Group Purchasing Organizations - Bulk Discounts, Major Savings
A group purchasing organization – also called a co-op, consortium, purchasing group, collective, coalition, or leveraged procurement group – exists to leverage the combined purchasing power of its members to get maximum discounts from suppliers, for all its members. The collective buying power of the group far exceeds what one company can generate on its own.
The first GPO in the United States was healthcare focused, founded in 1910 by the Hospital Bureau of New York. Since then, the scope of GPOs has expanded to include a broad array of products and services, including office supplies, cellular phones, fleet and fuel cards, janitorial supplies, car rental, shipping, and more.
A GPO allows a company to focus on its core business and portfolio, instead of the indirect products and services needed to keep the company running smoothly. Here are some quick facts about Group Purchasing:
In the 1980s and 1990s, the federal government and healthcare organizations formed GPOs to lower costs and create efficiencies in their purchasing systems. Hospitals and free-standing nursing homes were able to consolidate their purchasing power with other facilities to create contracts with medical suppliers and other suppliers. Those same practices have spilled over into other organizations. Today, many other industries are teaming up to create GPOs that bring in these valuable benefits.
On average, GPOs save companies between ten and twenty-five percent. This cost savings happens not only through reduced prices negotiated into the purchasing contracts but also by standardizing the purchasing process. Rather than going through a complex negotiation process with multiple suppliers and hiring employees to keep track of those contracts, a GPO handles this process for you. Also, administrative fees are generally paid by the suppliers and are built into the discounted price, so it’s an even sweeter deal than your Costco membership.
If you know what you purchased in the past year, the GPO can let you know what your potential cost savings will be. The GPO will take your purchasing report and give you a breakdown of the discounted price and your expected cost savings. You can then take that analysis and make the decision to join.
GPOs do not purchase products or make purchasing decisions for you. You’ll have complete control over what you purchase and when, you’ll just have the purchasing power of a GPO behind you. Then, you can dedicate your time to the more profit-friendly aspects of your business and forget about constantly looking for the best deal on your supplies.
Small and mid-sized companies don’t have the clout needed to get aggressive pricing from well-known suppliers. With a GPO, you’ll get those prices and the capabilities of a market-leading supplier. As you join up with other companies, your combined purchasing power will be attractive to those coveted suppliers.