How to Use GPOs as a Cost Savings Strategy
Discover how procurement leaders can join a GPO and use group purchasing as a cost savings strategy to deliver continued value.
By Mackenzie Oakley | February 23, 2023
Have you heard the saying “low-hanging fruit” mentioned before in your business meetings? The expression refers to the tasks or projects that can be completed with very little effort. It also includes the business goals that are easily met, or the fast fixes that produce a ripe result. Businesses that focus solely on these quick wins are more inclined to meet targets faster, and hit sales numbers easier.
It sounds like an effective strategy until, perhaps, things start to look a little picked over. The more difficult tasks, projects, and goals that had previously been pushed aside are now needing to be addressed. More effort is needed to achieve results.
Procurement leaders face similar challenges when the pressure to deliver cost savings is unrelenting and you feel like you’re running out of options. In this article, we’ll explore the concept of “low-hanging fruit” in procurement, which strategies require more effort but pay off in the long run, and suggest another option for the day you realize you’re running out of savings ideas.
Procurement leaders feeling the constant pressure to deliver cost savings may be inclined to reach for the "low-hanging fruit" first. But after all of those quick wins, what's next?
Fastest ways to reduce costs
Some procurement professionals have it made. They’re hired by an organization, for example, to build a procurement process from scratch, nurture it until it’s functioning smoothly, then move on to the next greenfield opportunity.
Creating a procurement function out of nothing may sound like a daunting task to some. A brand-new procurement team, however, has the opportunity to pick from dozens of solutions that will generate cost savings quickly, and that can be easily implemented.
These types of quick wins – or what’s considered “low-hanging fruit” in procurement – may include:
- Review purchasing requirements
- Establishing a “no PO, no pay” policy
- Getting maverick spend under control
- Creation of procurement policies and toolkits
- Spend analysis
- Review supplier master agreements
- Consolidate suppliers
- Consolidate deliveries
- Create a purchasing catalog to remove duplication
- Training and education of everyone making purchases
- Review product specifications for savings opportunities
Savings worth going after
Cost reduction become harder to find as a procurement function matures. Don’t make the mistake of squeezing your suppliers for short-term cost savings as this will damage relationships and the opportunity for long-term value creation will be lost.
Instead, set your sights on the things that may seem harder to reach. These cost savings strategies take longer (years, in some cases), but will ultimately pay off with ongoing value:
- Digitization of procurement
- Supplier Relationship Management (SRM)
- Improved visibility and transparency
- Shifting to a centralized, decentralized, or hybrid model, based on organizational requirements
- Establish a Just-in-Time supply chain
- Improve benefits realization
- Cost avoidance through better risk management
- Procurement 4.0: IoT, Blockchain, Artificial Intelligence, and Cognitive Procurement
Additional savings opportunities
What happens after the easy fixes are marked done and you’ve put effort into your long-term strategies? Under pressure to find even more cost savings, it’s time to get creative.
Joining a group purchasing organization (GPO) is like gaining access to a whole new level of cost savings that was potentially out of reach before.
GPOs leverage the collective buying power of their members to obtain volume discounts from suppliers and vendors. Any business can join a group of other buyers who are interested in the same products and services. This method of sourcing motivates the suppliers to give GPO members discounted pricing, resulting in unprecedented savings.
How to use GPOs as a cost savings strategy
A group purchasing organization like Una comes alongside your existing procurement strategy as a way to give you supplemental savings and support. Working with us means you have access to additional resources and a team of sourcing advisors to listen to pain points and offer solutions.
Una offers complete transparency when it comes to membership, fees and purchasing expectations. Our speed to service means you’re connected to suppliers and saving within weeks, not months.
Una leverages over $100 billion in buying power to:
- Save you more money – deep discounts mean members can save an average of 18-22% across various indirect spend categories
- Save you more time – ditch the lengthy RFP process and the time it takes to vet suppliers
- Save you more effort and energy – pre-negotiated contracts are already in place
We know procurement professionals have options when it comes to picking and choosing which strategies will result in the biggest reward – some are easy while others require additional planning and effort.
As part of a complete and effective procurement strategy, adding in group purchasing is a sure-fire way to bring value to your organization that goes beyond typical cost savings.
Want to learn more about how to use group purchasing as a cost savings strategy? Watch this 1-minuted explainer video to learn more about the group purchasing concept.
You’ll never look at a jar of mayo the same way again…