Similar to Groupon, which offers discounted deals on various services through group buying, a group purchasing organization (GPO) combines your purchasing needs with the collective buying power of thousands of businesses to leverage deeply discounted pricing from suppliers and distributors. GPOs, sometimes called buying groups or collective buying groups, can offer greater efficiency and lower cost to their members by negotiating contracts with some of the top suppliers in exchange for the high committed volume a GPO can secure them.
Corporations and businesses use many different products and services in their operations, spanning from IT and office supplies to shipping and distribution. The purchasing game is all based on volume and negotiating power, so when the need for these products and services are smaller than that of a larger organization, they often end up paying more than a large company would simply because of spend volume. However, corporations and businesses of any size can now realize cost savings on their purchases by participating in group purchasing and increasing their buying power.
While there are many group purchasing collectives, there are two primary kinds of GPOs:
- Vertical market GPOs
- Horizontal market GPOs
Vertical market GPOs
Vertical market GPOs provide services within a niche segment or industry and are often formed through management or association groups to serve their member companies. This type of GPO is commonly found in:
GPOs can help healthcare providers realize cost and time savings by aggregating purchasing volume and using that to leverage discounts with manufacturers, distributors and other vendors.
Having negotiated agreements with major food distributors and hospitality suppliers, GPOs can help save on all the goods and services needed to run your company efficiently and cost-effectively.
By creating a customized program that delivers valuable discounts on business products and services, Associations can offer their members cost savings and drive their membership value through the roof.
GPOs catering to businesses can help save on the ongoing procurement needs businesses of all sizes encounter, like office furniture, shipping costs, business travel and electronics.
Dental and Veterinarian GPOs
Dental and Vet GPOs focus exclusively on the needs of their offices and clinics by providing their members with the procurement support and cost savings you need.
Horizontal market GPOs
Horizontal market GPOs serve organizations spanning all markets and industries. Not all group-purchasing organizations operate in the same way. Some GPOs collect fees from member companies for participation, and some GPOs receive fees from the suppliers. Some organizations do both and collect fees from both members and suppliers. Some GPOs require that participants maintain a certain level of purchasing volume, whereas with others participation is entirely voluntary.
Medium and large-sized businesses use many different products and services in their operations, spanning from IT, office supplies to shipping and small parcel distribution, commonly described as indirect spend. Because their volume for these products and services are less than that of a larger organization, they often end up paying more than a much bigger company would simply because a larger organization typically purchases at a higher volume and can negotiate better rates. However, business today has changed. Businesses of all shapes and sizes can and are competing on an equal playing field when it comes to indirect spend options. They too can experience real cost savings on their purchases by participating in a GPO and thereby increasing their buying power.
History of GPOs
The first healthcare GPO was established in 1910 by the Hospital Bureau of New York. For many decades, healthcare GPOs grew slowly in number, to only 10 in 1962. Medicare and Medicaid stimulated growth in the number of GPOs to 40 in 1974. That number tripled between 1974 and 1977. The institution of the Medicare Prospective Payment System (PPS) in 1983 focused greater scrutiny on costs and fostered further rapid GPO expansion. By then the GPO model had started to gain momentum, and the utilization of them in other verticals such as business, hospitality, dental and veterinarian had evolved rapidly.