Group Purchasing Organizations and Procurement

GPO Premikati
05 Nov, 2019

    The Role Of GPOs In Procurement

    Summary: Group purchasing organizations (GPOs) help reduce the effort and monetary burdens of procurement through managing contract and pricing negotiations for their customers. Procurement outsourcing firms add another layer to this by aggregating contract and pricing negotiations into one bundle when partnering with GPOs.

    Community procurement has been a reliable source of cost adjustment for centuries.  GPOs fill that role in modern business. Non-Fortune 500 companies frequently band together for massive volume purchases in order to secure a favorable cost-per-item rate. 

    Balancing Bulk Buy-in With Initial Costs

    GPOs intentionally imbalance supply versus demand—on the demand side—to achieve a better purchasing rate without cumbersome initial costs. GPOs are becoming increasingly common in the healthcare and technology spaces, partially due to exorbitant fees on some vital expenses, such as hospital equipment and supply procurement.

    By imbalancing demand through group buying power, supplying businesses are removed from the seat of control and must offer steep enough discounts, or lose out on substantial amounts of business. The concept of providing discounts for volume sales drive modern GPOs rather than traditional sales security.

    The Benefits Of Bulk Purchasing

    Buying in bulk traditionally provides benefits to both the buyer and seller. On one hand, the seller can acquire goods or services at a discounted rate. On the other hand, the seller gains certainty about when they will move large amounts of inventory. GPOs upset the natural order by drawing on sellers’ discounts and inventory certainty by bundling purchase orders from numerous clients together. 

    Procurement outsourcing firms can sometimes offer admittance to GPOs as a result of retaining them. GPOs can often provide deep discounts of inventory such as company cars, computer and networking equipment, and countless other merchandise. 

    How GPOs Reduce Effort For Both Suppliers And Members

    Contractual negotiation and pricing adjustment are two burdensome activities that come with the procurement process. GPOs help alleviate both of these burdens for customers and sellers by negotiating a consistent rate and purchasing agreement for multiple businesses to obtain goods and services. 

    The process of price negotiation alone is a time-consuming process involving bid requests and fulfillment as well as bid review before the final decision is made. Removing this process from both clients and sellers frees up time and resources to carry out other operations, such as lead generation and production management. 

    How Do GPOs Pair With Procurement Outsourcing?

    Procurement outsourcing firms are uniquely positioned to partner with GPOs—clients can save money by working within the preestablished pipeline between the procurement outsourcing firm and the GPO. Utilizing both commonly increases client company savings due to cemented relationships between both the GPOs & procurement outsourcing firm as well as the relationship between client companies and the procurement outsourcing firm.

    The benefits of pairing GPOs and procurement outsourcing is two-fold—both pricing and effort overhead are substantially reduced. Pricing can be negotiated between the GPO and procurement outsourcing firm based on how many clients need GPO services. Effort is substantially reduced for client companies because the procurement outsourcing firm often takes ownership of contract and pricing negotiations with the GPO.

    Premikati is a management consulting firm that is specifically tailored to procurement and supply chain. We offer our clients the ability to leverage the power of a Group Purchasing Organization while utilizing a lean version of the Ariba™ Guided Buying suite to manage spend, specifically tailored for the SMB space. Learn more about us here.