Things can get a bit confusing in procurement. You might hear terms like group purchasing organizations (GPOs), purchasing cooperatives, and buying groups or purchasing groups getting tossed around as if they mean the same thing.
Spoiler alert: they don’t!
Each of these entities has its own unique purpose and structure. So, let’s break it down in a way that helps you figure out which arrangement might be the best fit for your business.
Group Purchasing Organizations
First up, we have group purchasing organizations (GPOs). Think of a GPO as a platform where businesses from all sorts of industries come together to increase their buying power. The idea is simple: by pooling resources, members can negotiate better prices from suppliers.
This means you can score some impressive discounts - often between 18-22% - on the products and services your business needs.
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.
One of the best parts? Joining a GPO like Una is usually free. They typically get funded through administration fees paid by suppliers, which means no membership costs for you. Plus, GPOs often offer additional perks like contract management and spend analysis, so you’re not just saving money; you’re also saving time and hassle.
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.
Download our free guide to learn more about the basics group purchasing:
Purchasing Cooperatives
Next, let’s talk about purchasing cooperatives. These are a bit different because they’re member-owned organizations focused on specific industry verticals.
Picture a group of healthcare providers or veterinarians joining forces to negotiate better deals on supplies. That’s a purchasing cooperative in action.
Members usually pay a fee to join, and in return, they get access to cost savings on industry-specific products. The profits from these negotiations are shared among members based on their investment or ownership. It’s a great way to foster community and collaboration, as everyone is working toward shared goals.
Buying Groups and/or Purchasing Groups
Now, onto buying groups (also known as purchasing groups). These groups consist of various businesses that come together primarily to negotiate better terms with suppliers for specific purchases. For example, a group of six companies might team up to buy a fleet of delivery trucks, making it more appealing for suppliers to offer bulk discounts.
We saw a lot of buying groups formed to secure bulk purchases of PPE during the Covid crisis.
The great thing about these groups is their flexibility. They can be short-term, formed just for one big purchase, or long-term arrangements that stick around for years. Plus, they often allow one member to take the lead on negotiations, which saves everyone else some legwork.
Key Differences to Keep in Mind
So, while GPOs, purchasing cooperatives, and buying/purchasing groups all aim to boost purchasing power, they each have their own style.
Here are some key differences to consider:
- Control and Flexibility: GPOs give you more control over your purchasing decisions. You can work directly with suppliers while still enjoying the benefits of collective bargaining. In contrast, purchasing cooperatives are more structured and require members to stick to group decisions.
- Funding Models: Typically (but not in every case), joining a GPO is free because they’re funded by suppliers. But with purchasing cooperatives, members usually pay fees to join, which can vary quite a bit.
- Purpose and Structure: GPOs focus primarily on collective purchasing, providing a broad range of products and services. Purchasing cooperatives are more about industry-specific needs and require active member involvement. Buying groups and purchasing groups, on the other hand, are more informal and can be formed for specific purchases without long-term commitments.
Finding Your Perfect Fit
Now that we've broken it down, how do you decide which option is right for you? It really depends on your organization’s needs and goals.
- If you’re looking to maximize cost savings across various categories, a GPO might be your best bet. With no membership costs and a wealth of resources, it’s an efficient way to improve your procurement process.
- If you’re part of a specific industry and value collaboration, consider joining a purchasing cooperative. The shared ownership model can create a strong sense of community and mutual support.
- For those who want flexibility in purchasing, buying/purchasing groups are the way to go. These groups can adapt to your specific needs and projects, allowing you to leverage collective buying power without being tied down.
In a nutshell, while GPOs, purchasing cooperatives, and buying/purchasing groups might seem similar, they each bring something unique to the table.
By understanding these differences, you can make informed decisions that align with your business goals. Whether you choose to join a GPO for broad savings, a cooperative for industry-specific advantages, or a buying group for flexible purchasing, you’ll be well on your way to optimizing your procurement strategy.
For more, visit Una's online resource center. It's full of free, downloadable content to help support your procurement and sourcing needs.
