Time to Regroup?

A more modern take on group purchasing could help increase your company's buying power.

Two heads are supposed to be better than one, but that's not always the case. For years, group purchasing organizations (GPOs) pushed a similar idea, advocating that companies could use their combined purchasing power to drive greater savings and the ability to manage suppliers than they would on their own.

The model evolved into several gestations over the years, but for the most part none of them ever took off. According to David Clevenger, vice president of Corporate United, one of the biggest reasons is that most of the large GPOs were originally set up by industry -- and their members were often competitors. "It wasn't really sensible to think that they would be able to work well together. That was one of the major failures of the early GPOs and it soured a lot of businesses to the whole concept," Clevenger says.

Corporate United is trying a more modern twist, in which it represents companies from many industry sectors and turns the focus on indirect spend categories. In this "horizontal" GPO, instead of companies like Ford and General Motors teaming up for a better price on steel, the organization helps buy things such as office supplies, copy machines or any other type of operational expense. In theory, this frees up valuable resources for more important purchasing decisions.

"Rather than a company paying someone internally to manage office supplies or other things that are not really part of their business, they are able to strategically outsource the responsibility for this category," Clevenger explains. "This lets them dedicate those resources elsewhere in the company to have a better opportunity to reach the savings goals of the supply chain group."

Of course, just like any other business model, GPOs aren't for everyone. The difference-maker, according to Clevenger, has a lot to do with a company's culture. "Some put a high value on collaborative efforts and the GPO approach makes sense for them," he says. "But others are more insular in nature; they don't collaborate with other organizations and prefer to do everything in-house. That works great for some, but if that's your philosophy a GPO is not going to be a good fit for your company."

For the rest, selecting the right GPO consists of finding an organization that is aligned to help you achieve the specific goals of your company. If resources aren't an issue, maybe you're just looking to drive savings. Either way, make sure the GPO is set up to accomplish what you want. Once those factors are determined, the GPO simply needs to be a good match for how your own business is run.

"It's important that the GPO's model is something you can get value from and that you will have the opportunity to participate if you want to," explains Clevenger. "For example, most clients aren't going to be happy with a setup in which their voice isn't heard. So find out if you're going to be able to take part in key components of the organization's decision making."

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