With the global economy facing a seemingly imminent recession, companies will have to make difficult decisions to minimize the impact of the downturn and return to profitability as quickly as possible. The Coronavirus pandemic has become a stark example of the importance of supply chain management, and how quickly an underdeveloped strategy can affect a company’s operations. This is especially apparent in the medical supply chain, where we’ve all gotten a crash course in the importance (and limitations) of the supply of masks and ventilators. But supply disruptions are an inevitable fact of doing business; whether changing trade policies, hurricanes, or a global pandemic, companies need to consider how they’re preparing for changes in their supply chains. GPOs can offer solutions to mitigate the impacts of disruptions while maintaining a focus on cost reductions.
The pricing benefits of GPOs are well documented. These programs leverage the spend of the entire member base to negotiate improved pricing and contract terms, which continually improve as additional members are added to the program and the scale of its buying power increases. It also outsources much of the non-value add work associated with sourcing non-core and tail spend items, which allow internal organizations to stay lean and make dynamic decisions in a rapidly changing market. But often underappreciated – and especially important at this moment – are the supply chain and inventory benefits associated with these programs. The same scaling model that allows GPOs to negotiate improved pricing on its members’ behalf applies to supply security.
This applies in a multitude of scenarios. For suppliers in industries where demand has surged (e.g. medical supplies and groceries), many are struggling to keep up with orders, causing bidding wars and customer allocations. Those are battles where many small and middle size buyers don’t have the leverage to ensure costs are controlled and orders are fulfilled. By leveraging their combined purchasing power, a GPO can protect its members that would otherwise be eschewed for larger companies and ensure the continuous supply of key materials.
Conversely, many suppliers in non-essential businesses are seeing major slowdowns and are facing an uncertain future. Depending on the length of the economic disruption, the financial health and viability of these suppliers becomes a very real risk. GPOs have the expertise to make informed decisions and ensure spend is aligned with financially stable sources. By driving additional spend to key suppliers, GPOs are in the unique position to help ensure those suppliers’ sustainability while ensuring contract terms remain competitively negotiated.
2020 is shaping up to be a challenging year but by aligning their spend in GPO programs, companies can ensure their purchases are strategically managed and competitively negotiated, all while ensuring supply security. And perhaps most importantly, it allows them to focus their time where it matters most - on making the decisions necessary to navigate the next few months.