Today’s economic environment is exerting extra pressure on companies to find new ways to reduce expenditure. Cost-saving is still the #1 goal in procurement.
A Group Purchasing Organization (GPO) is a member-based organization that provides companies with purchasing benefits that they would struggle to achieve on their own. GPOs have traditionally focused on obtaining discounts for their members through their ability to leverage volume purchases. Modern and successful GPOs now provide a wide range of benefits, way beyond savings.
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.
It is obvious to members of a #GPO that there is value to be gained through saving time and resources, and taking advantage of the expertise GPOs offer @OMNIAPrivate #OMNIAPartnersPrivate
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.
Modern GPOs provide advocacy and support, and help you manage existing categories (or relationships) @OMNIAPrivate #OMNIAPartnersPrivate
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.