The Truth About Group Purchasing Organizations
Debunking common misconceptions surrounding the concept of group purchasing and group purchasing organizations.
Here's the truth...
The purpose of a group purchasing organization is to provide businesses access to pre-negotiated contracts designed to save money, time, and effort. Any business can join a GPO to leverage the collective buying power of its members to get unbeatable savings on the goods and services needed to run their businesses.
As procurement continues to evolve and adapt to the ever-changing sourcing landscape, the concept of group purchasing is still unknown territory for a lot of business owners and procurement professionals.
This is where Una comes in. Yes, we’re here to save you money but the truth is, any GPO could probably do the same.
Our job doesn’t end at savings. As a true sourcing accelerator, our goal is to offer turn-key solutions that empower members to achieve category quick wins and then move on to the long-term strategies that make their business more profitable.
And before we get you on that fast-track to savings, a big factor in our role as your partner in procurement comes down to education.
In this guide, we’re going to address several common misconceptions surrounding group purchasing and group purchasing organizations. It’s designed to help you better understand how GPOs work and, more importantly, how you can optimize your own sourcing strategies.
Check out what Una’s managing partner, Anthony Clervi has to say about myths surrounding group purchasing organizations, and how businesses are never locked into contracts or purchasing obligations.
Read on to learn more about group purchasing organizations and access additional resources to help you understand all of your options when it comes to working with a GPO.
Myth: GPOs aren’t popular - and only
used in the healthcare industry
Truth: GPO participation may be higher than many realize. While some might think that using a GPO is solely limited to healthcare industries, research estimates that 15%–20% of Fortune 1000 companies take part in some kind of group purchasing relationship, with the majority seeing savings of 10% or more.
An education gap exists as well which limits the scope at which procurement professionals develop strategies that incorporate group purchasing. Due to the lack of training programs and educational resources for procurement, quality knowledge-sharing is in high demand. Finding transparent information on how GPOs work and how to use them in a modern sourcing program is not easy — until now.
Need some help? We’ve got an entire resource center dedicated to empowering procurement.
Myth: A GPO cannot help with my unique requirements
Truth: GPOs operate within a framework that allows participants to enjoy all the benefits while retaining the ability to negotiate adjustments and incorporate options that address specific needs. A GPO like Una understands the need for flexibility and consequently, and members can fully participate in the structuring of the supplier agreements.
Myth: A GPO will lock me in
Truth: Participating members are not obligated to use Una’s suppliers or contracts, or any other GPO as their sole sourcing strategy. Members leverage category offerings and services based on their unique needs. New GPO members determine which of the pre-negotiated agreements they will participate in based on the available savings. There is no requirement that a member participates in all or even most of the categories offered.
Not only are you not locked in, but your time is also freed up in the process. By using a GPO, you’re bypassing the time-consuming RFP and negotiation processes and instead you gain the flexibility to impact other areas within procurement.
Curious about Una’s supplier offerings? With over 2,000 agreements in place spanning across multiple taxonomies like shipping, facilities maintenance and technology, there’s a good chance you’ll find what you need
Myth: We can get greater savings on our own
Truth: There is a traditional approach to procurement where the category manager or buyer will work direct with vendors or suppliers on a purchase-by-purchase basis relying on their organization’s buying power. Excellent negotiating skills are valuable, yes, but the question we all know a supplier is going to ask is, “What kind of committed volume can you commit to?”
Chances are that your business doesn’t have enough leverage to compete for the best pricing compared to larger organizations. A group purchasing organization helps level the playing field so every organization, regardless of size, can purchase like the big guys.
While it’s true that some businesses have a policy that they just don’t work with third parties (GPOs included), they may be missing out on much more than savings. There are some very strategic direct spend options in the healthcare space, but for most other vertical business segments, group purchasing organizations are the best bet for savings with indirect categories. In the rare instance when a GPO cannot beat an organization’s direct pricing, its most likely due to aggressive pricing structures within dated contracts.
Check out our group purchasing case studies to see how real members have saved big by working with Una.
Myth: GPOs are not transparent regarding member fees and how they’re paid
Truth: We’ve written before about some of the key qualities you should look for when choosing a GPO and transparency is at the top of the list. Your GPO should offer complete transparency when it comes to membership specifications, fees and pricing, purchasing requirements, and the suppliers they partner with.
Una makes every effort to inform and educate members before signing into an agreement. We disclose details of how everything works upfront so there aren’t any surprises on the backend once purchasing begins.
Myth: Group purchasing organizations are geared toward purchasing more, not less
Truth: At Una, this is not the case. Members are encouraged to work with their supplier partners to provide clarity on their stakeholders’ needs and create approaches that satisfy organizational requirements.
GPOs should help facilitate these discussions by providing benchmarks to membership so they can make informed decisions and establish achievable metrics.
Need a crash course in group purchasing? This short video does a great job explaining the concept in a fun, easy-to-understand way.
Go ahead and press play – you’ll never look at a jar of mayonnaise the same way again!
Myth: A GPO will hurt my relationship with my team or suppliers and seem like a threat
Truth: GPOs are sensitive to the perception that they are going to be viewed as an impediment or a competitor. That is simply not the case. The members control the GPO relationship, not vice versa. Think of the GPO as an additional resource that is taking on selected non-core categories, thereby enabling your team to focus on higher-value strategic sourcing.
Once you offload the non-strategic and indirect spend, you can focus on your core business and what you were hired to do. A GPO isn’t coming for your job, we’re here to make you look better doing it.
Myth: Becoming a member means switching suppliers - which is painful
Truth: Most organizational procurement initiatives are motivated by saving money, so yes, some changes will be necessary. But in our experience, companies tend to be happier with their new suppliers.
A lot of organizations don’t enforce compliance. That, coupled with a lack of data transparency and accountability, are huge factors that attribute to the preconceived notion that switching suppliers or implementing change will be difficult. Una’s team of Sourcing Advisors can offer guidance for getting everyone on board.
Your C-Suite has to believe in the concept and support it, not just the CPO. A GPO should have better processes and provide materials to enable members to implement smoother rollouts and create seamless transitions.
Myth: I’m not happy about having low-bidsuppliers imposed on my organization
Truth: Because of the total cost philosophy, an effective GPO’s preferred suppliers are likely to be best in class, not corner-cutting low-bidders. Una members don’t have to worry about contract enforcement because the GPO provides that service.
And, due to a GPO’s buying power, you will be regarded as one of your suppliers’ largest, most important customers.
Myth: Why would I risk reducing my relevance by outsourcing procurement?
Truth: As an outsourced spend solution, a GPO addresses this concern rather than creating it. By partnering with a GPO, the procurement function expands the scope of its control and enhances its relevance to the organization.
Una acts as a sourcing accelerator and can essentially help procurement professionals get out of their own way. As part of our discovery, we complete a comprehensive spend analysis, identify areas to tackle first, and then strategize to further complement your overall procurement strategy, all with the goal of helping your business become more profitable.
From the origins of group purchasing to best practices for choosing a GPO, Una’s Complete Guide to Group Purchasing provides the basic knowledge you need to make the first step.
This one's not a myth...
A GPO alone doesn’t provide a comprehensive procurement outsourcing strategy. The GPO model is not about covering every one of the 150-200 different areas of indirect spend. Rather, a GPO focuses on driving value on a broad set of categories that can have a meaningful impact for a large number of participants.
Partnering with a GPO not only generates hard-dollar savings in the selected categories but also enables corporate procurement to redirect freed-up resources to focus on other, more strategic areas.
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