Group purchasing organizations (GPOs) are increasingly becoming more prevalent in the challenging procurement environment within the private sector. Traditionally, GPOs Have been associated more with the public sector and specific industry sectors such as healthcare and non-profits where they focus on volume consolidation to increase purchasing power on behalf of members.
Also referred to as buying groups or buying consortiums, GPOs provide a range of benefits far beyond leverage on prices. The new breed of “horizontal” GPOs provide a wide range of sourcing services across all industries. These include manufacturing, retail, agriculture, technology and financial services.
Leading GPOs apply procurement best practices to their operations including category management and strategic sourcing techniques. As a result, they are becoming a viable best practice for more purchasing categories. Whatever industry you are in, there is a category you can utilize.
The big attraction of GPOs is their expertise in indirect spend. This is not limited to routine (low risk) spend such as office supplies, furniture and small parcel. There is a trend towards companies engaging with GPOs to manage bottleneck products and services (low-profit impact/high criticality) including e.g. packaging materials, janitorial services, uniform management, and temporary labor. Bottleneck items often are difficult to source and may carry risks that GPOs know how to manage.
The Chartered Institute of Procurement and Supply promotes the principle of group purchasing and identifies these benefits:
- reduced acquisition costs
- shared market intelligence and product knowledge
- shared resources - people/time, management information
- investing together in supplier development and R&D so enabling improvements can be shared
- suppliers provide excellent service; their commitment reduces the risk of interruptions to supply
- presenting a united front to suppliers to ease communication
- releasing time to concentrate on more strategic procurement
Ways a GPO Can Lighten Your Purchasing Load
Beyond Cost Savings: The Solution to Procurement Service & Supply Challenges
Realistically, mid-size businesses do not attract the best prices or service from their suppliers. GPOs give you access to contracts with top tier service, competitive pricing and other resources that are otherwise not available to individual companies. GPOs provide value-added services such as negotiating superior service level agreements (SLAs) that are difficult to achieve by one company alone. Supplier relationship management is an ongoing and time-consuming process that is vital to the continuity of supply – GPOs are skilled at that.
One trend we are seeing is that the solutions offered by GPOs are not “one-size-fits-all”. Members enjoy all the benefits of group purchasing while retaining the ability to negotiate adjustments and incorporate options that address their specific needs. Leading GPOs work pro-actively with their members to find out which categories and commodities are areas of opportunity that can be included to expand their offering.
Modern GPOs now advise procurement leaders on category strategies and help them understand where the opportunities lie. They help identify what spend areas should be managed within the GPO relationship to gain maximum benefit. Companies that struggle with maverick spend can minimize its impact by ensuring that buyers use only compliant and pre-qualified suppliers.
Reduce Overhead and Staffing Costs
Reduced revenue and pressure on employee pay means that buyers must do more with less. The goals are still cost reduction and creating efficiencies in more areas of spend. Members benefit from economies of scale reducing their overheads and lowering staff costs. Supply market analysis, supplier verification and benchmarking are time-consuming: GPOs take care of all that. Becoming a member of a GPO frees up staff to concentrate on more complex value-add procurement activity.
Last year was especially challenging for the procurement function. Normal activities such as supplier onboarding, running sourcing events (RFPs) and concluding supply contracts were all affected and have taken longer than usual to conclude. GPOs, like OMNIA Partners, are becoming a go-to solution, or best practice, for procurement teams who need to free up time to work with stakeholders on improving internal processes and setting category plans. No mater the industry you operate in, there is a category you can utilize.