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Are Group Purchasing Organizations Right for You?

Group Purchasing Organizations (GPOs) primarily exist for one simple, yet compelling reason: to help businesses interested in buying similar products gain leverage through combined purchasing power.

The definition of a GPO is “an entity that is created to leverage the purchasing power of a group of businesses in order to obtain discounts from suppliers based on the collective buying power of its members.”

For companies that use GPO agreements, that leverage ultimately generates preferable prices and contract terms, saves time and frees up internal procurement resources.

But GPOs also exist to benefit suppliers, or the network of companies that offer goods and services to member companies. For suppliers, GPO advantages come from having an expanded market share, increased access to industry insights and data and better buyer relationships.

GPOs create and manage contracts for all aspects of the food service industry and other business sectors – and they also create and manage relationships between three parties: the GPO itself, its members, and its suppliers.

These GPOs create a membership base comprised of companies seeking to channel spend using the GPO's agreements. The combined spend of these companies – and the acquisition of multiple customers at once – creates leverage. That leverage is what motivates suppliers to offer their best pricing and service levels to the GPO.

GPO = Group Purchasing Organizations

Companies have historically used GPOs to gain quick access to cost savings. Although still true, this traditional view of GPOs doesn't fully recognize the sustainable value that a modern GPO provides. Savings diminish over time, so a modern GPO constantly looks for ways to bring more value by enhancing their agreements and supplier performance

Typically, a GPO is funded via membership fees, administrative fees, or some combination of the two. A membership fee can be a one-time payment that's paid upon joining the GPO. Alternately, the membership fee can be structured as an annual dues-based payment. In some cases, GPOs waive membership feeds if a member participates in a certain number of agreements or surpasses a spend threshold.

Suppliers always pay GPOs administrative fees. Regardless of whether the fee is a flat rate or based on the amount of spend passing through the agreement, a GPO's funding structure varies by organization and typically not fully transparent to their members.

An alternative or enhancement to a GPO is 3rd party supply chain consultants. These groups are typically experienced with all aspects of supply chain and work with business owners to maximize their distributor relationships and product offerings based on your individual definition of success.

Not all consultants are the same, results can widely vary.  Some focus primarily on distribution agreements and aligning with a GPO and a select few focus on managing the intricacies of daily supply chain that drive the best NET NET financial result.

One should always do their homework and reference checks when considering any GPO or consultanting group. Pick a supply chain partner that is 100% transparent in all aspects of their business with proven track record.

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