Benefits of a Modern Group Purchasing Organization vs. a Traditional GPO

Cost savings used to be the only priority of companies joining a GPO, but procurement departments need to move beyond quantitative measurement to be successful.

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At the core, a traditional GPO provides value through three main elements: money, time and resources.

  • GPOs save you money by providing access to the cost savings they negotiated with their supplier partners
  • GPOs save you time by giving you immediate access to a finished contract; they conduct the sourcing process for all their agreements so you don’t have to
  • GPOs save you resources by freeing your procurement team from managing nonstrategic, indirect spend, giving them time to focus on areas that are strategic to your business

However, when you consider the benefits of joining a group purchasing organization, these three should be just the beginning.

Benefits of a GPO: What’s Required and What’s a Value-Add

A GPO that saves you money is doing its job. One that consistently sources new agreements is able to address more of your spend.

By definition, a GPO should free up your team resources. But one that has relationships at multiple levels of the supplier organization can better mitigate risk.

Here’s an overview of the benefits group purchasing organizations must offer and what they can offer:

Benefit

Traditional GPO

Modern GPO

Saves you money, time and resources X X
Consistently addresses more areas of spend by adding new agreements X X
Facilitates networking and best practice-sharing among members X X
Conducts basic category management activities, such as auditing and benchmarking X X
Creates partner-based relationships with suppliers to focus on value, not just price   X
Produces personalized demand management reports to improve your buying patterns   X
Stays engaged throughout the relationship, not only to facilitate signing agreements    X
Increases procurement’s level of spend influence, particularly in categories like HR, IT and facilities   X

When you’re comparing GPOs, there are easy quantitative measurements to use: number of agreements offered, number of members, total spend volume. But as with most things, the qualitative elements complete the story.

You can easily conduct a quantitative study to cover what a traditional GPO offers. But if you rely purely on numbers, you’ll miss the real benefits of a modern group purchasing organization.

Download a report by The Hackett Group on how indirect group purchasing organizations help increase spend influence.

A traditional GPO is similar to a diligent employee with a “check the box” mentality. They do their job in a timely manner and in a “meets expectations” sort of way. But checking the box means missed opportunities and missed savings.

A modern GPO is like the promising employee vying for a promotion. While successfully managing their main responsibilities, they also undertake extra, forward-thinking projects. Their focus is on creating sustainable value, not just making a quick savings buck. Modern GPOs strive for the “exceeds expectations” review.

Be it Modern or Traditional, an Indirect GPO is a Necessity

If your procurement team is responsible for managing all your indirect spend, you're missing out on that saved money, time and resources. Read about a former sourcing manager's experience with GPOs: Are You Leaving Money on the Table?


Nicole Shedden: Marketing Strategist at Corporate United
As a marketing strategist for Corporate United, Nicole's goal is to get the word out about group purchasing organizations – CU in particular. Since GPOs free up time, money and resources for indirect procurement teams, she focuses most of her blogging on those three elements. Nicole has been marketing to a procurement audience for nearly a decade; prior to that, she worked in sales and marketing consulting.