A GPO (Group Purchasing Organization) leverages the collective buying power of its members to obtain bulk discounts from retailers.
What is a GPO?
A Group Purchasing Organization (GPO) leverages the collective buying power of its members to obtain bulk discounts from retailers.
An Explanation of Group Purchasing Organizations
A group purchasing organization (GPO) works kind of like Costco or Sam’s Club. When you buy in bulk as a group, it creates buying power. This group purchasing method motivates suppliers – vendors of products and services – to give GPO members “bulk pricing”.
When you join a GPO, its network grows, increasing your power buying as well. The more members, the bigger the discount, giving you as a GPO member access to savings you wouldn’t be able to get on your own.
How GPOs Work
Most people and businesses only spend a modest amount in a particular category, such as office supplies or parcel shipping. At least compared to Fortune 500 companies. So, since you only need a little bit, you end up paying more, because purchasing is all about volume, or “bulk” discounts.
But when you join a GPO, you join a group of people buying the same thing, now you can leverage your collective purchases — your buying power. Meaning you get the discounts of “bulk” without having to buy more.
Individuals, businesses, and association members alike join the GPO.
The GPO uses its large database of members to negotiate volume based price-breaks with suppliers.
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.
GPO Quick Facts
• GPOs like UNA are free for individuals, businesses, and associations, anyone can join • GPOs get exclusive pricing from suppliers because they’re guaranteeing customers • GPOs help you cut down on search time and issuing RFPs
Other GPO Benefits
Saving money isn’t the only benefit of joining a GPO. Some GPOs, like UNA, also offer our members cost comparison analysis tools, a procurement partnership, and supply chain management support – absolutely free.
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 by the suppliers themselves. We, in turn, use that fee to fund our program, so that it’s always free for our members.
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 serve a niche segment or industry and are usually created as a way for management or association groups to benefit their member companies. This type of GPO is commonly found in:
GPOs can help healthcare providers save time and costs by leveraging group purchasing to reduce spend on manufacturers, distributors and other vendors.
By providing negotiated agreements with food distributors and hospitality suppliers, GPOs help save on all the sundry things a company needs to run efficiently and cost-effectively.
Dental and Vet GPOs focus exclusively on providing procurement support and cost savings tailored to the unique industry needs.
Horizontal Market GPOs
Horizontal market GPOs serve organizations spanning all markets and industries. But they’re not all created equally. Some GPOs collect participation fees from member companies, and some GPOs collect fees from the suppliers. Other organizations do both and collect fees from both members and suppliers. Some GPOs require that members maintain a certain level of purchasing volume, others do not.
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.
Most businesses need relatively small amounts of supplies and services, so they inevitably end up paying a higher price, because they don’t get volume discounts. But business today has changed. GPOs help level the playing field of indirect spend for businesses of all shapes and sizes. Because by leveraging group purchasing, you increase your buying power. You’ll get “bulk pricing” regardless of volume.
The History of GPOs
• The first GPO was a healthcare GPO, established in 1910
• 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 as medical cost scrutiny increased
• Soon after, the GPO model caught on in other verticals — business, hospitality, dental, and veterinarian
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