The Basics of Group Purchasing: What Every Business Needs to Know

While cost savings is likely at the forefront of any procurement initiative, the profession continues to evolve with more focus than ever being placed on risk reduction, sustainability, strengthening supplier relationships, compliance, and business continuity.

Thankfully, there is an opportunity for all businesses to implement a sourcing solution that encompasses all of these characteristics while working cohesively with other procurement strategies. That solution is group purchasing.

Despite its long history, the concept of group purchasing isn't always known to be a viable option for companies in the private sector, yet the ability to work with a GPO is available to every business. Here's what every organization needs to know about how group purchasing works and what to look for in a partner.

A Brief History of Group Purchasing

The concept of group purchasing is not new. The first group purchasing organization was formed well over a hundred years ago, rising to prominence within the healthcare industry. GPOs started out as a way for hospitals, nursing homes, pharmacies, and acute-care agencies to secure discounted pricing on the products and services needed to run their facilities.

Since 1910, the number of healthcare GPOs in the United States has skyrocketed, driven by the inception of Medicare and Medicaid and correlating legislation. It's estimated that nearly 98% of all acute-care and community hospitals in the US have at least one GPO membership.

What was once thought to be available only to healthcare entities and government agencies is now widely accessible to businesses across a broad spectrum of industries. Any company can obtain a GPO membership and take advantage of established supplier relationships and pre-negotiated contracts joining hundreds, if not thousands, of other businesses in receiving discounted prices.

The Basics of Group Purchasing

Group purchasing refers to the practice of businesses or organizations coming together to purchase goods or services at a discounted price. This is typically done by forming a purchasing consortium or alliance, which allows the group to negotiate better prices from suppliers due to the larger volume of business they are bringing to the table.

There are many organizations that offer group purchasing services, and they typically work by aggregating the purchasing power of multiple businesses and using that leverage to negotiate discounts with suppliers. These group purchasing organizations often have contracts with a wide range of suppliers, and they offer their member businesses access to these contracts at discounted rates.

In addition to negotiating discounts, group purchasing organizations may also provide other services such as supply chain management, procurement consulting, and logistics support. By joining a group purchasing organization, businesses can often save money on their purchases, streamline their procurement processes, and access a wider range of goods and services.

How Group Purchasing Organizations Work: Increasing Your Buying Power

Businesses of every size have operating expenses that include everything from shipping, freight, and mailing to food, information technology, JanSan, MRO, office supplies, corporate travel, and more. Many times, these categories of spend are left unmanaged due to a lack of manpower and resources. When they are managed, spend amounts often don't warrant the ability to secure favorable or discounted pricing directly from a supplier.

Partnering with a group purchasing organization allows businesses to leverage the size and scope of the GPO to increase their buying power and access pre-negotiated contracts that have discounted pricing built into the agreements. A GPO levels the playing field giving all businesses access to savings within their indirect spend categories that they'd otherwise be missing out on because of limited volume.

What Does it Mean to Increase Your Buying Power?

A GPO leverages and combines all of its members and their purchasing volume to negotiate discounts with suppliers on its members' behalf. When you join a GPO, you access those pre-negotiated contracts and pre-determined volume discounts without having to set your own terms or hope you're getting the best pricing available.

GPOs are most commonly used to help businesses save on indirect spend — the goods and services that keep operations running but don't go directly into the end product. That includes office supplies, shipping, facilities maintenance, uniforms, food service, and IT peripherals. GPOs can also be used for direct spend categories where the GPO has relevant supplier contracts, though indirect is where collective buying power delivers the most consistent advantage.

→ Watch: Three Things Every Business Needs to Know About GPOs

What's the Catch? GPO Obligations and Transparency

Any business, regardless of size, can join a GPO. At Una, membership is always free to join and free to use. Depending on your needs, you pick and choose which suppliers to work with, without ever having to worry about minimum purchasing requirements. You can cancel at any time.

To some, the concept of a group purchasing organization sounds too good to be true; it's one of the most common things we hear when educating businesses on how GPOs actually work. The honest answer: if you're working with the right GPO, there truly shouldn't be a catch. Transparency is key. A real GPO partnership should work with you to build a plan based on your goals, focusing on specific categories that will directly impact your business.

