Group purchasing organizations (GPOs) have become popular over the course of the past decade, as more individuals and businesses have used the internet and collective social power to achieve more of their goals. But if you’re new to the concept of GPOs, you might wonder how exactly they work—and why they’re claimed to be so advantageous.
Is group purchasing just a passing trend? Or is it really worth the hype?
What Is Group Purchasing?
Let’s start with a basic explanation of group purchasing and GPOs. The concept is simple: group purchasing brings many individuals or organizations together to leverage group buying power. Think of it kind of like buying in bulk; when you purchase a higher quantity of something, you’re eligible for a much lower per-unit price. But you won’t be able to afford or manage bulk purchases for all applications. For example, there’s a limit to how many office supplies you can store before it starts to get unmanageable.
Through group purchasing, a few dozen or even a few hundred entities can get together and pledge to buy a specific quantity of products or services. This allows suppliers to gain access to a bigger pool of buyers, and offer lower prices—while still turning a profit. Everyone in the scenario stands to benefit.
GPOs make things even more attractive by offering intelligent platforms that simplify the process. Buyers can find products much easier and learn what other people are buying, and suppliers can have direct access to a pool of interested customers. Different GPOs have different models, but most make money by charging buyers, suppliers, or both for the privilege of using their platform.
The Advantages of Group Purchasing
Let’s take a closer look at some of the best advantages of group purchasing:
1. Exclusive pricing. The most obvious advantage, and the one most newcomers latch onto, is the availability of exclusive, more attractive pricing. This is based on the volume discount model, allowing suppliers to offer lower prices because they’re selling a higher number of products. Depending on what you’re buying, and how many people are also buying it, you’ll likely see discounts of somewhere between 5 and 25 percent. If you’re buying products for your business, these savings can be massive—and you won’t be able to beat them using conventional money saving techniques. That said, competitive pricing isn’t the only advantage offered by the group purchasing model.
2. Time savings. You’ll also stand to save time by leveraging group purchasing. If you’re used to writing and issuing RFPs, you know how many hours of wasted time are usually involved. But with group purchasing, you can quickly and easily compare prices and find the best possible deal.
3. Higher negotiating power. Depending on the situation, you may be able to use collective bargaining power to push prices even lower, or get a more attractive deal. Ordinarily, your bargaining power will be limited by the number of products you stand to buy; as a small-time player, suppliers may not care much about your business. But as part of a group, your influence will grow.
4. Lower transaction costs. In some cases, you may qualify for lower transactional costs as well. Because you’ll be leveraging a low-cost platform and purchasing products in higher quantities (in some cases), you may be able to save even more money on a per-transaction basis.
5. Networking and information. Depending on the nature of the platform, you may be able to see your buyer peers. In any case, you’ll get more information about the supply-and-demand landscape, which you can use to make smarter business decisions.
6. Cost analysis and comparison tools. Some GPOs allow their buyers to see costs from multiple suppliers, and conveniently compare those costs. This could be an enormous advantage if you want to learn more about your business.
7. Supply chain management support. Some GPOs also offer supply chain management support. Even if they don’t, the burden your supply chain faces in securing new products will be actively reduced.
8. Free membership. Though not true of all GPOs, many organizations allow buyers to join for free. There are no requirements for what you purchase or how active you are on the platform, so there’s virtually no downside in joining.
If you’re interested in group purchasing, research various GPOs to see which will serve your needs best. Each GPO has a slightly different structure, serving its members in a slightly different way. For example, some GPOs charge a fee for their services while others are paid for by the suppliers. Some are focused on serving a specific industry, while others have a more universal purpose. Do your research, talk to current members, and discover what GPOs can do for your organization.