Wondering If You're Too Big for Group Purchasing?
Wondering if you’re too big for group purchasing? Even the largest enterprises with well-resourced procurement teams can uncover excellent value by partnering with a GPO in certain categories.
By Hugo Britt | March 21, 2024
There are some things a large business will never outgrow. Office pranks, awkward elevator encounters, conference call blunders, and off-key renditions of “Happy Birthday” are ubiquitous across every organization from the smallest start-up to the biggest employer.
Here’s something else that large organizations will never outgrow: the benefits of working with a group purchasing organization (GPO) in certain categories. In this article, we explore why even the largest enterprise with a well-resourced procurement team can uncover excellent value by partnering with their friendly GPO.
Is this you?
What constitutes a large or enterprise entity in the US? Generally, an enterprise business has annual revenue ranging from $50 million all the way to $1 billion or more, with 500+ employees. It’s all relative – a ‘large’ company in one sector may be considered pint-sized in another.
Then there’s the size of the procurement team. Dr Stefan Gassner from Grosvenor explains that procurement team size depends on annual spend. Grosvenor found that if your annual program is worth:
- Under $50 million it will have an average of 5 people
- Between $50m and $200m, an average of 6 people
- Over $200m, an average of 20 people.
- Public procurement teams tend to be twice as big.
Organizations will never outgrow the benefits of working with a GPO. The key is finding the right GPO partner to assist with the categories that will make the biggest impact.
Efficiency per FTE
A key metric to track in procurement teams is efficiency per full-time employee (FTE). Grosvenor found a huge efficiency gap between top performers and laggards:
“The top third of organizations we’ve studied establish contracts worth $34.7m per FTE per year,” writes Gassner. “For the least efficient organizations this number was a meager $1.6m. This means that while the teams have a similar total number of procurement folk, the more efficient organizations pump through twice as many projects, each with a value that is up to four times higher.”
How do they do it? Technology. Agility. System capabilities. Automation, streamlined processes, and (increasingly) AI. They find ways to work smarter and move faster – and that’s where group purchasing can help.
But let’s not forget that larger organizations tend to fall behind their smaller counterparts when it comes to innovating and moving fast. Too many chefs, decision-making bottlenecks, red tape, risk-aversion, and bureaucracy all serve to put the brakes on and slow procurement down, which in turn decreases that all-important efficiency per FTE.
Group purchasing shines in indirect categories
So, now we’ve established the context, let’s return to the main question: are enterprise businesses too large to take advantage of group purchasing?
Yes, and no.
For direct spend categories – yes, you probably are too big. Typically, a GPO can’t help you here. You already have the supplier network, the internal expertise, and the spend volume to make it work as you manage direct spend hands-on, carefully and strategically.
But for indirect spend, there’s no such thing as too big.
Here’s why:
- Indirect categories are often left unmanaged, which is crazy because in an enterprise organization, indirect spend can add up to millions of dollars.
- McKinsey found that “even though indirect spend can represent 10 to 18% of revenue in some industries, it typically isn’t fully managed by a single function or business owner, and is frequently overlooked.
- The same McKinsey study found that indirect procurement optimization can reduce costs by 15 to 17%.
Enterprise organizations have volume, which should provide them with hefty purchasing power in a supplier negotiation. But if you’re not managing indirect spend categories and leveraging spend data to get the most out of every category, you are leaving mountains of value on the table.
And – here’s the impressive bit – even if an enterprise organization brings its indirect spend under control and comes to the negotiation with, say, $50 million in buying power, they’re still small-fry compared with the awesome power of a GPO.
The Una Difference
As the nation’s fastest growing GPO, Una serves tens of thousands of businesses with a combined buying power of over $100 billion. Leveraging this awesome sum gives members access to deep discounts of up to 45% on everyday (indirect) products and services like office supplies, shipping, travel, food services, and more.
This is where Una shines. With our vast experience in indirect procurement, Una’s team of experts can quickly identify which categories within your organization have the most potential for cost optimization. By analyzing your historical spend data and benchmarking against industry standards, Una can pinpoint areas where savings can be realized, regardless of your company’s size.
Then there’s the efficiency savings (remember, the goal is to improve your Efficiency per FTE). By taking advantage of over 2,500 pre-negotiated contracts with the nation’s leading suppliers and brands you trust, enterprise teams can skip the lengthiest parts of the procurement process like RFx and supplier negotiation. Simplifying procurement means saving money, time, and effort, freeing up your team for more strategic tasks.
And with only 6 to 20 procurement FTEs working in an average enterprise organization, there’s also a strong case to be made for engaging with a GPO to operate as an extension of your procurement team, saving you the cost of hiring additional staff.
Una membership is always free, with no strings attached. There are no minimum purchasing requirements and you may cancel your GPO membership at any time.
No such thing as "too big"
In conclusion, don’t let the notion that your organization is “too big” for group purchasing hold you back. When it comes to indirect spend, the potential for savings and process optimization is immense, regardless of your enterprise’s size. Una is breaking the mold and empowering large enterprises to unlock the benefits of group purchasing like never before.
Don’t let unmanaged indirect spend be the blind spot that hampers your organization’s profitability. Reach out to Una today and start harnessing the power of group purchasing to drive efficiency, savings, and success for your large enterprise.
For more, download Una’s playbook on boosting business growth with the help of a GPO:
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