The process of procuring goods and services in bulk can pose a range of challenges to companies. The logistical challenges that accompany procurement can cost companies a significant portion of their revenue annually. In recent years, the process of supply chain management has seen numerous instances of disruptions and logistical disruptions.
A study showed that 64% of the respondents experienced disruptions in their supply chain. Therefore, GPOs or group purchasing organizations look to make this process more streamlined by implementing certain practices. Some GPOs will state that they are just an extension of a procurement team that contributes to implementing a procurement strategy that will save money while retaining the same quality of goods.
Creating a Partnership with GPOs
A procurement team can utilize the services of GPOs and obtain the benefits after entering into a procurement partnership. The first plan of action once the partnership is created is to draw up GPO contracts that outline what services will be available to the client company from the GPO. In most cases, the partnership involves companies channeling their spend through GPOs.
GPOs essentially manage the contracts that are drawn up between the client companies and the suppliers. They look to find the most competitive prices without compromising the quality of goods or services their clients are looking for.
8 Ways a GPO Benefits Their Clients
These organizations usually function as non-profit organizations that previously catered to the healthcare industry only. However, it is no longer restricted to just procuring goods for hospitals and other healthcare establishments but also offer their services to other industries as well. In any case, the services provided by a GPO offer the following benefits:
- Reduced Pricing
This is probably one of the more attractive benefits that come from utilizing group purchasing organizations. GPOs can negotiate with suppliers on behalf of a company when it is time to procure goods or services. The main negotiation point that they utilize is the buying power that most companies have. This buying power is obtained when businesses tend to buy large amounts from suppliers, ranking in more profit for them. When the volume is so huge, companies are in a position where they can request for discounts and more.
GPOs do not only decrease the direct spending on the inventory coming in from the supplier. In fact, they also look to decrease the indirect spending that usually accompanies a procurement process. Therefore, the GPOs help to free up funds in unexpected places, which can be utilized to develop other aspects of the company.
- Compliment Procurement
As mentioned before, GPOs are usually partners with client companies in procurement. They do not completely take over the procurement but rather work alongside the already existing procurement team to carry out several tasks in relation to procurement. In this partnership, a company can still have control over what the company procures and a say in every key decision.
The GPOs will assist in processes like supplier management, drawing up effective contracts, souring and more. Therefore, they offer the expertise they possess in procurement especially. Thus, a company that partners with a GPO will be able to utilize the services of a team that has had years of experience in procurement.
- Spend Analysis
The analysis of cost or spending that goes towards procurement tends to be hard to determine. This is especially true when a company’s procurement process is not restricted to one place or a particular type of raw material from a single supplier. With legacy or outdated procurement systems, the data is usually stored in fragmented manners like physical files and long spreadsheets. Therefore, analyzing the spend, in this case, would be extremely tedious.
Thus, with modern technology and GPOs, the process of analyzing the funds going into procurement is fairly accurate and easy to accomplish. By doing so, GPOs look to help a company benchmark its current pricing and even compare prices with other vendors. Therefore, the company now focuses on identifying potential savings opportunities.
- Decrease Procurement Risks
The procurement process is no stranger to both external and internal risks. The external risks usually involve unethical practices carried out by the supplier. This can happen when the company opts to go with the cheapest options, resulting in the delivery of products having inferior quality.
However, this is prevented when GPOs are in the picture as they tend to recommend suppliers that provide products of a certain standard and have a reasonable price. In addition to this, GPOs ensure that the suppliers they recommend are credible and vetted suitably. As a result, the risk associated with suppliers is diminished.
- Promote Collaboration
In a process like procurement, where employees from various departments are involved, collaboration is a necessity. However, in a surprising number of cases, this collaboration does not come naturally to all the employees involved in the process. This can result in the sharing of inaccurate information between different departments and parties.
This is where GPOs come into play as they work towards implementing practices that enhance the communication between the concerned parties in a single procurement cycle. Therefore, the organization helps to foster networking both internally as well as with third parties.
- Category Management
Category management refers to the service provided by GPOs that involves introducing certain changes in the procurement process that will promote cost savings. They are able to do so by identifying opportunities for savings in the contract drawn up between a company and the supplier. GPOs keep clients in the loop regarding the changes that take place in the services or goods provided by the supplier.
They also carry out several reviews with suppliers to grasp the approaches and services that suppliers provide to their clients. Therefore, they make it possible for their client companies to understand what the supplier offers them and where they may be lacking.
- Services Beyond Procurement
Although most of the services provided by GPOs pertain to procurement, they can also provide services that do not involve purchasing. Services can involve e-commerce solutions, benchmarking, supply chain consulting, and more, which are not directly involved with procurement but benefit indirectly.
Oftentimes, the services will also extend to materials management, outsourcing, and revenue management. They carry out extensive reviews of a company’s finances and spending and find inefficiencies or problems. Therefore, the consulting services they provide can greatly improve the company beyond just their procurement protocols.
- Shorter Procurement Cycles
Procurement cycles tend to increase if they are not managed properly. The companies that have problems with shortening their procurement cycles can turn to GPOs to do it for them. GPOs can efficiently manage supplier contracts so that the client company does not have to do it on their own. Aspects like negotiating, maintaining agreements, and more are carried out by the organization.
Thus, the procurement cycles are shortened drastically as the GPOs act as mediators between the company and the suppliers.
From the above list of benefits, it is a given that GPOs will continue to assist procurement teams in their quest to obtain good quality goods at a discounted price. In fact, it is baffling to see that these organizations had humble beginnings in the healthcare industry alone, but now they are irreplaceable components of the procurement system for many companies.