What Is a GPO and Is It a Good Fit for My Organization?

By: CovestAdmin
May 28, 2024

Indirect procurement challenges can be a complex and multifaceted aspect of any organization’s operations. From sourcing qualified suppliers, to driving continuous savings, there are numerous obstacles that procurement professionals must overcome to ensure their supply chain runs smoothly. As procurement teams are stretched to achieve ever-increasing savings goals, many are seeking additional support resources and creative solutions to manage a swath of indirect categories more effectively. 

What Is a GPO?

A GPO acts as a collective buying group, leveraging the combined purchasing power of its Members to negotiate discounts and favorable terms with suppliers. This results in significant cost savings and improved efficiency for participating organizations. If you’re wondering whether a Group Purchasing Organization (GPO) would be a beneficial addition to your organization, you’re not alone. Many businesses are considering the advantages that a GPO can offer.

GPOs are intermediaries between their Members and suppliers, streamlining the procurement process and providing access to a wide range of products and services. They carefully evaluate suppliers, provide spend categorization services, identify savings opportunities, present pricing analyses, offer category management support, produce enhanced reporting and visibility, as well as support program compliance efforts to guarantee the highest quality and value for Members.

In this post, we will examine four common challenges in indirect procurement and evaluate the solutions a Group Purchasing Organization can provide.

1.      Data Insights and Visibility

One of the biggest challenges in indirect procurement is the lack of visibility into the entire procurement process. Often, organizations have fragmented systems and disjointed data, making it difficult to track and analyze procurement activities effectively. Without a comprehensive overview, it becomes challenging to identify areas of improvement, optimize costs, and mitigate risks.

A GPO can provide deep analytical knowledge, market insights, benchmarking data and spend categorization services to give a holistic view of unmanaged tail spend. By bucketing your spend data and drawing from historical benchmarking data, GPO experts can identify opportunities to pull spend under a managed program and help your organization make more informed purchasing decisions.

 

2.      Balancing Act

Another significant indirect procurement challenge is the constant pressure to drive cost savings while maintaining quality standards. Indirect procurement involves a wide range of categories, including MRO, facilities services, office products and more. Each category comes with its unique complexities and cost drivers, proving difficult for small procurement teams to manage each one closely. Balancing the need for cost reduction with the desire for high-quality products and services can be a delicate tightrope to walk.

One of the main benefits of joining a GPO is the potential for cost savings. By pooling resources with other like-sized companies, you can access bulk purchasing discounts that would otherwise be out of reach. This can be particularly advantageous for organizations that regularly purchase large quantities of goods or services. The savings achieved through a GPO can help to free up valuable funds that can be reinvested in other areas of your organization.

After the initial savings achieved when joining a GPO, you should consider how to continuously drive savings, and be able to report on them, beyond year one. CoVest is focused on aiding Members in achieving long-term savings through our manufacturer deviations, program design, augmented implementation process, compliance monitoring and ongoing data collection that’ll continue to drive new savings.

3.      Finding Quality Suppliers

Managing supplier relationships is a critical challenge in indirect procurement. Building and maintaining strong partnerships with suppliers is crucial for ensuring a consistent supply of goods and services. However, it can be challenging to find reliable suppliers who meet all the necessary requirements, such as competitive pricing, on-time delivery, and product quality.

Some organizations choose to frequently RFP a category to evaluate suppliers. However, this approach often proves to be short-sighted, limiting scope and savings.

Read More: What Does Your Indirect Category RFP Say About You

GPOs often have established relationships with reputable suppliers, ensuring that you have access to high-quality products and services. In addition, partnering with a GPO that understands the right categories to engage on can maximize category management results by increasing spend under management and savings, while also decreasing the number of suppliers.

Read More: Three Characteristics of a Quality Industrial Supplies Provider

 

4.      Measuring Success

Once a new program is implemented, success must be measured and reported. Because of the complexities behind site buyer’s adoption of new agreements and new supplier compliance, implementation is oftentimes one of the hardest challenges for procurement professionals. Buy-in from organizational leaders, unified communication, site level kickoffs and visits, buying methods and technology integration all contribute to the success of a program rollout. These factors can be difficult for a sole procurement professional to manage. A GPO provides significant coordination, support, communication, and assistance to drive this process and ensure a solid foundation.

The real measurement of program success begins post-implementation! Detailed savings reports and compliance reporting can help monitor and measure the spend. While not all GPOs provide this service, CoVest includes enhanced and comprehensive reporting to all Members on a quarterly basis. Iterative processes help drive continuous improvement by identifying areas to increase compliance, spend under management, and new savings opportunities beyond year one.

When a GPO Is NOT a Good Fit for Your Organization

While GPOs can lend significant support in alleviating common indirect category management challenges, it’s important to note that a GPO may not be a good fit for your organization. Conducting thorough research and evaluating your options will help you determine if a GPO is the right fit for your organization. Before making a decision, consider factors such as the size of your organization, your purchasing needs, and the specific benefits offered by the GPO. Below are a few qualities to consider when pursuing a GPO:

·       Large, robust in-house indirect procurement team

·       Horizontal v/s vertical category focused GPOs – depending on your industry and organization the type of GPO categories offered can sway significantly and not offer the products or services your company needs

·       Frequent sourcing of one-off items – a GPO is structured around frequently purchased, high volume common goods

·       Membership fees, spend or category usage commitments – MYTH! While some GPOs use Membership fees or require Members to commit to a certain level of spend or category usage, CoVest DOES NOT!

In conclusion, carefully evaluate your organization’s procurement strategy and the criteria you are looking for in a good GPO partner. A Group Purchasing Organization can be a valuable addition to your organization if you’re looking to save costs, streamline procurement processes, and add significant value to your procurement strategy. However, it’s essential to carefully assess the benefits and suitability of a GPO for your specific needs. With the potential for significant cost savings and improved efficiency, joining a GPO could be a game-changer for your organization.

Overall, a Group Purchasing Organization plays a crucial role in driving operational efficiency, reducing costs, and enhancing the competitiveness of its members. By harnessing the collective buying power of multiple organizations, GPOs empower businesses to achieve better outcomes and deliver high-quality products and services to their customers.

About CoVest

CoVest Sourcing Network is a Group Purchasing Organization focused on large corporations, founded on partnership, transparency, and providing value-added services. We enable members to realize significant cost savings through the utilization of our supplier agreements that drive down costs for indirect categories by leveraging the collective purchasing power of member companies. CoVest provides best-in-class pricing to our members through these negotiated supplier agreements.

To learn more about services and categories offered by CoVest, please visit. www.covest.com

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