Are GPOs the right option for you?
Group Purchasing Organization Plans (GPOs) have gained a lot of popularity lately. Most organizations have joined a GPO to combine their purchasing spend with other GPO members to get better pricing and streamline supplier spending. In many cases, GPOs deliver a valuable service. Not all GPOs are created equal and it is important to find right fit for your organization. In some cases, direct supplier negotiation is a viable alternative to GPO.
Here are a few considerations for evaluating a GPO:
1. Membership Costs: Though some GPOs are free, most GPOs charge an annual fee to cover the cost of employees and management. Check the fees of the GPO vs. actual savings. You may find that the savings don’t justify the fees, especially if you are buying limited number of items.
2. Qualitative Requirements: To provide a better price, GPOs often select a single supplier for each category. Make sure your qualitative requirements, such as product quality, delivery schedule, service etc. are met by the GPO’s supplier. Lower purchasing costs may not translate into the lowest total cost.
3. Supplier Access: When irregularities in supplier invoicing occur, GPOs are often not geared to provide verification and credits. Be sure you know GPO’s resolution process meets your needs in the event of poor service or delivery issues.
These considerations will help you select the right GPO. In our experience with hundreds of customers, going direct to supplier provided 10+% additional cost savings and better terms than GPO.
Are GPOs always the most cost-effective option?
In many cases, GPO members have received better pricing and contract terms than they would have on their own. However, many companies, especially with large spends, achieve better pricing & service through direct negotiation with supplier.
How could going direct deliver better results than pooled resources?
1. GPO supplier must support all its members. Members with large spends subsidize fixed costs of smaller members.
2. The suppliers who are not part of the GPO know that only way to win GPO customers, especially those with large category volumes, is to offer superior price and service.
3. GPOs have better prices and terms in certain expense categories but don’t excel in all the expense categories. It is worth comparing direct supplier terms again GPO.
In summary, if you have sizable volume in certain categories, explore competitive direct options in addition to the GPO.
This is an area with diverse opinions and experiences. I would love to hear your thoughts and experiences on this topic.
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