Group Purchasing Organizations (GPOs) can be leveraged for a variety of products/services, but the most strategic use revolves around Indirect Spend. Indirect describes any company expenditures that are required for running the business, but aren’t directly related to the company’s final products or services. Examples of indirect spend are: office supplies, temporary labor, furniture, janitorial services, and hardware. Joining a GPO allows for significant discount, since there is a larger markup on buying stationary though retail outlets. Below are some features of a GPO that allow for cost savings:
- Specialized Programs: Used heavily for Hardware and Technology, which allows for discount on a large capital expenditures (smartphones, laptops, servers, etc.).
- Negotiation: GPO’s handle the overall management of relationships, granting organizations backing and control over what they purchase and when.
- Accessibility: Small and mid-sized companies don’t have a big enough name needed for aggressive pricing from well-known suppliers. A GPO assists these organizations in receiving better pricing and capability of a market-leading supplier.
According to the Hackett Group, “a decision not to use GPO’s for specific indirect spend categories is the same as leaving money on the table”. The ideal products purchased through a GPO contain low customization, high volume, and are found in your indirect spend category. ProcureCon found that 58% of organizations aren’t utilizing a GPO. These organizations are also spending way too much time on contract management, sometimes 25-50% of their total productivity, and aren’t achieving similar results to others leveraging GPO’s. Procurement teams can certainly benefit from handing off some of the indirect spend/management responsibilities to a GPO.
As mentioned previously, there are other savings not associated with the category spend. Costs that will be cut internally include:
- Vendor Evaluation
- Contract Negotiation
- Account Management