7 Statistics to Prove Why You Should Use a GPO
By Hugo Britt | November 3, 2020
Considering joining a group purchasing organization (GPO) but having difficulty convincing decision-makers that it’s worthwhile? If so, read on. We’ve gathered seven metrics to include in your case for why using a group purchasing organization is a smart move for your business.
7 Reasons to Use a Group Purchasing Organization
Early 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.
Time to Source
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. That’s why we like to think of Una as a Sourcing Accelerator. 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.
Download our free resource: The Complete Guide to Group Purchasing
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 suppliers (will they negotiate with you?)
Joining a group purchasing organization skips the hassle of negotiation, as well as dramatically increases an organization’s purchasing power, and gives you access to the lowest possible price. As a result, your business case should include the level of discounts that you can potentially unlock with and without GPO membership.
How much money is going out the door in unmanaged tail spend?
Tail spend, which generally consists of 20% of your organization’s tactical spend spread across 80% of suppliers, 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 in terms of tail spend cost savings, risk and waste reduction, quality control, and supplier innovation that 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 – are also 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.
The Cost of Joining a GPO
Here’s the million-dollar question: what’s it going to cost? Well, it depends on which GPO you join.
Some GPOs collect participation fees from their members. Others (like Una) will collect fees from the suppliers, which means membership is free, and 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 why you should be using 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.