Do you want better contracts and deeper discounts than what you're able to negotiate on your own? Then you’ve likely looked into joining a Group Purchasing Organization (GPO), or a Purchasing Cooperative (Co-Op). The problem is, there are quite a few misconceptions about how these groups work, and what type of organizations can benefit from them.
The good news is, joining one of these groups is most likely a great move for your business. To help you determine which approach is the most cost-efficient procurement strategy for your company, check out the infographic and article below.
They explain the essential differences between Purchasing Cooperatives and Group Purchasing Organizations.
[Editor's note: this article was originally published August 21, 2017, but has been updated for clarity and accuracy.]
What Is a Purchasing Cooperative?
What it is: a Co-Op is a vertical-specific organization that's owned and managed by the people who provide or use its goods and services.
What it looks like: healthcare, veterinary, and dental purchasing Co-Ops are common.
How they're funded: members pay a fee to be part of the co-op. In exchange, they receive discounts on specific industry products.
What Are the Benefits of Cooperative Purchasing?
These Co-Op groups create industry-specific competition in the market. Thereby reducing costs and delivering services that more profit-driven companies might deem unworthy. As this article described it:
Cooperative businesses are owned and controlled by members, not by absentee investors. The board of directors is elected from the cooperative’s membership to represent the interests of the members. The members are the users or consumers of the cooperative’s products or services.
In other words, members pay lower or stabilized prices due to the buying power of the Co-Op. The profits of the cooperative business are transferred to the members, based on their percentage of ownership or investment.
What Is a Group Purchasing Organization?
What it is: a GPO is a buying group that allows virtually any business, in any industry, to join a group of other buyers who are interested in the same products and services. Think Costco without a membership fee. Joining a GPO enables companies to increase their purchasing power. It gives them volume-based discounts, “bulk pricing,” without having to increase their order amounts.
As Forbes recently put it, "GPOs like Kansas City-based UNA allow firms of any size to join, negotiating discounts with suppliers who want access to its buyer pool."
What it looks like: you may have heard of healthcare GPOs, that's where they first got their start. They quickly grew in popularity due to their impressive discounts. For example, economists found that GPOs reduced healthcare costs by up to $55 billion annually. Given such staggering savings, it's no surprise that GPOs have expanded, and are now available to every type of organization.
How they're funded: GPOs typically make money via administration fees. While sometimes the fee is paid by the members, with premier GPOs like UNA, the price is covered by the group's suppliers.
Free membership might (understandably) sound too good to be true, but the reasoning is simple. Suppliers are incentivized to pay admin costs because they're 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 is 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. Just 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 the Difference Between a Co-Op and a GPO?
While the terms “GPO” and “Co-Opp” might be used interchangeably, they’re quite different. Both are a type of buying group. Each combines the needs of many to secure lower prices. Where they differ, is how they go about it.
The significant difference between a Purchasing Cooperative and a Group Purchasing Organization is its purpose. Co-Ops are vertical-specific and run by their members, sharing both in 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. Not to mention you only get a discount if you're a paying stakeholder.
Conversely, the purpose of a GPO is to leverage thousands of companies’ committed volume 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. And with GPOs like UNA, you do not need to pay a fee to access their discounted pricing.
Still can't decide which is right for your organization? Luckily, you don't have to choose. We recommend joining a Co-Op that provides deals specific to your industry, as well as partnering with a GPO that offers indirect spend discounts. Like JanSan and MRO, hotels, and shipping. That way, you'll get the best of both worlds.