What are the Key Advantages of Group Purchasing?

Today’s economic environment is always evolving, and you may be taking a closer look at how well you’ve been able to pivot to remain stable and successful in your industry. On top of adjusting to changes, there is extra pressure on finding new ways to reduce expenditure. 

Not only can a group purchasing organization (GPO) help you with your #1 goal of cost-saving, but a GPO can also provide companies with purchasing benefits that would be challenging to receive on their own. 

Modern and successful GPOs provide a wide range of benefits beyond savings. 

Types of GPOs

There are different types of GPOs. Some specialize in specific industries such as healthcare, manufacturing, or mining. They provide members with specialized items such as maintenance, repair, and operational supplies (MRO) or customized packaging as well as niche items in their specific sub-sector.  

Other GPOs provide access to their wide range of supplier partnerships across all industry sectors. These “horizontal” GPOs offer access to contracts for difficult categories which require extensive negotiation and contract drafting. This frees up your resources to focus on core business needs. A typical GPO business model is based on supplier fees or rebates only, although some GPOs have introduced subscription fees or usage fees for members as well.    

The choice of the right GPO for you may be guided by your company values and culture. Besides cost containment, you may include considerations around local sourcing, supplier diversity and environmental sustainability.  

Leading GPOs have established relationships with top suppliers to bring cost savings of up to 20%to their members(or more). Although initially, this may be the main attraction, it becomes obvious to members of a GPO that there is value to be gained through saving time and resources and taking advantage of the expertise they offer.   

Continuity of supply is a risk area that has been highlighted in 2020. Disruptions caused by the pandemic saw shortages, supply chain challenges and business failures. GPOs have robust mitigation plans in place to cope with such crisis to provide members with alternative solutions. Other areas of supplier risk include dependence on a sole supplier, price escalations, currency volatility and quality problems. 

Sourcing activities are both resource-heavy and time-consuming. An RFP or RFQ process involves searching for potential suppliers, sending requests, receiving offers and evaluating the results, even before negotiations take place.  A GPO delivers value in complex categories such as HR services, software solutions and corporate travel as well as in industry-specific commodities that require specialist expertise. GPOs have negotiated contracts already in place providing a cheaper, better and faster solution. 

Negotiating contracts, service level agreements (SLAs) and monitoring supplier performance are expensive and time-consuming activities. Successful SLA’s depend on measuring and continuously monitoring actions and behaviors such as up-time, on-time delivery, lead times etc. In many cases, most companies do not have either the capacity or the expertise to do this effectively.

Joining a GPO may involve decisions about engaging with new suppliers or realigning a relationship with a current supplier. It can feel unsettling, but GPOs provide advice and support, and help you make a change of supplier or manage adjustments to a current relationship.   

What to Look for in a GPO 

• Experience in your industry and the categories of goods and services you need  
• Access to contracts with leading  suppliers  
• Sourcing, negotiating and contracting services beyond volume discounts  
• A proactive approach to supplier risk 
  

How to Get Started with a GPO

It may feel like a big step to move from self-managed procurement to engaging with group purchasing. Take a low-risk approach with a pilot program starting with a category or commodity in an area of non-strategic spend. As you see benefits and gain confidence you can move into other more critical and complex categories.