Group Purchasing Organization 101: Get The Facts

Not certain what a group purchasing organization (GPO) is or how it can help your business? Not sure a GPO can handle the unique needs of your internal and external stakeholders? Get the facts.

When it comes to spend, procurement needs the facts so we compiled the most common and frequently asked questions about GPOs across the web and answered them - all in one convenient spot. Do you have a question that didn't make the list? Contact us. 

 

Q: What is a GPO?

A: A group purchasing organization (GPO) uses the purchasing power of a group of businesses (its members) to negotiate better pricing, service levels and account representation from vendors (its suppliers) to simplify the buying process for procurement or purchasing professionals. In return, suppliers gain increased market share and access to decision-makers at customer organizations throughout their industries.

Q: How does a GPO work?

A: Group purchasing organizations create and manage contracts for indirect materials and services, direct materials and commodities that are mutually beneficial to both the GPO suppliers and members.

To do this, GPOs first create a membership base that's comprised of companies looking to channel their spend using the GPO's agreements. The combined spend of these member companies creates leverage. It's this leverage that continues to attract GPO supplier partners and motivates them to offer their best pricing and service levels to GPO members.

As spend increases, a GPO can continue to strategically source more agreements with suppliers that have the ability to provide better pricing and agreements than GPO members could achieve on their own. GPO suppliers will actually forgo margin opportunities because their involvement in a GPO will greatly reduce the amount of money they need to spend acquiring new business.

At the end of the day, members rely on GPOs to help solve their procurement and sourcing concerns and suppliers rely on GPOs to build strong buyer relationships with a diverse portfolio of companies from many industries.

GPO membership ultimately allows both parties to save time, money, resources and simplify the buying process so they can concentrate on the projects that are most important to their respective companies and bottom lines.

Q: How does a GPO add value?

A: As group purchasing organization members continue to use GPO agreements – that are being constantly managed by the GPO – value increases for both members and suppliers.

More member spend means more spend flowing through agreements, which allows GPOs to negotiate even deeper discounts and continue to improve terms and conditions with suppliers. And as these supplier relationships mature, a GPO can likely further mitigate risk by engaging multiple people at various levels throughout supplier organizations.

While it's true that this level of engagement saves all GPO participants money, time and resources, a GPO goes beyond those impressive benefits to produce sustainable value. This is because even if savings diminish over time, a GPO will be constantly looking for new ways to enhance agreements and supplier performance.

Suppliers who engage at this deeper level will also see sustainable value. The large, diverse portfolio of members they get access to, the long-term relationships they build, the collaborative engagement they see and the in-depth industry knowledge they receive will continue to pay dividends.

Q: What industries do GPOs operate in?

A:  GPOs can operate in countless industries. However, they've been found to be extremely effective in many core industries, including: 

  • Government
  • Healthcare
  • Hospitality
  • Foodservice
  • Electrical
  • Plumbing
  • Non-profits
  • Industrial manufacturing
  • Retail
  • Education

What enables GPOs to thrive in these sectors is the sheer number of companies that occupy the space. By combining the spend of these companies, both the members' buying power and the suppliers' market share become greater.

Q: How do I choose a GPO?

A: Because all GPOs provide access to leveraged agreements, the level of contract management is the differentiator. An advanced GPO manages the lifecycle of supplier contracts by:

  • Monitoring changing buying patterns in the market
  • Continually seeking opportunities for improvement and potential savings
  • Ensuring that the terms of the contract are being followed
  • Reviewing and auditing price files
  • Implementing a thorough supplier relationship management program

These activities require an extensive time investment when performed correctly, and being part of a GPO removes that time expenditure from member companies.

Additionally, the most sophisticated GPOs have partner-based relationships with their suppliers that focus on the total value of the contract instead of simply offering the lowest price.

Q: What makes OMNIA Partners a great option for businesses considering a GPO?

A: Each year, it's increasingly clear that many companies continue to deal with resource constraints making it nearly impossible to maintain in-depth category expertise. At OMNIA Partners, we serve as an extension of our members’ teams, enabling them to achieve their spend management goals while also freeing up their time and resources to focus on strategic initiatives while increasing their spend influence. Immediate cost savings, ease of implementation and ongoing program management are the foundation of the OMNIA Partners model and have been instrumental in establishing us as the premier GPO in the market. As we continue to grow and gain more leverage, we create a climate where our programs improve in perpetuity and deliver ongoing sustainable value to our members.

