Written by Marijn Overvest | Reviewed by Sjoed Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Group Purchasing Organizations — Explanation and Examples
Table of contents
What is a group purchasing organization (GPO)?
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A group purchasing organization (GPO) is an organization that leverages its collective power to acquire discounts on the goods and services they need to operate its business.
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A group purchasing organization’s ability to create greater value increases as its member grows.
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Group purchasing organizations (GPOs) do not always charge a fee for membership. Some are free to join and derive profit from their supplier partners.
What are Group Purchasing Organizations?
A group purchasing organization (GPO) is an organization that leverages its collective power. It does this to acquire discounts on the goods and services they need to operate its business. This is used in many industries to purchase materials but is common in grocery and healthcare industries.
Group purchasing organizations help their members take advantage of discounts acquired through volume buying. It received discounts without buying more than what it needed.
Most of the time, it exists to make money. Their profit comes from two sources which are participation fees and supplier-funded.
A participation fee is directly charged to members for the access model. On the other hand, supplier-funded pays the GPO a periodic fee depending on the aggregate spending and their transactions.
Notably, group purchasing organizations serve as agent to their members. It provides an effective resolution and issues escalation through its supplier account teams.
Examples of Group Purchasing Organization
As aforementioned, GPOs are usually present in the healthcare and grocery industries. Here are three examples of Group Purchasing Organizations that work across the globe:
1. Premier
Premier is a prominent player in the healthcare industry, recognized for its comprehensive approach to improving health systems. With a history dating back to its establishment in 2000, Premier has formed strategic partnerships with various healthcare providers, including hospitals and health systems. The organization focuses on delivering value by optimizing the supply chain and integrating pharmacy services, which is crucial in a sector where efficiency can directly impact patient care.
Premier’s emphasis on maximizing value-based care aligns with current healthcare trends, enabling its members to focus on patient outcomes while controlling costs. Through its data analytics platform, Premier offers insights that help members make informed purchasing decisions, further enhancing their operational efficiencies.
2. Vizient
Vizient is another major GPO within the healthcare landscape, dedicated to enhancing the performance of its members. Since its inception in 2015, Vizient has been committed to aligning costs with quality and performance metrics, which are vital in a competitive healthcare market.
By providing tailored support in areas such as pharmacy management and supply chain optimization, Vizient empowers healthcare organizations to navigate challenges while improving their operational capabilities. Its strategic growth initiatives and quality improvement efforts are designed to help members not only reduce costs but also elevate the standard of care they provide, making it an indispensable partner in the healthcare community.
3. Una
Una stands out as a versatile GPO serving a wide array of industries, from healthcare to education and non-profits. By focusing on empowering organizations through increased buying power, Una helps its members leverage collective purchasing to negotiate better prices and access high-quality products and services.
The organization’s dedication to comprehensive savings solutions ensures its members can significantly reduce costs while maintaining service excellence. With a robust network of trusted suppliers, Una continuously seeks to provide superior service, making it a valuable ally for organizations looking to enhance their procurement strategies and financial sustainability.
4. AMS
AMS (Alliance of Supermarkets), based in Amsterdam, is a notable supermarket buying group with a rich history spanning 25 years. Its non-profit model facilitates collaboration among Europe’s top retailers, allowing them to pool resources for international sourcing. AMS focuses on delivering the best price and quality, which is crucial in a highly competitive retail landscape.
By leveraging its extensive experience, AMS empowers its members to provide shoppers with exceptional value for their money, ensuring they remain competitive and relevant in the market. The group’s commitment to enhancing procurement processes positions it as a trusted partner in the retail sector.
5. Coretrust
Coretrust serves as a significant GPO for large corporations across various sectors, offering access to over 80 pre-negotiated contracts that simplify the procurement process. With a focus on empowering members through personalized cost-saving recommendations, Coretrust helps organizations optimize their spending management strategies.
By concentrating on data-driven insights, Coretrust enables its members to achieve substantial savings while enhancing procurement efficiency. The organization’s commitment to transparency and collaboration fosters strong relationships among its members, further reinforcing its value as a procurement partner.
6. Procure Analytics
Procure Analytics is a specialist in indirect procurement, particularly in areas like Maintenance, Repair, and Operations (MRO) and packaging. With a managed spend exceeding $2 billion, the organization leverages its expertise to help members navigate the complexities of indirect spending.
By utilizing data-driven insights and personalized reporting, Procure Analytics assists its members in achieving better pricing and making informed purchasing decisions. Their dedication to managing indirect spending effectively positions them as a critical partner for organizations seeking long-term savings and improved procurement outcomes.
7. Foodbuy
Foodbuy is a major GPO in the food service industry. As a major GPO in the food service industry, Foodbuy wields a collective buying power of $60 billion, negotiating favorable contracts for over 80,000 members. Its primary goal is to streamline procurement processes while ensuring high-quality product availability and cost savings.
By leveraging its extensive network, Foodbuy not only facilitates significant savings but also helps members enhance their operational efficiencies. The organization’s commitment to providing exceptional value in food service procurement makes it a vital resource for businesses looking to optimize their purchasing strategies.
8. Champs Group Purchasing
Champs Group Purchasing operates across both healthcare and non-health industries, boasting a collective buying power of $82 billion. By offering access to over 20,000 supplier contracts, Champs helps organizations realize substantial savings, with potential discounts ranging from 8% to 75%.
The organization’s focus on compliance and procurement efficiency ensures that members can navigate the complexities of purchasing while maximizing their savings potential. Champs’ extensive supplier network and commitment to best practices make it an essential partner for organizations seeking to enhance their procurement processes.
