Top 5 Questions About GPOs
Curious about how a Group Purchasing Organization like Foodbuy can help your food service operation meet its business goals? Here are the top 5 questions about GPOs and how they can help your business.
What is a GPO?
A group purchasing organization (GPO) is an entity that is formed to leverage the purchasing power of many businesses to obtain better program coverage and pricing for its member businesses. Joining a GPO provides a business more contracted options and can often reduce the prices on purchased items. GPOs are also known as co-ops, collectives, consortia, leveraged buying or procurement groups.
GPOs exist in many verticals: healthcare, foodservice, utilities, and industrial manufacturing to name just a few. There are two main types of GPOs – vertical and horizontal. Vertical GPOs serve customers mainly in specific industries, while horizontal GPOs have members in many different industries. Vertical GPOs have great purchasing power in industry-specific categories; horizontal GPOs leverage buying power in categories that are more commonly purchased by all companies regardless of vertical. For example, a vertical GPO in the healthcare industry would have great purchasing power for MRI machines, whereas a horizontal GPO would have great purchasing power for printer paper.
How does a GPO work?
Group purchasing organizations contract directly with hundreds of suppliers to obtain competitive pricing and rebates and broad program coverage on behalf of their members. The benefits of GPOs include on-invoice savings, post-sales rebates, and coverage on programs ranging from food to chemicals to cleaning services.
What services do GPOs offer?
GPOs help operations realize savings and increase efficiencies through buying programs and offer services to aid in other areas of the procurement function. Services might include:
Sourcing & Procurement
If your operation uses products with unique specifications, some GPOs are able to help source items with those specific attributes.
Flexible Distribution Management
Your operation needs distribution to get the products you need to your service locations. GPOs can help you manage the relationship with your distributor. Some GPOs require you to work with a specific distributor while others are distributor-neutral.
Because GPOs can have a breadth of different purchasing programs available, there can be many opportunities to improve your operation’s cost structure based on the SKUs you purchase. GPOs have resources dedicated to making sure these opportunities are uncovered.
The cost structure in food service operations is dependent on labor as much as it is on ingredients. Culinary consultants can help you find and implement opportunities to save money on both. For example, there may be products that can be purchased that deliver the same quality but save labor and reduce waste, lowering the total cost of a menu item.
Another important, and often overlooked, component in the procurement function is product ordering. Not only does an eProcurement system enable your operations team to get products into their facility, but it can also provide a constant flow of data you can use to find new cost-reducing opportunities. Some GPOs offer their own eProcurement platforms.
Auditing invoices from suppliers and distributors is necessary to ensure you are realizing the full value of your contracted programs. Verifying pricing from the supplier and distributor can correct mistakes and help recover thousands of dollars for your operation.
How much will I save?
One of the most often asked questions about GPOs is around projected savings. Due to the wide range of GPO sizes, partnerships and abilities, the savings vary from member to member and program to program. Internal contract utilization goals and a high rate of program participation and will typically yield higher savings. Utilization of the various other procurement services a GPO may offer (mentioned above) will also increase the value of your relationship with a GPO.
Do I have to change my current supplier(s) when I join a GPO?
Some GPOs maintain relationships with many suppliers in each product category, while others require members to use a single supplier. Depending on the GPO, you may need to change from the supplier you currently work with to realize savings. When talking with a GPO, ask about the breadth and depth of their supplier coverage to make sure they have options that fit your business. This can be an important point of difference when deciding between GPOs.
Ready to learn more?
If you have more questions about GPOs, or for more information on how Foodbuy can help you meet your goals, please contact us for a free consultation.