That said, not all GPOs operate the same way. Some charge membership fees, require minimum purchase volumes, or carry long-term contract commitments. Always ask directly how a GPO makes money, whether there are any obligations, and what happens if you cancel. A transparent GPO will answer all of these questions clearly and in writing before you sign anything. For a full breakdown of what to look for (and what to watch out for) see our GPO Evaluation Playbook.

Benefits of Working With a Group Purchasing Organization

There are several reasons why businesses might consider using a group purchasing organization (GPO):

1. Cost savings: GPOs negotiate discounts on behalf of their members, which can lead to significant cost savings on the products and services that businesses purchase.
2. Simplified purchasing process: GPOs often offer a centralized purchasing process that makes it easier for businesses to place orders and track their purchases.
3. Access to a wider range of products and services: GPOs often have relationships with a wide range of suppliers, which can give businesses access to a greater selection of products and services they may need to operate.
4. Enhanced negotiating power: By pooling their purchasing power, businesses that are members of a GPO may be able to negotiate better terms and prices than they could on their own.
5. Improved compliance: GPOs can help businesses ensure that they are complying with all relevant laws and regulations, as well as industry standards.

Overall, GPOs can help businesses streamline their purchasing process, reduce costs, and access a wider range of products and services.

Beyond Cost Savings: The Full Value of a GPO

Saving money is crucial and oftentimes at the top of the priority list. But the real value of working with a GPO extends well beyond the initial cost savings. GPOs have the ability to offer assistance on everything from supply chain management and data analysis to category expertise, education, and more.

Beyond cost savings and increased buying power, other benefits include:

• Supply chain and contract management solutions that help standardize and streamline purchasing needs
• Cost comparison analyses and data analytics for both direct and indirect spend categories
• Customized member programs for when purchasing needs require out-of-the-box setups and flexibility
• Category management services with in-house category experts
• Personalized consulting to identify blind spots in spend visibility and pinpoint where savings can be found
• Increased speed to savings thanks to pre-negotiated contracts already in place — no RFP required

Cons of Working with a GPO

There are a few potential reasons why an organization might choose not to use a group purchasing organization at any given time:

1. Limited product selection: Some GPOs may have a limited selection of products and services that they can offer, so if an organization has specific needs that the GPO cannot accommodate, it may not be the best fit.
2. Lack of flexibility: Certain GPOs may have strict policies and procedures in place that organizations must follow in order to participate in group purchasing. This can limit an organization's flexibility in terms of how it procures goods and services.
3. Potential loss of control: By participating in a GPO, an organization may give up some control over the purchasing process and may not have as much say in terms of which suppliers are used.
4. Additional costs: Some GPOs might charge fees for their services, which can add additional costs to an organization's procurement process.

GPO Membership Fees and Requirements

Each group purchasing organization will have their own specific membership terms. Some GPOs charge an annual membership fee, while others may charge a percentage of the purchases made through the GPO or a combination of the two. Some GPOs may also require a minimum level of annual purchasing in order to qualify for membership.

It's best to contact the GPO directly to learn more about their specific membership fees and requirements and to ask for the answers in writing before committing to anything.

Utilizing Group Purchasing Along With Other Procurement Strategies

Group purchasing is one procurement strategy among many. It's most effective when used as a complement to, not a replacement for, a broader sourcing strategy. By pooling collective purchasing power, organizations negotiate better prices from suppliers. This can be used in conjunction with other strategies like strategic sourcing, category management, and supplier relationship management to ensure the organization is getting the best value for its money across all spend categories.

The GPO's main role is to handle indirect and non-strategic spend categories so your internal team can focus on the direct spend and strategic supplier relationships that differentiate the business. Think of it as a force multiplier, not a substitute for a procurement function but an extension of it.

For more on how group purchasing fits into a broader procurement strategy, see Transforming Your Procurement Strategy With Group Purchasing.

