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A group
purchasing organization (GPO) is "a group that's responsible for
sourcing and managing aggregated contracts on behalf of a
discrete group of companies," according to David Clevenger, VP
of a large GPO, Corporate United. So, instead of a purchasing
department sourcing for a category of goods or services to
establish a favorable contract with a supplier, joining a GPO
will give that purchasing department access to an existing
contract with favorable pricing and terms.
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Purchasing departments join GPO's primarily for savings. By
combining its spend with that of other companies, a purchasing
department gets the buying power and leverage of a much larger
organization.
But using a GPO can also help a purchasing department address
under-managed and unmanaged categories.
"Most organizations are responsible for buying 150+ different
categories and those responsible for indirect procurement simply
cannot handle that," says Clevenger. "In managing less strategic
categories, like office supplies, office equipment, or safety
supplies, (a GPO) allows the internal resources at these
organizations to tackle more of those strategic, larger spends." |
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Also, smaller companies who've struggled to get suppliers to
correct problems can have more success when their spend is part
of a GPO contract. Large GPO's have "the ability to go up the
ladder within those supplier organizations because (large GPO's)
represent such a significant spend. So it's frequently easier
for (large GPO's) to get the attention of senior leadership on
the supply side than it is for an individual member."
Using a GPO doesn't necessarily mean totally sacrificing
control. When sourcing a new category, some GPO's utilize a
steering committee consisting of members' procurement
specialists to identify and qualify suppliers and vote on the
selected supplier. |
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Like any investment, an investment in a GPO should produce a
satisfactory return on that investment. To determine your return
on investment requires baselining your current spend and
comparing it to the pricing available through the GPO. Your
actual savings will depend on how well-managed the categories
are currently as well as how effective you are at getting end
users to channel their spend through the GPO contracts.
If the savings exceeds the investment, a purchasing department
can count the net savings towards its goals for the year. And,
if the category wasn't going to be addressed due to an already
full workload, using a GPO can multiply the success of a
purchasing department. |
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