The Advantages and Disadvantages of Group Purchasing Organizations (GPO)
We research and review products independently, but we may earn affiliate commissions if you buy through a link on this page.

If you are unsure if you should have your business be a member of a GPO, we might have something that could help you out. We have provided below the most common advantages and disadvantages of joining a group purchasing organisation or GPO. These should help you in determining whether or not it is an excellent decision to have a GPO handle your procurement activities rather than doing it on your own.

What is a GPO? 

A GPO or group purchasing organisation combine the purchasing power of each of its members and use it as leverage in negotiating with suppliers. In other words, GPOs help procure goods and services for their members but at a better rate. This allows the businesses to receive better deals that would help reduce their costs and save more money for their company. 

Furthermore, a GPO can also help its clients manage their purchase and inventory as they ensure that they receive high-quality supplies and services from vendors. Some GPOs provides analytics to their members at the end of their purchase to other saving opportunities.

Types of GPO

GPO

There are three main types of GPOs:

Vertical Market

Vertical market GPOs cater to only one specific type of industry like hospitality, healthcare, education, legal, industrial management, food services, etc. This allows businesses to be grouped in a GPO with other members in the same industry and needs procurement for the same supplies — increasing their purchasing power significantly and improving the deals they receive.

Horizontal Market

Horizontal market GPOs, on the other hand, does not serve any specific industry; instead, it caters to organisations of a much broader spectrum. However, although from different sectors, these businesses should be looking for the same types of goods and services.

Master Buyer

buyer

Lastly, a master buyer is a chief buying organisation with several contracts in place with suppliers and allows other buyers to utilise and take advantage of those currently available contracts.

Advantages and Disadvantages of a GPO

To help you in deciding if it is a good idea to join a GPO, here are its advantages and disadvantages:

Advantages

Reduce costs is guaranteed

A GPO’s primary goal is to help each of its members save money by finding better deals and offers from suppliers. Through the leveraged purchasing power, GPOs can easily find interested suppliers that can provide discounts as well as rebates.

Improve your purchasing power

As we mentioned earlier, GPOs combine the purchasing power of the businesses in their membership. This allows even small companies to have equal opportunities as large conglomerates in the same GPO.

GPOs help you save time and energy

 save time

Good GPOs ensure that their members are doing the minimum by taking all the responsibility from procurement and negotiations to the delivery of goods. It helps these entrepreneurs to save time and effort that they can just spend on other essential matters.

Have access to top suppliers

GPOs have already a chain of suppliers in their network. The best GPOs also connect with the best suppliers and vendors in the market. If you are having a hard time finding a good vendor, joining a GPO would help you.

You can find a program suitable for your needs.

Depending on the type of GPO and the industry they cater to, you can find one that will suit and can provide your needs. For example, if you need maintenance supplies and services, find a GPO with an MRO sourcing program. If you are from the healthcare industry, find healthcare GPOs.

Increase the varieties of products to choose from

Joining a GPO help you have access to broad types of products and supplies that may not be available where you are. Since you have better purchasing power and your GPO can find you better deals for your group, you can have the opportunity to purchase items that are not usually within your budget.

GPO ensure the quality of supplies and services

The best GPO ensures that its members receive top-notch-quality supplies and services and are getting their money’s worth.

Cut down labour costs

labour costs

One other aspect where you can expect reduced costs is manpower. Since your GPO will be handling from start to finish, they will also be responsible for labour when it comes to procurement and distribution.

Disadvantages

Require minimum orders

Some GPO may require to reach a certain amount of orders for you to be able to purchase. This may become less beneficial for businesses that only need fewer quantities.

Storage issues

In connection with the minimum orders, since you will be expecting a large volume of supplies, you can expect issues with your storage capacity.

You lose control in choosing the items.

You and the other businesses are in a membership agreement, which means you need to agree on the same types of products and brands. This reduces your freedom to choose different varieties.

Some may require membership and other fees.

membership

Although there are non-profit GPOs, there are also those that charge membership fees and other upfront costs.

Choosing a GPO for Your Company 

With thousands of GPO available, you should know how to determine which one is the best and the most competent.

Do your research

research

Like what you are doing now, you should conduct necessary research to acquire enough knowledge about group purchasing organisations. Looking into its potential benefits and drawback will help you on whether it is a smart move for your business. It will also help you separate the good GPOs from the less competent ones.

Determine the type of GPO and program that suits your needs

Find the best type of GPO that may be more suitable for your business. If you in a sector like healthcare, education, hospitality, etc., consider joining a vertical market GPO. If you are more in a broader category, then horizontal market GPO is for you. Each group also offers different programs like MRO sourcing and packaging, which are not exclusive in one sector.

Check their credibility

Check the credibility of the GPO before signing up to ensure that you will be dealing with a legitimate organisation. They must also be able to establish good communication right away through their customer service.

Ask about the fees

GPO

Be aware of the fees that they may potentially charge you along the way. Ask directly if they have application or membership fees.

Look into the networking opportunities.

Networking opportunities with other businesses in your GPO is a plus. If you think this is beneficial for you, find a group purchasing organisation with programs for membership networking.

Find a GPO that can do all the work for you.

The best GPOs can handle everything without you lifting any finger. Trust your instincts and go with the GPO you think will deliver the most benefits and find you the best deals.

Show CommentsClose Comments

Leave a comment