Group purchasing organizations (GPOs) come in many shapes and sizes. Before determining what kind of GPO would best fit your organization, you must first decide if a group purchasing organization is right for you.
Once you understand the basics of how a GPO works, there are a few more details that can help you figure out if a GPO relationship is something your procurement department should pursue.
Here are several statements a company might make and whether they would be a good fit for a GPO.
My company situation:
Am I a GPO candidate?
|“We handle our own sourcing efforts.”||Yes||If you conduct your own sourcing projects, you can use your expertise to spend more time on the spend categories that are most strategic for your business. Your resources should be put to better use than negotiating contract terms and pricing for an office supplies or MRO agreement.|
|“I don’t want to be forced to use an agreement that isn’t right for my company.”||Yes||A GPO allows you to use only the agreements that benefit your company. However, GPO agreements are designed to provide your company with the best quality, service and pricing available, and they are typically more aggressive than what one company can achieve on its own.|
|“We need a comprehensive procurement outsourcing strategy.”||No||A GPO will never cover all 150 to 200 different areas of indirect spend. Instead, a GPO only offers agreements that will have a meaningful impact for a large number of participants.|
|“It’s essential for us to have direct interaction with our suppliers.”||Yes||Although the GPO initially takes the lead and creates a master agreement with the supplier, it encourages and even facilitates direct engagement between the member and the supplier.|
|“We need help with one very complicated spend category.”||No||Go with consulting or custom sourcing options for one-off projects where a depth of subject matter expertise is critical (though these options rarely provide ongoing management support).|
|“My company is very large, so we have all the leverage we need.”||Yes||Even though you might have the necessary leverage to create great agreements, your resources are still better suited to managing contracts for core spend instead of indirect spend.|
|“I don’t have the resources to manage a third party.”||Yes||A core benefit of working with a GPO is resource flexibility. Your team will save time by handing sourcing and contract management to the GPO. That time can be used for other strategic initiatives or spend categories and for working with the GPO to achieve further indirect savings.|
|“We can’t be locked into a single supplier.”||Yes||Most horizontal GPOs (those serving numerous industries) single-source, meaning they offer one supplier per category. But GPOs don’t require that members use every agreement they offer, nor do they require 100% of your spend to flow through the agreements you do utilize. You can maintain the use of a second supplier where it’s necessary.|
What do the analysts say?
According to a recent Procurement Executive Insight study from The Hackett Group, "A decision not to use GPOs for specific indirect spend categories is the same as leaving money on the table." So if you fit the "yes" comments, now's the time to learn more about what GPOs can offer.