Let me give you a brief history of Group Purchasing Organizations (GPO). They have been around for decades. Do you know what types of businesses get the best pricing on all the goods and services they purchase? The answer is healthcare facilities. Do you know why? I’ll tell you. Nearly any healthcare facility in the nation that is making a profit belongs to a buying group. The average healthcare facility belongs to two GPOs. Thousands of facilities join together to negotiate contracts with their vendors. Vendors aggressively compete to get awarded the group’s contracts. As a result, each group member saves money on everything they purchase. Annual membership fees range from $250.00 – $20,000.00. The concept is slowly evolving into other industries. Today there are National GPOs for Universities, Engineers, Cable Television/Satellite Installers and one for Small & Medium Size Companies. Smaller GPOs have formed at the regional, state, and local levels for a variety of industries.
Pros and Cons of the National GPOs
The benefit to the national buying groups is that their size gives them the volume to negotiate bigger discounts with national vendors. But there are many problems with the national buying groups. They have gotten greedy and charge their vendors ever-increasing percentage of their revenues generated by their members. This reduces the amount of the discounts offered to their members. The national GPOs do not backup their annual membership fee with a money-back guarantee on member’s savings. Some of these GPOs force their members to use their vendors exclusively. This has caused a backlash against GPO’s because members may be forced to use vendors that offer poor products and services.
Pros and Cons of the Smaller GPO’s
Except for a few states, GPO’s most non-national GPOs are local. A group of businesses in a city in a particular industry get together and form a GPO. The advantage is that each member has said in the vendors that are selected by the GPO. The other advantage is that the GPO is free. The problem is that a few dozen members of a local GPO don’t have the purchasing power to receive really big discounts from vendors. To get any decent level of volume all the members are forced to use the same vendors exclusively. Thus, the members do not have total freedom to select their vendors. The other major problem is that it takes lots of time and coordination by the members to manage the GPO.
There is One National GPO for Small Business That is FREE!
When selecting a GPO consider the cost of membership, vendor selection, how long they have been in business, and if you are forced to use their vendors. For small and medium-sized businesses the Hospitality Buying Group is a good no-risk approach to get familiar with a GPO.