Consumers know that buying in bulk reduces the amount they pay per unit for everyday purchases. That’s why bulk retailers like Costco have been so successful. But how can businesses — especially small businesses — tap into those benefits for the supplies they use if they don’t have the cash up front for bulk purchasing? Group Purchasing Organizations, or GPOs, grant bulk purchasing power to businesses with similar needs by assembling them into a larger community and negotiating contracts for goods and services on their behalf.
While GPOs do not purchase the goods directly, they negotiate discounted contracts with distributors on behalf of their membership. Both the purchasing companies and the vendors themselves benefit from GPOs. Purchasing companies cut overall costs by buying at the bulk rate, spend less time looking for deals, and build stronger relationships with their vendors. The vendors on the other hand build dependable business with long-term customers while also gaining invaluable insight into their industry’s supply needs, which can help them optimize pricing and sales processes even for companies who aren’t part of a GPO.
GPOs are most popular in the following industries:
- Manufacturing and Construction
- Food Service
How do GPOs work and what types of businesses thrive best with them? We’ll explore below.
How do Group Purchasing Organizations work?
Companies pay fees to be a GPO member. Membership fees fund the administration of the GPO, who builds relationships and negotiates competitively priced contracts with the vendors.
GPOs are primarily divided into horizontal or vertical varieties. Horizontal GPOs invite companies from a range of different industries who have overlapping supply needs. For instance, both restaurants and retail stores may need a steady supply of kitchen tools, so they may belong to the same horizontal GPO. Vertical GPOs on the other hand work within a single industry, such as healthcare, focusing solely on companies in that vertical.
Whether they’re horizontal or vertical, most GPOs operate under a similar framework:
- When businesses join a GPO, an assigned account manager helps them navigate the GPO’s purchasing request system.
- Authorized employees of the buying company fill out purchase requisitions for the GPO, specifying exactly what they need from specific vendors the GPO works with.
- The GPO then negotiates a contract with the vendor and relays the terms back to the buying company. These contracts are often for long-term, ongoing orders, so they don’t need to be renegotiated every time the buying company needs new supply.
- It is then up to the company to decide if they will go forward with the contract — the GPO does not do the purchasing itself.
Some GPOs offer additional services to support a company’s overall efficiency, such as access to industry market data, compliance information, lobbying support, and data analysis.
Industries That Benefit from Group Purchasing Organizations
Companies who rely on a constant flow of new supplies benefit from GPOs whether they’re a small, local businesses or global corporations. Buying via negotiated contracts helps everyone from hospitals to local gift shops procure the items they need to run their businesses while maintaining their bottom line. Below are the industries where it’s most common for companies to join a GPO:
Perhaps no other industry benefits more from GPOs than the healthcare industry. Efficiency is key for these companies and the negotiated, consistent contracts GPOs provide allow healthcare companies to stay fully stocked with minimal administrative work. GPOs allow healthcare providers to pass the savings they get from these contracts on to patients as well. Healthcare GPOs negotiate contracts for medications, tools, and medical devices on behalf of:
- Urgent Care Centers
- Home health agencies
- Nursing homes
- Clinical labs
- Ambulatory care facilities
- Private practices
Food Service Industry
Full Service Restaurant Magazine reports that nearly 400,000 independently owned restaurants rely on GPOs to cut supply costs. GPOs are particularly helpful in the dining world, as large chains benefit from bulk pricing over the millions of small food establishments they operate across the country. But it’s not just big chains who benefit.By banding together under a GPO, smaller food businesses can level the playing field and buy at the same rates as bigger competitors. Food service business that benefit from GPOs include:
- Independently owned restaurants
- Chains and franchises
- Hotels and Hospitality companies
- Recreation companies
- University and school dining companies
- Food trucks
- Small bakeries and creameries
Manufacturing and construction
Manufacturing companies — from the automotive industry to the home building sector — constantly seek ways to cut down on administrative and ordering costs. Streamlining their materials supply is often a top priority, especially if manpower on the administrative front is low. GPOs assist factories and construction companies join together to meet their supply-dependant services. Industries include:
- Technology manufacturing
- Automotive factories
- Home and building construction
- Light and electricity companies
- Fabrics factories
- Biomanufacturing (used in medicine and food)
- Chemical manufacturing
If there’s any industry that understands the power of working together, it’s the non-profit sector. Cutting costs is always a top priority, as these organizations are funded by donors, government grants, or membership fees. That’s why there are plenty of GPOs devoted to non-profits. Even service-based charities rely on GPOs to acquire low-cost office supplies, marketing materials, and more.:
- Community food and shelter support
- Arts and music
- Legal aide
- Medical care
How to Join a Group Purchasing Organization
Joining a GPO is an excellent opportunity for those looking to make a long-term connection with vendors. Obviously, any savings you get need to outweigh the membership fees. That’s why a good low-risk way to get started is to find a GPO with no or low fees and flexible contractual obligations.
You also need to consider the two types of membership GPOs offer: committed or general. A committed GPO requires members to order a set amount of supplies from a specific company each year. Though the contracts may lend greater savings, there is less flexibility to make changes. General GPOs work with a wider range of suppliers and may help small or growing businesses negotiate new contracts as their needs change.
Businesses with constantly changing needs should be sure to choose a GPO with ordering flexibility. A GPO may also not be ideal for companies looking to sell high-quality, rare, or artisan goods, as the suppliers GPOs work with tend to be mass producers. Since a GPO committee makes decisions based on industry needs, be sure to choose an organization that has proven relationships with high-quality vendors.
When choosing a GPO, also consider the following:
- Does it support your particular industry?
- Are you in the right geographical region or is it a nationwide GPO?
- How much are the membership fees?
- Do you recognize the vendors?
- Does the GPO supply additional services like compliance support and data analysis?
Group Purchasing Organization List: Examples for each Industry
With thousands of GPO options in the US, begin by exploring the organization ideal for your industry. Examples include:
Food Service and Hospitality
Construction, Agriculture and Manufacturing
GPOs: The main takeaway
GPOs bring the concept of “power in numbers” to businesses of all shapes and sizes. By joining, you can save money and reduce the amount of time you invest in ordering supplies. If that sounds enticing, look at the GPOs available in your industry and find one that offers the contracts and customizability you need!