Why Join a GPO (Group Purchasing
Organization)?
The
information below helps illustrate why your organization
should
join a GPO.
Member Benefits
Purchasing GPO's are set up to pool demand from many
different companies and increase the purchasing power of each of the
individual member companies. This gives them economies of scale, of
process, and of information. Each member drives up the collective supply
chain power in the markets in which the GPO operates, especially in
the non-core commodity categories that are equivalent for each of the
member companies.
Economies of Scale
The first type of benefit offered by a GPO is
economy of scale. The sheer volume of purchasing demand amalgamated by a
decent size GPO provides each member with economies of scale that
they could not hope to obtain on their own.
Lower Prices / Pooled
Negotiating Power
By increasing the volume of the intended award, the GPO is generally able to negotiate (much) lower prices for the good
or service being awarded than any single member company in the collective.
These savings are usually significant, ranging from 10% to 35% according
to the Buying
Support Agency.
Lower Transaction Costs
By joining together in a GPO, organizations can
(effectively) streamline procurement processes. This not only reduces unit
cost, but also reduces the overall transaction costs since only one
contract needs to be negotiated and implemented.
Economies of Process
The sharing of purchasing information on suppliers, new
technologies, market developments, internal users, and historical spending
behavior not only avoids redundancy and reduces transaction costs but
creates an economy of process above and beyond what each organization
could achieve on its own.
Reduced Workload
Since the GPO handles a number of buys on behalf
of the organization, the organization has a (significantly) reduced
workload, especially on the tactical side, and the buyers are freed up to
focus on more strategic categories.
Better Practices
Individual members units are able to improve their
results by sharing best practice in certain business processes, leveraging
expertise in functional areas, and pooling knowledge about how to succeed
in specific regions with the GPO and with each other.
Economies of Information
The GPO of the future offers the benefit of
expertise more so than it offers the benefit of scale. Eventually,
especially with constantly rising raw material prices, the best practices
employed by a competent GPO will squeeze all of the fat out of the
supplier's margins and the best price will be obtained. Once this occurs,
the GPO will use its expertise to assist its members in advancing
purchasing technology, reducing wasteful consumption, and improving the
application of the goods and services they purchase.
Higher Quality
A GPO will have access to all of the knowledge of
its members which it can tap to identify the best potential suppliers with
the best potential products and services to meet the members needs.
Furthermore, it can tap this knowledge base to identify new processes and
emerging best practices on a regular basis to make sure it is always using
the best information and processes to make its decisions.
Lower Supply Risks
A GPO, able to tap into the collective expertise
of all of its members, will have a much better chance of identifying and
qualifying low risk suppliers.
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