When becoming a member of a group purchasing organization, you need to know what to look for in a GPO. Even though all purchasing organizations give you power in numbers, not everyone is going to be created equal. Careful vetting is necessary in order to make sure you get the best deal for your inventory.
Types of GPO
When knowing what to look for in a GPO, you also need to be aware of the two different types of GPOs depending on your needs. A vertical GPO helps a niche industry and typically focuses on direct spend specific to that market. Vertical GPOs are more often found in the dental, veterinary, healthcare, and hospitality industries. Horizontal GPOs cover more categories and, when you join a horizontal GPO, you leverage collective buying power.
A Proven Track Record
The best purchasing organizations are going to be able to help you increase your profit margins. Purchasing organizations will help optimize your buying process to save you money. By helping you optimize your purchasing and get an improved cost of inventory, you should help your profit margins by 2% to 6%.
When you are going at it alone, you have probably realized the challenges of getting a favorable contractor. Just having a standard group purchasing organization negotiating for you might not be much better. Negotiators that have some training or better experience are going to be able to get your best inventory cost, better terms on your contract, and better rebates. You don’t just want to settle for a standard approach and instead want a custom fit contract. Many GPOs will just give you with a contract they have negotiated before even considering your unique desires and needs. The right GPO will make negotiating and deciding on a new contract a collaborative approach.
When you negotiate a salary, you don’t just settle for the first offer and a GPO shouldn’t just get one wholesaler bid and call it a done deal. If the GPO sources bids from multiple wholesalers then the purchasing organization motivates the competition. They are then incentivized to lower prices and beat out other offers so you have more control over the terms of your contract. Even if you have already committed to a primary wholesaler, they should know that you could be enticed away in the future. They should be eager to keep your business and you have this power that you don’t have if you negotiated solo.
Quality Backup Supplier
If you have signed a contract with a primary wholesaler that you are happy with, it’s great until they don’t have the supplies you need. This is where you need to have a capable backup supplier you can use. The GPO should not just have a relationship with a primary supplier. In order to make sure there is a reliable service and price protection, there should be a secondary supplier.
Purchasing Optimization Tools
Just having a great contract for supplies isn’t enough. A GPO should also provide metrics and technology that help you make better decisions in your buying. Even with a great contract in place, everyday you are going to need to make a purchasing decision that can impact your bottom line. Knowing when to purchase from your wholesaler in order to meet the requirements of your contract can mean the difference between losing money and big savings. If possible, it’s best to work with sourcing advisors who are people that will listen to your current issues and help you find solutions. For example, you may want to work with an incumbent supplier and have the same relationships. A GPO focused on their members will find ways to make that happen but still give you economic value.
Understanding the GPO relationship is important. The GPO should have transparency when it comes to membership, fees, supplier patterns, and purchasing expectations. The point of a GPO is to offer value, but a GPO that is focused on transparency and its members will allow for autonomy around contracting different SKUs and flexibility. Be comfortable with the details of how the GPO works so there aren’t any surprises after purchasing starts.
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.