A Look at the Pros and Cons of Buying Group and Alliance Models



This article originally appeared in Eye Care Business.

There are a wide variety of resources available today to help out the economy-beleaguered eyecare professional, including cost-saving buying groups with new features and business-focused alliance groups. In this two-article section, we cover the features, benefits, and downsides of each business model.

Are buying groups still viable?

A fresh focus on these time-tested purchasing programs

In today's fiercely competitive economy, many eyecare professionals find that a buying group helps gives them the extra profit margin they need.

“I can't imagine running your business today without belonging to a group,” says Kara Colecchia, owner of the Optical Factory in Largo, Fla., and former owner of Padro F. Buying Group, which was sold to C&E buying group three years ago. “It's easily saving me between $500 and $1,500 a month, depending on my volume, and maybe more. Plus, I don't store invoices anymore.”

Donald Henry, practice administrator for Logan Eye Care, an independent optometric practice in Lake Mary, Fla., says that buying groups are an excellent way for smaller practices to get good prices. “Our group offers a 30 percent discount off list and this has made a profound impact on our profitability.”

Buying groups burst onto the optical scene in the booming '80s. As optical chain locations proliferated, independent ECPs found buying groups' services, from discounts to one-stop billing and payments, to be highly useful.

As a result, buying groups grew in membership over time, and new ones continued to enter the market. Some of the originals—Block, C&E, and HMI—are still the largest.

Buying Groups: Cons

ADMINISTRATIVE FEES: While many groups support their operations by keeping a small percentage of vendors' discounts (instead of membership fees), some simply charge an administrative fee for services. “All buying groups have almost the same discounts; it depends on the way you do the math,” says C&E's director of buying group relations, David Carneal. “We offer the classic model that all the big buying groups follow of passing on the whole discount minus five percent.”

At Vision West, 100 percent of the discounts are passed along and a small administrative fee is charged. “The more a member bills with us, the lower their fee,” explains Joseph Mallinger, OD, FAAO, president and CEO of Vision West.

CREDIT CONFUSION: Marty Traylor, OD, of Owensboro (Ky.) Family Eye Care Center, says they occasionally have problems with credits for returns from certain manufacturers going to buying groups by mistake.

EQUIPMENT DISCOUNTS: On many ECPs' wish list is more discount plans for exam and lab equipment. Vision West is among those answering the call by adding “the ability for members to purchase a limited amount of refurbished equipment at discount,” says Mallinger.

PRODUCT DISCOUNTS: Discounts vary by group, but typically range from 20 to 30 percent for eyewear and five to 10 percent for contact lenses. “The biggest advantage is cost savings,” says Marty Traylor, OD, with Owensboro Family Eye Care Center in Owensboro, Ky., who is a member of the Red Tray Network buying group. “At last notice, we were receiving a 26 percent discount from our lab.”

Contact lens discounts are a stong draw for some ECPs. Chris Brink, office manager and optician at the Tustin, Calif.-based Jamboree Optometry, belongs to C&E. “We are a member for the discount and the ease of purchasing contacts,” he says.

ONE-STOP BILLING: “It consolidated everything for us. That was the biggest plus,” says Jeff LaFerla, OD, LaFerla Family Eyecare in Kansas City, Mo. “Anything that makes it less of a hassle is great.”

While ECPs still see and order from all their regular reps, the billing and payment go through the group. “We are a third party,” says Joseph Mallinger, OD, FAAO, president and CEO of Vision West. “Everything is pulled into one place,” says Donald Henry at Logan Eye Care. “It is a more efficient way to monitor my cost of goods.”

Kara Colecchia, owner, Optical Factory in Largo, Fla., notes that her monthly buying group statement is typically six pages long. “I don't want to deal with that on my own,” she says.

VALUE-ADDED: Groups are adding a variety of services, many web-based, such as C&E's Beyeright program, which lists top-selling frames by vendor on its website. “We also provide a members-only area where they can download statements, statistics, and vendor invoices with images of everything they've purchased,” says David Carneal, director of buying group relations for 4,000-member C&E, which also offers a Virtual Frame Board feature.

Vision West offers include business-building information and webinars, educational meetings, and speakers on topics like coding and billing techniques. Members of the Block buying group also have access to several online features, such as secure statement payments, a newsletter, a member chat room, and an online “classifieds.”

At Red Tray Network, founder Jerry Hayes, OD, says “our focus now is on educational content and networking. We had our first annual meeting and are creating a platform for peer-to-peer networking and practice metrics comparison.”

“The buying group landscape hasn't really changed,” says Mark Gilbert, president of Vvs [purchasing] Group. “There were always four or five big groups, a few mid-sized, and some very small groups. In the past several years, some of the big groups have acquired several of the large- to mid-sized groups.”

Many were previously part of the Alliance of Ophthalmic Buying Groups. Feeling its goals had been met, the association disbanded in 2010. “Among its accomplishments were the establishment of a major optical credit reporting group that remains in existence and a fully detailed and tested data transfer format available to all vendors,” says Gilbert.

GETTING SQUEEZED

Today, with profit busters like managed care and big box competition, the ECP is getting squeezed, explains Jim Edwards, president of the 600-member Opti-Port alliance group.

“The average practice must take less reimbursement and sales revenue from the patient, but still try to offset the rising cost of doing business. Without some sort of significant change or dynamic, this can be daunting,” Edwards says.

Today's economic crunch has inspired more offices to join together to form an informal “buying group” made up of just a few members.

The Non-Alliance Group

A group by another name, Cleinman Performance Network is a national information-sharing network and business development services enterprise for optometrists.

Launched in 1999, Cleinman Performance Network currently has more than 300 members. And, according to Al Cleinman, founder and president, his group is not an alliance model. “We are exclusively focused on the business development needs of our members; and purchasing is a very secondary element of our offerings,” he says.

Prospective members are invited to join the Network and are provided a range of services focused on leadership and organizational development on a subscription basis with an annual fee paid monthly.

Benefits include access to Cleinman Performance Network's nearly 30 staff members for consulting and other services, a twice-yearly three-day “wisdom sharing meeting,” access to the company's publications and educational webinars, plus an online benchmarking service as well as consulting and information on succession planning, operational performance, marketing, and financial management.

“In the last five years, we've seen more doctors form loose-knit groups—a local society, a group of friends—and they will call themselves something and then go to suppliers to get preferred pricing,” says Jerry Hayes, founder of the 4,500-member HMI buying group as well as the newer Red Tray Network buying group. “There seems to be a very high level of entrepreneurial activity with small groups. Clearly, not all these models are sustainable, but some will do just fine.”

Many independents are also looking for support from a relatively new business model, alliance groups, such as Vision Source and Opti-Port (see accompanying article).

“A lot of our members have joined an alliance, but they are still buying through us,” says Michael Block, president of Block Buying Group. “I belie