After you’ve come to the decision to achieve savings in your indirect procurement categories by working with a group purchasing organization (GPO), you come to the essential question:
What kind of GPO is right for my company?
Here’s a list of the types of group purchasing organizations to help you figure out which best suits your company’s needs.
Overview: A vertical GPO serves a specific market. Healthcare GPOs are the most well-known type of vertical, but they also exist in spaces such as hospitality, manufacturing, food services and nonprofit. Another way to look at this type of GPO is that their members are competitors of one another.
Offerings: Because members are in the same industry, the program offerings include strategic purchases and direct spend; for example, healthcare GPOs have agreements related to the pharmacy, laboratory and surgical needs of hospitals.
Some vertical GPOs also offer agreements for indirect spend such as office supplies and wireless. However, since their focus is direct or strategic spend, they typically have only moderately-competitive contracts for indirect spend because they partner with more than one supplier.
Value proposition: Membership allows you to purchase items specific to your industry at a significant discount – be they beds for hospitals or coffee beans for hotel chains.
Overview: Instead of serving a specific market, horizontal GPOs open their membership to companies of all industries. To balance the broad range of member industries, these GPOs target a certain company size. Small, midsize and large businesses can find GPOs suited to their size. Although there may be direct competitors as members of the same GPO, the offerings provided by the horizontal GPO make this a non-issue.
Offerings: Instead of sourcing strategic spend categories, horizontal GPOs provide access to leveraged indirect spend agreements. Because they typically have only one supplier agreement per category, their indirect contracts are much more aggressive than what a vertical could offer.
Examples include: office supplies, MRO, safety supplies, temporary staffing and workforce solutions, telecom services and uniforms.
Value proposition: Membership provides savings on your indirect spend and allows you to take the time saved to manage your strategic spend more closely.
Small business support organization or chamber of commerce
Overview: Organizations devoted to helping the local small business community are another GPO option, though the group purchasing element is only one part of their broader service offering. They exist on both national and local levels. The group purchasing programs through this type of organization are specifically suited for small businesses.
Offerings: Since these groups are horizontal in nature, they provide indirect spend offerings. Typical programs include: health insurance plans, workers’ compensation group rating, payroll services, energy and office products.
Value proposition: Membership provides savings on the things your company needs to keep the doors open and lets you redirect that money to help grow the business. Other services include educational resources and advocacy on issues related to small business.
Want more information on GPOs and their impact on indirect spend?
Download The Hackett Group's recent study on how group purchasing organizations add value.