9. Commonwealth Purchasing Group
Commonwealth Purchasing Group specializes in serving the healthcare and education sectors, with approximately 800 members benefiting from its procurement expertise. The group provides access to 65 supplier contracts, aiming to deliver significant savings of 18-20% for its members.
By offering a variety of procurement tools and resources, Commonwealth enhances the purchasing capabilities of its members, ensuring they can access cost-effective solutions tailored to their unique needs. This focus on member support and resource availability reinforces Commonwealth’s position as a key player in procurement for the education and healthcare sectors.
10. E&I Cooperative Services
E&I Cooperative Services is dedicated to serving the education sector, including colleges, universities, and other educational institutions. By promoting collaborative purchasing, E&I enables its members to access a wide range of competitively priced products and services, thereby enhancing their procurement processes.
The organization’s focus on meeting the unique needs of educational institutions ensures that members achieve significant savings while supporting their goals in education and research. E&I’s commitment to providing valuable resources makes it a crucial ally for educational organizations navigating the complexities of procurement.
How Does a Group Purchasing Organization Work?
A group purchasing organization’s function is to accumulate the purchase of common goods or services across multiple buyers. This creates a purchasing power beyond what any company can have. Group purchasing organization acts as a third party to suppliers and buyers.
A group purchasing organization’s ability to create greater value increases as its member grows. It does not always charge a fee for members to join. Some are free for members and derive their profit from their supplier partners.
Most of the time, it drives value through the reduction of costs. However, some just simply offer a competitive purchase price.
Importance of Group Purchasing Organizations
As we discussed earlier, a group purchasing organization (GPO) leverages its collective power to negotiate discounts on materials and services from suppliers.
GPOs are crucial, especially for small businesses that do not have much buying power, as they can negotiate lower prices due to the volume of purchases they can make through their collective power.
By using GPO, businesses can streamline their procurement processes and lower the burden associated with purchasing card. Also, GPOs provide a platform for businesses to collaborate and share valuable information about purchasing practices and supplier performance.
Moreover, GPOs are effective for businesses to reduce their costs, improve their processes, and gain access to a wider range of materials and services.
Types of Group Purchasing Organizations
Group Purchasing Organizations are classified into different types. Each of them serves a definite purpose and can benefit businesses in various ways.
Let’s explore three types of GPOs:
1. Horizontal GPOs
These GPOs serve organizations that span all industries and markets. It also works with all kinds of businesses. Horizontal GPOs offer assistance on goods and services, especially indirect spending.
Horizontal GPOs purchase lots of the same goods or services to create their products and operate their businesses.
2. Vertical GPOs
Vertical GPOs focus on a specific industry. It is created as a way for association groups to benefit their member companies.
An example of this is those who serve the healthcare industry. Small to mid-sized healthcare businesses join together to reduce the costs of the materials.
3. Master Buyer GPOs
Master Buyer GPOs work by granting the purchasing power of multinational corporations to its members. It has agreements with numerous suppliers that allow its members to use the agreements to purchase their materials.
Benefits of Group Purchasing Organization
Aside from huge discounts, GPOs can give you and your company several advantages. Group Purchasing Organizations can give you the following benefits:
1. Access to high-quality products and services
A group purchasing organization members can gain access to quality materials or services that have been thoroughly assessed by it. Also, businesses can share their best practices and information by collaborating with other members.
A group purchasing organization brings together a group of professionals in different industries who have the same goals. This allows its members to share sourcing tips and experiences in procurement.
2. Makes it easier to recover from supply chain disruption
No one, not even the best supply chain risk management can eradicate the possibility of supply chain disruption.
This is where group purchasing organization becomes beneficial. Being a member of GPO can give you immediate access to information that you need to find another supplier.
Working with a GPO lessens the risk of disruption in the supply chain. Because it brings together a group of professionals whom you can quickly ask for materials or services.
You can find a second supplier when your main supplier is incapable of meeting your demand due to an emergency.
3. Reduce costs
The GPO’s main focus is to get members the most products but cost less without compromising the quality. As GPOs leverage their collective power, they can acquire discounts from their suppliers.
GPOs provide bulk purchasing power by creating a larger community and negotiating contracts for products and services. This allows the members of GPOs to cut their overall costs due to bulk buying.
Group purchasing organization also monitors the market condition and looks out for scarce products. This allows its members to gain access to stable prices and protect them from price hikes.
Conclusion
Group Purchasing Organizations or GPOs are organizations that leverage their collective power. They usually do this so they can get discounts on goods and services when volume buying which is mostly common in grocery and healthcare industries.
Further, group purchasing organizations act as a third party to suppliers and buyers, and function by accumulating purchases of common goods and services across several suppliers.
So, GPOs are important, especially for small businesses that do not have strong buying power. With that, businesses are also able to streamline their procurement processes because GPOs provide them with a platform where they can easily collaborate and share valuable information about purchasing practices and supplier performance.
Moreover, there are lots of group purchasing organizations all around the world. Some of the most famous ones are Premier, Vizient, Una, and AMS.
Frequentlyasked questions
What is a group purchasing organization?
A group purchasing organization (GPO) is a cooperative entity that enables its members to leverage their collective buying power to negotiate better pricing and terms from suppliers. By acting as intermediaries, GPOs facilitate access to essential goods and services while promoting cost efficiency for their members.
How does Group Purchasing Organizations help businesses?
GPOs help businesses by enabling bulk purchasing, which allows them to secure significant discounts on goods and services. Additionally, they provide access to a wide range of high-quality products and valuable resources, such as market insights and supplier performance data.
Are memberships for Group Purchasing Organizations free?
Membership fees for GPOs vary, with some organizations offering free memberships funded through supplier agreements. Others may charge participation fees to access exclusive benefits and savings, so it’s important to review the fee structure before joining.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
