Should you join a Group Purchasing Organization (GPO)?

June 19th, 2012

There are literally hundreds of group purchasing organizations that support specific specialties, industries and products. So how should you choose one, or should you?

According to Wikipedia a group purchasing organization (or GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members.

When is a company a GPO and when are they something else? Many organizations take on procurement functionality based on the spend of their members. They can be industry wholesalers, share groups, consortiums, distributors and a variety of other types of organizations. They may take on all procurement opportunities or specific opportunities like energy. GPO’s can be vertically focused or horizontally focused. They can also be horizontally focused within an industry vertical. An example might be a wholesale grocer that is focused on a retail industry vertical like supermarkets.

The question is should you join one or many? Maybe you shouldn’t join any. The only way to answer the question is to understand your own organization in terms of its strengths and weaknesses relative to the products or services categories you hope to source. As an example; if you are just buying from a wholesalers price book, it’s a good bet you are not getting the best price. It’s also a good bet that other members of the same wholesaler are getting a better price and they may be smaller than you. However you may also have a huge energy spend and this is something that your product wholesaler can’t help you with. As such, there may be a specific GPO for energy that can offer some expertise.

This author believes that your best bet is to focus on a procurement company that is horizontally focused with specific expertise in a number of verticals such as health care, retail, distribution, financial services etc. I have often seen these companies significantly out perform GPO’s by a significant amount as the overall overlap of expertise across multiple industries suggests a level of creativity that GPO’s may not have.

Ultimately understanding what your company’s limitations are as well as the opportunities that are available to you is a first and important step. After that, it’s who can do the most for you with the least disruption across the broadest area of spend.

SafeSourcing is such a company. Please contact us if you would like further information on how to improve your bottom line in the present quarter risk free.

We look forward to and appreciate your comments.

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