Sep 03, 2013
Group purchasing organizations (GPOs) are member-based organizations, but with as many misconceptions as there are about them, you’d think they were something like the Illuminati or the Freemasons.
Here are 10 common myths about GPOs and the truth behind them.
GPO participation may be higher than you realize. A 2011 study by the research firm Spend Matters found that 15 to 20% of the Fortune 1000 currently uses a horizontal buying consortium, and 85% of the time they are seeing real savings of more than 10%. Those percentages have almost certainly increased since 2011, but a GPO isn’t always right for every company. Some may not be a good fit due to a less collaborative culture. In terms of industry type, though, there aren’t many that couldn’t benefit from a GPO arrangement.
In fact, GPOs operate within a flexible framework that allows participants to enjoy all the benefits of leverage while retaining the ability to negotiate adjustments and incorporate options that address specific needs. GPO members participate fully in the structuring of the supplier agreements and understand the need for flexibility.
Participating members aren’t obligated to utilize a GPO holistically. Members leverage the category offerings and other services based on their unique needs and where the most value can be driven.
This point actually illustrates an important advantage of GPOs. In the engagement process, new GPO members determine which of the 25 to 30 pre-negotiated agreements they will participate in based on their estimate of the savings. There is no requirement that a member participate in all or even most of the categories offered.
Let’s say a company identifies five categories that are clear choices and five more where the savings are good but not quite as high. It will still make sense to shift all 10 categories to the GPO. This is because in addition to the hard savings, the company is bypassing the time-consuming RFP and sourcing processes and gaining the flexibility to impact other areas of spend and focus on more strategic initiatives.
David Clevenger: Former SVP at Corporate United
David Clevenger was formerly senior vice president of Corporate United. He is an expert in indirect spend management and functional alignment and has extensive experience in e-sourcing and supply chain consulting. David was named a Pro to Know by Supply & Demand Chain Executive eight consecutive years.