What is a GPO? A Group Purchasing Organization, or GPO, acts as an integral piece to any supply strategy by helping to create efficiencies and improve procurement processes.
But how do GPOs work, and how should you go about choosing a GPO? Continue reading, and we’ll cover everything that you need to know.
What is a GPO?
In simple terms, a GPO is an entity that leverages the purchasing power of its members to negotiate special pricing with suppliers. By
utilizing the collective purchasing volume of their members, these organizations help their members take advantage of the discounts created from volume buying, without actually having to buy more than they need.
According to the Healthcare Supply Chain Association (HSCA), through group buying, purchasing organizations were able to decrease the cost of supply-chain-related buying by 13.1%.
How Does a GPO Work?
How does a GPO work? Well, a GPO will negotiate contracts with distributors and manufacturers with a focus of providing cost-savings for members, while still benefiting the supplier. Once a contract agreement is reached, said supplier will be available within a GPO's contract roster. A GPO won't make any purchases themselves, however, will instead connect their members to contracts and suppliers that ensure their members' supply chain needs are met while also saving them time and money.
GPOs like CNECT accumulate revenue by collecting small fees from suppliers, with no costs attributed to the member. As a result, an organization or business can reap all of the benefits of a membership, without having to pay a penny.
Why Join a GPO?
A GPO membership can provide a number of different benefits for healthcare providers, organizations and businesses. From cost-savings to in-depth market knowledge, these organizations serve as a valuable source, reinforcing supply chains and ensuring all resource needs are met in full.
A primary reason why organizations join GPOs is to enhance savings and reduce supply spending. According to the HSCA, purchasing organizations as a whole provide members $55 billion in cost savings every year. This same report also concluded that GPOs are expected to save the healthcare system more than $450 billion from 2017 to 2026.
While GPOs provide a large portion of their savings through purchase volume, they also can optimize existing supply strategies to help members save more money. By analyzing an organization’s A/P lists, a GPOs can review your current suppliers and compare them against the contracts within their portfolio to identify cost savings from vendors you’re already purchasing with.
Reduce Time and Effort
GPOs negotiate pricing and terms with vendors so you don’t have to. While an organization can seek out providers and create contracts on its own, purchasing organizations can help simplify the process by negotiating on behalf of its members and connecting their members directly to these aggregated contracts. As a result, businesses, healthcare facilities, educational institutions, and more save time and effort.
Supply Chain Support
A GPO will do more than connect you to reduced pricing on products and services. In some instances, these organizations can reinforce procurement practices for businesses and organizations in the wake of crises and shortages like the COVID-19 pandemic. They do so by working to expand vendor contracts based on member needs and potential supply issues.
Go-To Source for Market Knowledge
GPOs often work with their members to provide much-needed market research, innovative technology integration, infection control, product tracking and benchmarking. These additional services can enhance supply-chain awareness and ensure only the best purchasing practices are being followed. As a result, GPOs can broaden efficiencies across an organization. Take the healthcare industry for instance, wherein purchasing organizations have been able to boost overall efficiency which often results in not only reduced costs, but improved patient care as well.
GPOs, like CNECT, also provide members a plethora of market-knowledge through newsletters, webinars, and blog posts that can help to keep members informed on industry news. Due to the network of members and suppliers, many GPOs have connections to industry experts who are able to provide crucial information to GPO members when they need it.
What Are the Different Types of Group Purchasing Organizations?
GPOs vary dramatically across the spectrum, with some specializing in different industry segments. When choosing a GPO, it is important to know whether or not the organization is adept in your area of business. Typically, GPOs will fall into two different categories Horizontal GPOs and Vertical GPOs. Horizontal GPOs are rather diverse serving a variety of businesses and organizations. Many Horizontal organizations cover all markets and industries and are continuously expanding into new industries.
Alternatively, Vertical GPOs are far more focused. This type of purchasing organization usually fulfills the needs of a specialized or niche market. Vertical GPOs are most common within the healthcare, veterinarian, and dental industry.
Choosing between Vertical and Horizontal GPOs can depend on the makeup of your business or organization and your specific resource needs.
The CNECT Difference
CNECT is a horizontal group purchasing organization that specializes in providing supplies and services for a wide breadth of industries. We’re an affiliate of Premier Inc., one of the largest GPOs in the country. Through this partnership, CNECT members can take advantage of over $67 billion in purchasing power. When you become a member of CNECT you’ll gain the guidance and expertise of a team of nationwide representatives dedicated to supporting your organization and providing custom savings. Click here to learn more about what makes CNECT GPO the right GPO choice for your organization.