Group Purchasing Organizations and Purchasing Cooperatives exist to give business owners access to the goods and services needed to keep their organizations up and running. If you’ve ever struggled to negotiate contracts and obtain deeper discounts with your current suppliers, you’ve likely looked into joining a GPO or Purchasing Co-Op. There are, however, quite a few misconceptions about how each of these groups work and what type of organization can benefit from them.
There is good news, though. Joining one of these groups is most likely a really great move for your business. In this article, we will go over the differences between a Group Purchasing Organization and a Purchasing Cooperative and help you determine which approach is the most cost-efficient procurement strategy for your company.
[Editor's note: this article was originally published August 21, 2017, but has been updated for clarity and accuracy.]
What Is a Group Purchasing Organization?
A Group Purchasing Organization is a platform that allows virtually any business, in any industry, to join a group of other buyers who are interested in the same products and services. Joining a GPO enables companies to increase their purchasing power and gives them volume-based discounts - or “bulk pricing” - without having to increase their order amounts. For example, GPOs like Una can offer businesses discounts up to 80 percent on office supplies through pre-negotiated contracts with suppliers like Office Depot and Staples.
What does it look like?
GPOs first got their start in healthcare and quickly grew in popularity due to their impressive discounts. Economists have found that GPOs reduced healthcare costs by up to $55 billion annually. Given such staggering savings, it's no surprise that GPOs have since expanded and are now available to every type of organization.
How are they funded?
GPOs typically make money via administration fees. While the fee is sometimes paid by the members, premier GPOs like Una never charge its members. The price is covered by the group's suppliers.
Free membership might sound too good to be true, but the reasoning is simple. Suppliers are incentivized to pay admin costs because they are guaranteed an increase in volume sold.
What Are the Advantages of a GPO?
One of the most common misconceptions about GPOs is that they're only helpful for small businesses. But the truth is, that's rarely the case. Unless your organization is a Fortune 500 company with a fully developed procurement team, partnering with a GPO will likely improve your contract discounts in at least one area.
Since GPOs represent hundreds, if not thousands, of businesses, their negotiation power with suppliers is substantial. Because of this, members get better agreements, higher discounts and increased provider accountability.
And since the best GPOs are no-cost, it means that any business can increase their savings and improve their procurement process for free. Plus, with GPOs like Una, there are no commitment terms or required purchasing volume. You're under no obligation to utilize your new supplier contract, but it's there if you want it.
Bottom line, you get a better discount, no-strings-attached.
There are several different types of GPOs available. Make sure you select one that will increase your buying power and get you better discounts. Additional benefits to look for include procurement consulting and category management help.
What Is a Purchasing Cooperative?
A Purchasing Cooperative is a vertical-specific organization that is owned and managed by the people who provide or use its goods and services.
What does it look like?
Co-Ops are common in the healthcare, veterinary, and dental purchasing markets.
How are they funded?
Members pay a fee to be part of the Co-Op. In exchange, members receive discounts on specific industry products.
What are the benefits of Purchasing Cooperatives?
These Co-Op groups create industry-specific competition in the marketplace thereby reducing costs and delivering services that more profit-driven companies might deem unworthy. Members pay lower or stabilized prices due to the buying power of the Co-Op. Profits of the cooperative business are then transferred to the members based on their percentage of ownership or investment.
What Is the Difference Between a GPO and a Co-Op?
While the terms “GPO” and “Co-Op” might be used interchangeably, they are quite different. Both are a type of purchasing platform. Each combines the needs of many to secure lower prices.
Where they differ, is how they go about it. The significant difference between a Group Purchasing Organization and a Purchasing Cooperative is its purpose.
The purpose of a GPO is to leverage the committed volume of thousands of companies to secure deep discounts. When you join a GPO, you retain purchasing control since members order based on individual needs. You work directly with your chosen suppliers and you're given purchasing codes which guarantee the group's negotiated rates.
GPOs act as a facilitator between the member and the supplier. They typically provide a wide variety of vendors and contracts businesses can select. Unlike most GPOs, with Una you do not need to pay a fee to access discounted pricing.
Conversely, Co-Ops are vertical-specific and run by their members, sharing both profit and loss. Their mission is to unite people in a jointly owned, industry-focused organization that results in lower prices on goods and services.
As a Co-Op member, you can only purchase what the group sells and you only get a discount if you're a paying stakeholder.
Which is right for your organization?
Luckily, you don't have to choose. We recommend partnering with a GPO that offers indirect spend discounts in categories like JanSan and MRO, hotels and shipping and joining a Co-Op that provides deals specific to your industry. That way, you'll be getting the best of both worlds.