Q: Why do suppliers want to partner with a GPO like OMNIA Partners?

A: Suppliers partner with our GPO because as OMNIA Partners continues to grow, so do our suppliers. As the number of members joining OMNIA Partners grows significantly each year, we give our suppliers the opportunity to earn more business. We extend our suppliers' sales operations and provide a collaborative environment that they rely on.

Q: Do GPOs only cover standard “Off-the-Shelf” categories and products?

A: The OMNIA Partners portfolio does include these types of products, but we also cover many core spend categories as well, including direct and indirect materials, value-added services like healthcare, human resources and much more. Our portfolio of solutions continuously evolves to ensure an array of non-standard categories are always available to our members.

Q: Does a GPO take the place of my company’s purchasing department?

A: OMNIA Partners will become an extension of your procurement team, not a substitution. Sourcing is still done in-house by your company and OMNIA Partners does not in any way assume the role of the purchasing department. We serve as an additional resource for sourcing teams to increase productivity and efficiency. By joining OMNIA Partners, a company’s procurement function actually expands its scope of control, as well as enhances its strategic relevance to the organization.

“We can take advantage of what OMNIA Partners has already negotiated so we can focus on areas where we don’t currently have a presence. It’s taking our small team and growing it to a large team.”

- Paul Stasco, Senior Director of Corporate Supply Chain, Curtiss-Wright

Q: What if we can realize greater savings on our own for certain categories?

A: This question illustrates an important advantage of OMNIA Partners. In the engagement process, new members determine which pre-negotiated agreements they want to participate in. There's no requirement or obligation for a member to partake in any given agreement. However, OMNIA Partners is a resource that creates value for its members in numerous ways aside from savings.

Q: Does joining a GPO mean I can only purchase from suppliers in the group?

A: OMNIA Partners members always have complete autonomy to purchase from any supplier they choose. There's no obligation and no minimum. Members have the choice to opt in or opt out of each pre-negotiated supplier offering. This motivates suppliers to create attractive programs to provide additional value. Members can leverage category offerings and other resources based on their unique needs and where they find the most value can be driven.

Q: My purchasing department is tasked with finding the best solutions for our organization all while saving money. How can a GPO help?

A: By joining OMNIA Partners, your company will be bypassing time-consuming RFP and sourcing procedures while gaining the flexibility to impact other areas of spend so that you can focus on more strategic initiatives. We also help create change management timelines and implementation plans to improve performance and to help you achieve savings faster and maintain continuous program compliance. Because we shoulder so much of the process, OMNIA Partners saves you a substantial amount of time and headaches in the end.

Q: Our business is unique – can a GPO still benefit us and our specific requirements?

A: OMNIA Partners operates within a flexible framework that allows members to enjoy all the benefits of group leverage while retaining the ability to negotiate adjustments and incorporate options that address specific needs. Our members participate in structuring our supplier agreements so that we can create options best suited for their goals, no matter how unique those goals may be.

Q: How can I implement a GPO strategy for my organization?

A: After filling out a short introductory form, OMNIA Partners will help analyze your current spend to locate areas where we can enhance your current procurement strategies. Then we’ll assist in any change management efforts, which will be followed by continuous supplier management and market checks. Joining is free, the process is easy and we do all the heavy lifting for you and your company.

Q: What are the benefits of a GPO contract versus going out for bid/submitting an RFP?
A: GPO contracts are:
  • Vetted by similar organizations for a common goal
  • Act as an extension of the organization to manage categories in the best interest of their members
  • Allow for configuration to support unique requirements
  • Have terms and conditions to stay within market pricing throughout the duration of the agreement
Q: What are the average costs savings I can expect to see from working with OMNIA Partners?

OMNIA Partners members have realized significant average savings in these sample categories:

Indirect Goods Direct Goods Services
MRO 28% Steel 12% Freight 18%
Packaging 20% Resin 10% IT Hardware 28%

To see additional average savings in indirect and direct spend categories, download our Average Cost Savings by Category infographic.