What is a GPO?

A group purchasing organization (GPO) is an entity that leverages the purchasing power of a large network of businesses and individuals to obtain discounts from vendors based on the collective buying power of its members.

What is a GPO?

A group purchasing organization (GPO) is an entity that leverages the purchasing power of a large network of businesses and individuals to obtain discounts from vendors based on the collective buying power of its members.

An Explanation of Group Purchasing Organizations

Similar to Groupon, which offers discounted deals on various services through group buying, a group purchasing organization (GPO) combines your purchasing needs with the collective buying power of thousands of businesses to leverage deeply discounted pricing from suppliers and distributors. GPOs, sometimes called buying groups or collective buying groups, can offer greater efficiency and lower cost to their members by negotiating contracts with some of the top suppliers in exchange for the high committed volume a GPO can secure them.

How GPOs Work

The inner workings of a GPO are not as complex as they may seem. A GPO secures volume-based discounts with select vendors by leveraging the collective purchasing power of its members.

Businesses use many different products & services in their operations, spanning from IT and office supplies to shipping and distribution. The purchasing game is all based on volume and negotiating power, so when your need for these products & services are smaller than that of a larger organization, you often end up paying more than a large company would simply because of spend volume. However, you can now realize this level of cost savings on your purchases by participating in group purchasing and increasing your buying power.

Network Membership

Businesses & association members join the GPO.

Vendor Negotiation

The GPO uses its large database of members to negotiate volume based price-breaks with suppliers.

Member Savings

The GPO shares its contracts back to its members, providing access to deep discounts on products & services they would never be able to negotiate on their own.

What are the other benefits of a GPO?

Saving money isn’t the only benefit of joining a GPO. Some GPOs, like UNA, offer their members cost comparison analysis tools, procurement partnership, and supply chain management support in addition to tradition cost savings – at no cost to its members.

How do GPOs make money?

Every GPO is structured differently. Some GPOs charge members a fee for their services, while other GPOs, like UNA, are paid a fee by the suppliers themselves. They, in turn, use that to finance the supplier program, free of membership fees.

Types of GPOs

While there are many group purchasing collectives, there are two primary types of GPOs: vertical market GPOs and horizontal market GPOs.

Vertical Market GPOs

Vertical market GPOs provide services within a niche segment or industry and are often formed through management or association groups to serve their member companies. This type of GPO is commonly found in:

Healthcare GPOs

GPOs can help healthcare providers realize cost and time savings by aggregating purchasing volume and using that to leverage discounts with manufacturers, distributors and other vendors.

Hospitality GPOs

Having negotiated agreements with food distributors and hospitality suppliers, GPOs can help save on all the goods and services needed to run a company efficiently and cost-effectively.

Association GPOs

By creating a customized program that delivers valuable discounts on business products and services, Associations can offer their members cost savings and drive their membership value through the roof.

Business GPOs

GPOs catering to businesses can help save on the ongoing procurement needs businesses of all sizes encounter, like office furniture, shipping costs, business travel and electronics.

Dental and Veterinarian GPOs

Dental and Vet GPOs focus exclusively on the needs of their offices and clinics by providing their members with the procurement support and cost savings you need.

Horizontal Market GPOs

Horizontal market GPOs serve organizations spanning all markets and industries. Not all group-purchasing organizations operate in the same way. Some GPOs collect fees from member companies for participation, and some GPOs receive fees from the suppliers. Some organizations do both and collect fees from both members and suppliers. Some GPOs require that participants maintain a certain level of purchasing volume, whereas with others participation is entirely voluntary.

Medium and large-sized businesses use many different products and services in their operations, spanning from IT, office supplies to shipping and small parcel distribution, commonly described as indirect spend. Because their volume for these products and services are less than that of a larger organization, they often end up paying a lot more than a much bigger company would simply because a larger organization typically purchases at a higher volume and can negotiate a better rate.

Business today has changed. Businesses of all shapes and sizes can and are competing on an equal playing field when it comes to indirect spend options. They too can experience real cost savings on their purchases by participating in a GPO and thereby increasing their buying power.

The History of GPOs

The first healthcare GPO was established in 1910 by the Hospital Bureau of New York. For many decades, healthcare GPOs grew slowly in number, to only 10 in 1962. Medicare and Medicaid stimulated growth in the number of GPOs to 40 in 1974. That number tripled between 1974 and 1977. The institution of the Medicare Prospective Payment System (PPS) in 1983 focused greater scrutiny on costs and fostered further rapid GPO expansion. By then the GPO model had started to gain momentum, and the utilization of them in other verticals such as business, hospitality, dental and veterinarian have evolved rapidly.

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