When you talk about Group Purchasing Organizations (GPOs) for improving cost savings, the most strategic way this is done is through indirect spend. For example, an organization’s expenditures that are necessary for ongoing business operations but does not directly impact a company’s final output of products or services.
Items categorized under indirect spend might be hardware, furniture, contracted labor, office supplies, and cleaning services. Companies can become members of a GPO to enjoy significant discounts relative to buying items individually and paying for the retail markup. Other ways a GPO can save money include the following:
Specialized Programs: In-office technologies such as smart devices, hardware, and software.
Negotiation: Let the GPO handle supplier relationship management while the company enjoys the advantages of pre-negotiated pricing such as can be found through vetted Ariba suppliers within the Premikati Marketplace.
Accessibility: SMBs may find it more difficult to get the best pricing from the top suppliers. A GPO can help small and mid-sized companies receive the same aggressive pricing usually reserved for enterprise businesses.
What is a GPO?
Usually, a GPO will offer a platform for businesses in similar sectors to join. A GPO is designed to negotiate competitive supplier pricing for its members. As the GPO grows in size, so do the discounts. As a result, A GPO can give many small and mid-sized businesses access to cost savings they may not have reached on their own.
How do GPOs operate?
The driving component of a GPO is its membership. To illustrate, a large number of members gives the GPO the leverage to purchase in volume. And, by purchasing in bulk, every member receives a much better deal on the supplies they would normally purchase. So then, businesses can garner the benefits of bulk pricing without having to purchase in bulk.
How GPOs save companies money
Every business has purchasing needs. Yet, those purchases will add up quickly due to retail markup and inability to negotiate better prices are items bought in small volumes. On the other hand, GPOs can negotiate on behalf of their members to get better pricing.
The contracts can be broken down into two facets: A discount and a rebate. GPO specialists will reach out to and negotiate with manufacturers to set the pricing and rebate levels. In terms of rebates, a GPO contract may offer a rebate per case of products paid to an operator. GPOs also conduct savings analysis of several months’ worth of invoices to see where they can implement further cost cuts. In essence, the GPO is your partner and one who is well connected. A GPO may also offer procurement consulting and supply chain management.
Other forms of savings
There is also more to a GPO than the straightforward cost savings. GPOs also save businesses time because they no longer have to go through the exhaustive search of finding the right suppliers then trying to negotiate a price that fits within their budgets. A GPO takes all the work out of negotiations.
Would a GPO membership make sense for your business?
There isn’t any question that a GPO membership will help to keep costs down while saving businesses time around supplier searches and negotiations. The power of group purchasing makes pricing much more competitive. Not to mention, these savings can help to keep businesses operational when dealing with unprecedented circumstances such as a pandemic.
Premikati encourages businesses to take a diversified approach and to work with a GPO that aligns with your business values and objectives. As a result, you can bring more procurement benefits to your organization that will go beyond monetary savings.