"A decision not to use GPOs for specific indirect spend categories is the same as leaving money on the table" was the headlining quote from a recent Procurement Executive Insight from The Hackett Group.
While I work for OMNIA Partners, the nation's largest group purchasing organizations GPO, I've also sat on the other side of the desk as a Sourcing Manager – in both the private and public sector. I've felt first hand the pressure of an ever-growing savings goal and an unmanageable number of suppliers/categories to be responsible for. Working in healthcare for the public sector, GPOs like Vizient and Premier were an indispensable part of my day-to-day life as a Sourcing Manager. The pre-negotiated contracts and pricing they offered were critical to managing thousands of suppliers effectively, without the continual need to go to RFP. Without healthcare GPOs, I can only imagine how much larger of a team would be needed and how much MORE healthcare would cost...
Healthcare GPOs have been around for a long time, and while industry agnostic GPOs like OMNIA Partners are relative newcomers, I continue to be surprised by the number of companies that aren't working with a GPO. This is especially mind-boggling when the vast majority of companies I meet have only a handful of Sourcing Managers dealing with hundreds of millions of dollars of indirect spend. I can think of only a couple of reasons why:
- Lack of awareness that indirect GPOs exist
- Fear - "If the GPO shows we could save money beyond what we've negotiated, we'll look like we haven't done our jobs!"
- Cultural fit - This takes several forms but largely amounts to "we have to RFP every category, so it doesn't make sense to work with a GPO."
Overcoming the "fear" issue is easy. GPOs aggregate volume to negotiate a better contract and pricing than companies can do on their own. It's only natural that the GPO is likely to have the better deal. This doesn't say anything about how your team managed their negotiations, you did the best you could with the tools and leverage you had.
The cultural fit issue can be a little harder to overcome, but it shouldn't be. If your organization requires an RFP for every category, your team is spending on average 350-500 hours of manpower per category. If this is the case, does your team really have the bandwidth to focus on:
- Building relationships with other business units
- More effectively managing the life-cycle of their categories
- Increasing spend under management
This is definitely where working with a GPO can help by continuing to deliver savings while freeing your team to focus on your strategic objectives for the organization.
I've always been a procurement geek and I'll be interested to see how our function continues to evolve over time. Taking advantage of low hanging fruit like working with a GPO is just the beginning.