Choosing the Right Group Purchasing Organization

When choosing the right group purchasing organization to work with, consider the following factors:

1. Cost: Consider the overall cost of membership, including any fees or percentage of purchases that the GPO charges. Make sure that the cost of membership is offset by the discounts and savings you receive through the GPO.
2. Suppliers: Look for a GPO that has relationships with a wide range of suppliers that can meet your business's needs.
3. Quality: Consider the quality of the products and services offered through the GPO. Some GPOs have quality control processes in place to ensure that their offerings meet certain standards.
4. Customer service: Look for a GPO that has a good reputation for customer service and is responsive to the needs of its members.
5. Contract terms: Review the contract terms carefully to understand the length of the agreement, any cancellation fees, and any other obligations you may have as a member.

The Una Difference

Before moving forward with a GPO partner, remember that not all group purchasing organizations are created equal. Here at Una, it’s our people, our values, and our community engagement that makes us stand out amongst some of the bigger names in the GPO space. In an industry focused on numbers and contracts, it’s easy to get lost in the business of group purchasing.

We’ve built a team of extraordinary people who have the experience and skill to excel in this business, coupled with the passion and purpose to delight our members and provide tremendous value. We are value-driven, member-centric, partner-focused, and committed to educating, advising, and enabling businesses to achieve tremendous savings.

From Savings to a Partner in Procurement

The main goal of any GPO is to save members money. But modern group purchasing organizations are looking to position themselves as more than a vehicle for cost savings. Today's GPO understands the challenges that come with running a business and the economic factors that make it difficult to grow. The right GPO comes alongside business owners to form a true partnership, one that delivers cost savings but also creates an avenue for innovation, value, and long-term growth.

"Group purchasing was built for healthcare, but the need it solves is universal. Every organization regardless of size or industry deserves access to the same pricing power as the largest corporations. That's what Una exists to provide."

— Anthony Clervi, Founder & CEO, Una

Everything we do is centered around your success and we view ourselves as an extension of your procurement team. When you join Una, here's what you can expect:

1. Free membership: Una's our pricing structure is set up so membership is always free to join and free to use. We are paid an administration fee by the supplier at the time of purchase allowing us to make and keep membership free for members.
2. No membership contracts or exclusivities: Una does not require members to purchase from certain suppliers or commit to a specified purchase volume. Una membership is also free of contracts and exclusivities. Pick and choose the suppliers that will best suit your needs and remain in control.
3. Dedicated account managers: Account representatives offering white glove service and customer experience managers focus on building a strong relationship with you at a pace that keeps everything moving towards your goals.
4. Personalized consulting: Our team will identify blind spots within your spend visibility, review spending, and pinpoint additional savings opportunities.
5. Education: There is often a gap in the understanding of what a GPO is and how we can save you money. Oftentimes, our first call with a member is explaining who we are, what we do, how we make money, and our strengths so you understand what you’re entering into as well as the concept.
6. Spend analytics & reporting: We work closely with you to truly understand your spend categories, current suppliers, budget, and spend history. We will present a strategic plan and long-term strategy unique to your needs.
7. Unique contract offerings: We have over 5,000 contracts available to our members, and if we don’t have a contract for what you need, we likely have a network connection for it and will pursue that contract for you.
8. Supplier relationship management: We're proud of the relationships we’ve built with our suppliers. Our suppliers treat our members well, and we are able to accomplish our goals faster, more smoothly, and more efficiently.
9. Regular reviews: Una provides quarterly or yearly reviews to check in regarding your spend and determine whether there are additional savings opportunities or contracts we can connect you with.
10. Speed to service & responsiveness: Our “keep it moving” mentality means our team delivers at a pace that sets us apart. Tools like Drift and Calendly speed up the process and remove bottlenecks so our members can reach us when they need us.

Working with a group purchasing organization levels the playing field so any-sized business can buy like the big corporations, especially when it comes to indirect spend categories. The problem isn't selling the idea of working with a GPO as it's a clear win-win. The real challenge is that most companies simply don't know it's available to them.

In the end, they way we work together is designed to offer you turn-key procurement solutions that empower you to achieve category quick wins, and then work to establish long-term strategies that make your business more profitable.

Ready to get started? Contact our team to lear more.