How to Save Money Using Group Purchasing
By Hugo Britt | June 24, 2021
One of the biggest challenges in procurement is the fact that if you’re good at your job, it will become increasingly difficult to find cost savings.
First, you usually identify the cost savings that can be achieved with minimal effort. These tasks include getting your spend data organized, consolidating the supply base, and tackling maverick spend, for example.
Next, you know there are additional savings opportunities to be had, but they’re no longer going to be quick wins. Major procurement projects such as digital transformation, implementing AI or machine learning, and establishing a sophisticated Supplier Relationship Management (SRM) program all take time and money.
After all of that work, where do you turn for further savings? A common mistake at this point is to squeeze suppliers for every available cent. However, this is short-term thinking that will damage relationships and erode long-term value.
Many businesses faced financial crises during the pandemic causing staff reduction and budget cuts. This put more pressure than ever on procurement to find savings within the supply chain. Likewise, suppliers were faced with their own challenges – cue a moment of silence for the toilet paper shortage of 2020, when desperate consumers resorted to buying commercial toilet paper in bulk.
How to save money using group purchasing
If there’s one thing we wish we could shout from the rooftops for every small to mid-size business to hear, it’s how easily they can find significant savings through group purchasing organizations. Despite the prevalence of GPOs, awareness of who they are and what they do is still lacking within the procurement profession.
So here’s a quick breakdown of how group purchasing can help turn procurement professionals into Sourcing Heroes.
GPOs give small and medium sized businesses big-league discounts
Have you ever purchased in bulk for your organization? If you’ve shopped at Costco or Sam’s Club, you know that the more you buy the more you can save. Anyone ordering printed materials for their business sees the same principle in play. 100 brochures might cost $3 each, but 100,000 brochures might only cost $.30 each.
Small businesses dutifully place their small orders and pay more for less, realizing that the larger your business is, the more you can save.
It seems backward, doesn’t it?
GPOs turn the tables through a concept called group purchasing. A group purchasing organization leverages the collective buying power of its members to obtain bulk discounts from suppliers and retailers. Any business can join a GPO and take advantage of the volume discounts without actually having to purchase more themselves.
If 100 businesses join a GPO, that GPO can approach a supplier with the numbers needed to obtain a volume discount. Then, they disperse that discount to their members.
To get a visual as to how to save money using group purchasing, check out our explainer video below. You’ll never look at a jar of mayo the same!
GPOs do the heavy lifting for procurement.
Have you felt the frustration of a lengthy RFx process one too many times? We’ve seen RFPs last 6 months or longer in some cases. A knock on your door announcing a complex request for something like a new PCI-compliant software vendor can send the best of us into months of stress.
The process of finding a reliable supplier to begin with and negotiating contracts can take months, if not longer, as well. An established GPO like Una has an entire catalog of pre-negotiated contracts are already in place, meaning we’ve already vetted suppliers and negotiated the best-possible pricing for our members.
Because this is already in place, you won’t need to reach out to suppliers and handle all of the correspondence that comes along with that process. Our team of Sourcing Advisors can walk you through our catalog of suppliers and recommend those who will best meet your needs.
Our team facilitates the relationship with each supplier by introducing you to the National Account Manager, if applicable, and assist with any questions you have about the contract.
Use a GPO as an extension of your procurement team
Don’t worry, GPOs like Una aren’t here to replace you. Instead, savvy procurement leaders use GPOs as an extension of their procurement team. For example, a time-poor procurement department may choose to outsource the management of indirect procurement to a GPO, or outsource certain categories such as office supplies or packaging/freight because they know the GPO can unlock much higher discounts than they could by themselves.
Before joining, understanding the relationship you’ll have with your GPO is critical. Finding a GPO that is completely transparent when it comes to membership, pricing, purchasing expectations, and the supplier partners they work with is a must.
A good GPO will help you buy smarter and understand your needs by acting as an advisor and listening to your pain points and lead you to solutions. And finally, the right GPO will understand their place within your overall approach to sourcing, ideally coming alongside to supplement your existing procurement strategy.
Your GPO’s main goal should be to provide immediate value to your non-strategic or indirect spend and then over time, look for additional ways to provide value in other categories.
Want to learn more about the benefits of joining a GPO? Reach out to Una today. Our team of experts is ready to help you find savings.