Is A Group Purchasing Organization Plan Right For You?

Group Purchasing Organizations (GPOs) have become a commonplace way of obtaining needed supplies, especially in the healthcare industry. Most organizations join GPOs to streamline their procurement resources and boost their purchasing power by participating in group pricing rates.

In many cases, GPOs deliver valuable service. However, not all GPOs are created equal and it’s important to find ones that are the right fit for your organization.  

Here are a few aspects to consider before selecting a GPO:

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 a GPO vs. actual savings. You may find that the savings don’t justify the fees, especially if you are buying a limited number of items.

Qualitative Requirements
To improve pricing, GPOs often select a single supplier for each category. Make sure your qualitative requirements, such as quality, delivery schedule, service, etc., are met by the GPO-selected supplier.   Lower purchasing costs may not translate into lowest total cost.  

Supplier Access
When irregularities in supplier invoicing occur, GPOs are often not geared to provide verification and credits. If you experience poor service or delivery issues, you may need to involve the GPO rather than addressing the problems directly with the supplier. 

Competition Among Suppliers

Suppliers compete to participate in the GPO. The costs associated with switching suppliers are high for a GPO, as all their members need to change their processes to accommodate this change in supplier. As a result, prices tend to creep up over time.   

Subsidizing Purchases from Smaller Members

Suppliers must support all members of a GPO, which includes both large members as well as small members with lower purchasing volume. There are certain fixed costs associated with supporting a customer and if a smaller member has a lower volume of purchases, some of these fixed costs are going to be subsidized by larger members.

There are many factors to think about when deciding whether or not to join a GPO.

These considerations will help you select the right GPO. But you should also consider if the GPO is the right avenue for you. In our experience with hundreds of customers, going direct through competitive benchmarking provides 10-20% additional cost savings and much better service.

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