Buying Group versus Group Purchasing Organization
By Mackenzie Oakley | October 4, 2022
In the procurement and sourcing world, there are several terms that seem to be used interchangeably when attempting to increase buying power and save money: buying group, group purchasing organization, purchasing cooperative, purchasing group.
All of these separate entities serve a common purpose, so is there really a difference between them?
Each comes with slight variances that can make it hard to determine which solution would be right for your business. Opting to join a buying group or purchasing cooperative might be dependent on your industry or vertical; for other businesses, outsourcing certain procurement activities to a group purchasing organization makes the most sense.
This article and corresponding infographic will focus on comparing a buying group to a group purchasing organization, and how you can go about deciding if either is a good fit.
What is a buying group?
A buying group is a group of businesses that have come together to scale economies and increase their purchasing power with suppliers. Buying groups, which are also often referred to as purchasing groups, serve as a way for businesses that are interested in making similar purchases to leverage their collective buying power to negotiate discounts on certain products or services.
Let’s say, for example, that you’ve been tasked with purchasing a new fleet of delivery trucks for your organization. As it stands, you’re only looking to buy a few vehicles at a time, meaning it’s likely you’ll be asked to pay full price given the volume of your purchase.
A buying group consisting of six other organizations that are also looking to purchase fleet vehicles, however, looks more attractive to the supplier. Instead of selling two or three trucks to your organization, they have the chance to sell 15, 20, or more vehicles to the whole group. Because of the guaranteed volume, the supplier is more likely to offer a discount to members of the buying group.
Benefits of a buying group
In addition to cost savings, another benefit of joining a buying group is the shared work of the procurement process. In our example, only one of the participating organizations would have to navigate the supplier selection and negotiation process and report findings back to the group for approval.
Valuable time saved, increased purchasing and negotiation power, the potential to obtain deeper discounts, and more efficient processes are all perks of joining a buying group.
Other things to know about buying groups
Before joining a buying group, make sure to read the fine print regarding things like membership details, applicable fees, and purchasing requirements. Most buying groups are funded by membership dues, where organizations are asked to pay as much as six-figures to participate.
And while it may be nice to offload the procurement process for certain purchases, you’re not off the hook completely. You may be asked to lead the charge on the group’s next capital purchase or research the newest technology solutions that may benefit members.
What is a group purchasing organization?
A group purchasing organization is very similar to a buying group in that a GPO also serves as a way for businesses to increase buying power and secure lower prices. The main difference, however, is that group purchasing is the GPO’s core business.
GPOs leverage the collective buying power of their members to obtain volume discounts from suppliers and vendors. Any business, regardless of size, can join a GPO and take advantage of this strength-in-numbers concept to save money, time, and effort.
Unlike a buying group where businesses are sharing the supplier discovery and negotiation process, GPOs do all of that on behalf of their members. Group purchasing organizations serve all markets and industries, including niche segments and other private sector entities.
Benefits of a group purchasing organization
The benefits of a group purchasing organization are like those of a buying group, but taken to the next level. While it’s common for a buying group to be able to negotiate some sort of a discount, the aggregated purchasing power most likely won’t compare to that of a GPO with thousands or tens of thousands of members. This means that a GPO is probably able to negotiate even steeper discounts on the goods and services businesses need to function.
A group purchasing organization like Una leverages over $100 billion in buying power and consistently saves members an average of 18-22% across categories.
Other benefits of a GPO include things like supply chain management, cost analyses, customized member programs, access to data and analytics, category management expertise, increased speed to savings, and more.
Other things to know about group purchasing organizations
The same advice applies here, as well. Be sure to understand all aspects of membership before joining a group purchasing organization. Are there certain purchasing requirements, or will you be locked in to specific contracts? The best GPOs will be transparent about how they operate so be sure to get answers to all of your questions before joining.
One of the biggest differentiating factors separating a buying group from a GPO is the cost associated with joining.
Most GPOs make money via administration fees, which are paid by the suppliers. This means that it’s usually free for businesses to utilize a GPO’s services. 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.
Infographic: Buying Group vs Group Purchasing Organization
Is a buying group or GPO best for your business?
There is no one-size-fits all in procurement. Its best to examine your organization’s immediate needs and long-term goals to determine if joining a buying group or GPO is right for you.
There are plenty of resources available as you’re conducting research. And keep in mind that using either a buying group or group purchasing organization is only one piece of the puzzle. There are plenty of ways to get creative in procurement and building a comprehensive strategy will only help push you towards reaching your goals.
Get in Touch
Do you have questions about group purchasing? Wondering how a group purchasing organization works to save you money, time, and effort?
Una’s team of Sourcing Advisors is here to help. Contact us to learn more.