn & Reid
150 North Wacker Drive
Chicago, IL 60606
Tel. No. (312) 782-1829
Fax. No. (312) 782-4868
Web: http://www.kkrlaw.com