7 Reasons to Use a Group Purchasing Organization
Here are seven reasons to use a group purchasing organization in a way that saves more money, more time, and more effort.
By Hugo Britt | November 3, 2020
Considering joining a group purchasing organization (GPO) but having difficulty convincing decision-makers that it’s worthwhile? Here are seven metrics to include when building your case for using a group purchasing organization and why it’s a smart move for your business.
Early cost savings achieved by getting maverick spend under control, consolidating suppliers, removing duplication, and reviewing product specifications can dwindle as a procurement function matures and it runs out of low-hanging fruit.
When the quick wins are no longer available, though, sourcing professionals may find it difficult to generate even 1% of savings. This can prove to be even harder without a significant investment in long-term projects such as the digitization of procurement. But what if there was a way to save between 20% and 25% or more on products and services? GPOs unlock deep discounts for member organizations through a huge increase in buying power.
The first metric (and the most powerful metric for most decision-makers) is to therefore show your projected cost savings for the next 12 months with and without a GPO membership.
Procurement professionals are tasked with securing cost savings and value for their organizations. Using a group purchasing organization is a viable way to save more money, more time, and more effort.
Time to Source
Most business professionals are familiar with the phrase, “time is money.” Not only does a lengthy procurement process cost money in terms of the sourcing professional’s salary, but delayed contracts mean delayed benefits, as well. In some cases, a delay might even hold up production processes.
Therefore, it’s important to track and measure time spent by the procurement team on supplier discovery, supplier vetting, lengthy RFP processes, and supplier negotiation.
Did you know the entire sourcing process could be sped up with the help of a group purchasing organization? A GPO can connect you with pre-negotiated contracts quickly to enable your organization to start saving within days, not months. At Una, we think of group purchasing organizations as Sourcing Accelerators. In the end, our focus is on getting you connected to the supplier contracts that align with your business goals in record time so you can start saving immediately.
Negotiation-related metrics can be difficult to track, but might include:
- Time spent on preparing for and carrying out negotiations
- Intended versus actual discounts won from suppliers
- Non-cost-related outcomes and benefits
- Bargaining power with top-tier or strategic suppliers (will they negotiate with you?)
Joining a GPO skips the hassle of negotiation and dramatically increases an organization’s purchasing power. The GPO’s existing contracts gives your business immediate access to the lowest possible price. When building a business case, be sure to include the amount of discounts you’d potentially unlock with a GPO membership.
Tail Spend Management
Within your organization, how much money is going out the door in unmanaged tail spend?
Tail spend generally consists of 20% of your company’s tactical spend spread across 80% of suppliers. It is notoriously difficult to manage. This means cost savings can be difficult to achieve. Luckily, tail spend happens to be an area of expertise for GPOs like Una.
Talk to your GPO about the potential benefits of managing tail spend. These benefits include cost savings, risk and waste reduction, quality control, and supplier innovation. All of these could be achieved by outsourcing tail spend management.
Time Spent on SRM
Yes, supplier relationship management is important, but does your ROI equal the amount of time you’re pouring into it?
Likewise, there’s the challenge faced by organizations that are too small to even get onto big suppliers’ radars. They simply don’t see the value of developing a relationship with you because your purchasing volumes are too small.
Joining a group purchasing organization outsources the headache of supplier relationship management while retaining many of the benefits. This partnership also frees up your team to concentrate on strategic planning and value-adding.
Something to keep in mind is that leveraging group purchasing doesn’t mean you can’t negotiate agreements or maintain supplier relationships yourself. It simply gives you the option to focus on other important tasks.
Consultancy & Advisory Spend
How much are you paying procurement consultants?
Year in and year out, procurement managers are paying consultants to benchmark the company’s spend in categories that could be outsourced instead.
Top GPOs – like Una – should be viewed as trusted advisors. We take the time to analyze your spend, understand your needs and goals, and help you roadmap long-term, value-added sourcing projects.
There are many benefits to using a group purchasing organization. From cost savings and better overall spend management to finding more time to focus on strategic initiatives, a GPO can help elevate your procurement function - for free.
The Cost of Joining a GPO
Many stakeholders are apprehensive about joining a GPO because of hidden fees or agendas. When it comes to membership requirements and obligations, each GPO will be structured differently.
Some GPOs collect participation fees from their members. Others (like Una) will collect fees from the suppliers, which means membership is free. Some may do both. It’s possible that one GPO requires members to maintain a certain level of purchasing volume while another does not.
We recommend taking the time to fully understand the parameters of participating in a GPO before entering into a membership agreement.
Need more reasons to use a group purchasing organization? Una’s expert sourcing advisors can help you build a business-case for joining a GPO today. Contact us to learn more.