When you have multiple businesses coming together to buy a product or service in bulk, that’s referred to as a group purchasing organization (or GPO). A GPO is an alliance of businesses that band together to negotiate volume discounts and other benefits by buying as a group. A successful GSO has plenty of perks: It can save members money on everything from cleaning services to software to office supplies. But before you dive into creating one, it’s important to know the pros and cons of collaborating with other companies to purchase goods and services in bulk. This article covers everything you need to know about forming a GPO at your company.
What is a Group Purchasing Organization (GPO)?
A group purchasing organization (or GPO) is an alliance of businesses that band together to negotiate volume discounts and other benefits by buying as a group. A GPO is a win-win partnership for both the provider and the member companies. Transferring the volume discount risk to the GPO allows the provider to offer a lower price, while the GPO gives member companies a predictable and consistent price. A successful GPO like GPOPlus has plenty of perks: It can save members money on everything from cleaning services to software to office supplies. It also provides a central place to manage all those purchases.
GPOs have a long history. The first one was formed in the late 1920s and was initially used by the lumber industry. The idea was that if a lumber yard had several customers who wanted to buy 100,000 board feet of lumber, the yard would have to make 100,000 individual sales and collect 100,000 individual payments. A GPO can get a much better price. It would buy 1,000,000 board feet of lumber, divide it into 100,000 board feet for each customer, and then collect 100,000 separate checks. People in industries as diverse as healthcare, education, and manufacturing currently use GPOs to buy everything from office supplies to consulting services.
How does a group purchasing organization work?
The first step to creating a GPO is to sign up your company as a member. The next members that you recruit will be referred to as customers. You’ll need a board of directors responsible for managing the partnership. A vendor is a company that sells goods or services to the GPO at a discount. You’ll need to sign up for a buying service. This is the platform where you’ll find the businesses willing to sell their goods and services to the GPO at a discount. You’ll also be able to track purchases, manage budgets, and approved vendors. With your membership and buying service in place, you can start purchasing services and goods in bulk. Then, you can even offer those services to your customers at a discounted price!
Why build a GPO?
Businesses looking to buy in bulk and businesses willing to fulfill large orders can gain from using a group purchasing organization like GPOPlus. A successful GPO can save members money on everything from cleaning services to software to office supplies. It can also provide a central place to manage all those purchases. Membership in a GPO can be valuable whether or not you intend to use the buying services. Creating a GPO can help your company explore new purchasing strategies. When you group your purchases with those of other companies, you can negotiate lower prices.
Drawbacks to forming a GPO
The GPO model requires buy-in from vendors. Many might be reluctant to give you a discount unless you can guarantee them several sales. If you don’t have the business volume to meet those targets, you may not be able to form a GPO. A GPO can also require a significant amount of time and effort to launch. You’ll need to identify potential vendors, determine their cost savings, and locate a platform to manage purchases. Communicating with other businesses to form a GPO can be tricky.
You’ll need to be upfront about your intentions and find a way to navigate any potential ethical concerns. If you’re partnering with companies in the same industry, you’ll need to be careful to steer clear of anti-competitive practices.
When to form a GPO
Before you launch a GPO, you’ll want to make sure that members have a genuine interest in group purchasing. It can be a lot of work to get the partnership off the ground, and the benefits may be limited for some businesses. You’ll want to consider the following factors before forming a GPO: -Is your industry cost-effective when purchasing in bulk? If you’re trying to buy cleaning supplies, you’re probably in luck. But if you’re trying to buy computer equipment, you may have a hard time finding a vendor willing to give you a bulk discount. -Are you able to find vendors willing to supply the GPO at a discounted price? -Can you recruit enough companies to participate in your GPO? You’ll want to ensure that you have enough businesses to make the partnership worthwhile for vendors, but not so many that you’re unable to manage the purchases.
A Step-by-Step Guide for Creating A GPO
Here’s how to create a GPO from scratch:
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Identify your purchasing goals. What goods and services does your company regularly buy? What would happen if you purchased those items in bulk?
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Research your options. There are several buying platforms out there, and they can vary widely in functionality. Make sure that you select a platform that meets your needs.
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Sign up for a buying service. You’ll need to provide information about your business, your procurement needs, and the types of products that you would like to buy.
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Recruit other companies to participate in the GPO. You’ll want to ensure that you communicate your goals clearly and that you’re upfront about any ethical implications.
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Establish rules and governance for the GPO and select vendors. You’ll want to be selective about the companies you allow to participate in the GPO. – Launch your GPO and start purchasing in bulk.
Conclusion
When your company brings together multiple entities to purchase in bulk, that’s referred to as a group purchasing organization (or GPO). A GPO is an alliance of businesses that band together to negotiate volume discounts and other benefits by buying as a group. A successful GPO has plenty of perks: It can save members money on everything from cleaning services to software to office supplies. But before you dive into creating one, it’s important to know the pros and cons of collaborating with other companies to purchase goods and services in bulk. This article covers everything you need to know about forming a GPO at your company.
She is a freelance blogger, writer, and speaker, and writes for various entertainment magazines.