What to Look for in a Group Purchasing Organization (GPO)
By Mackenzie Oakley | April 14, 2020
As a procurement leader, you know entering into a new business relationship is a big deal. Forming a true partnership that is mutually beneficial takes a lot of time. You’re adept at seeking out suppliers, negotiating contracts, and relying on those partners to help you deliver cost savings.
But, what if you don’t have enough time to fully vet a supplier because you’re too busy managing multiple spend categories and writing RFPs
Enter group purchasing. A group purchasing organization is designed to do the heavy lifting when it comes to gaining access to the best suppliers and contracts. Much like your supplier relationships, selecting the right GPO to work with is an essential step in developing your overall approach to procurement.
In this article, you’ll learn what to look for in a GPO and why selecting the right group purchasing organization is a crucial part of forming a holistic procurement strategy.
We’ll cover the following:
- Types of GPOs
- Understanding the GPO relationship
- How the right GPO mirrors your own organization’s culture and values, and;
- Why GPOs should act as an advisor
- How to make the most of a GPO partnership
Types of Group Purchasing Organizations
To start, let’s discuss the two types of GPOs to consider depending on your needs. First, a vertical GPO serves a niche segment or industry, usually focusing on direct spend specific to markets. Vertical GPOs are commonly found in the hospitality, healthcare, dental and veterinary industries.
Horizontal GPOs, however, cover a broad range of categories, mostly pertaining to an organization’s indirect spend on everyday items. By joining a horizontal GPO and leveraging collective buying power, you’re able to get access to enterprise-level savings on items like office supplies, parcel shipping and more, without having to actually purchase a higher volume.
After deciding what type of GPO is right for your business, understanding the GPO relationship is of utmost importance. Above all else, find a GPO that offers complete transparency when it comes to membership, pricing or fees associated with joining, purchasing expectations, and the supplier partners they work with.
Although the direct point of a GPO is to deliver instant value, a GPO focused on members will allow for flexibility and autonomy around contracting specific SKU’s that may be unique to the member, whether it’s with the distributor or the manufacturer.
Make sure you’re comfortable with the details of how everything works upfront so there are no surprises on the backend after purchasing begins.
Culture and Service
Analyze your organization’s culture and work with a group purchasing organization that mirrors your own values. For example, do they work with suppliers that source sustainably? Are they cognizant of green and social procurement initiatives? Do they give back to their communities like you? The right GPO will spend a lot of time validating suppliers to make sure they’re a good fit, which in turn makes it a win-win situation for your organization.
There are so many options when it comes to procurement and speed is always a factor. A group purchasing organization should allow you to connect with a contract almost immediately. As a result, your business is allowed to start saving within days or weeks versus months.
Make the Most of Your Group Purchasing Organization Partnership
Here are a few tips you can use to make sure you’re getting the most out of your GPO partnership:
- Familiarize yourself with the marketplace. The right GPO is out there; you just have to know the ins and outs of your options before forging a partnership.
- Identify a few categories you spend a lot on. These are areas in which you stand to gain savings. Vet potential partners based on your needs, the value proposition of each GPO, and the overall cost savings potential of each.
- When you’re ready to make your selection, set a timeline for the transition. See how much help your GPO partner is willing to offer when switching over your purchasing process.
Your GPO partner should provide high-impact solutions in a timely manner, followed by additional resources on an ongoing basis. The end goal should be to save time and money and improve your relationships with vendors.
A GPO should help you buy smarter and understand what it is you really need. They should be taking an active advisory approach with their members. If possible, work with a Sourcing Advisor, someone available to listen to your pain points and lead you to solutions. If done right, the Sourcing Advisor will find a resolution whether it’s something the GPO offers or not.
In some cases, a member may want to keep their incumbent supplier and maintain the same relationships with the service and account teams. A member-focused GPO will look for ways to make that happen while still delivering economic value.
Finally, when choosing the right GPO partner, you want to make sure they understand their place in your overall procurement strategy. According to Una CEO Anthony Clervi, “The right GPO understands that they are a supplement and that they want to come alongside their C-Suite strategy.” Group purchasing isn’t the end-all-be-all and your GPO should know that.
In the end, a GPO’s main goal should be to provide immediate value to your non-strategic spend and then over time, look for additional ways to provide value in other categories or, better yet, in reporting function, data and supplier transparency, and accountability.