When it comes to purchasing, you often get what you pay for. Except when it comes to a service-driven GPO.
A group purchasing organization that is working for its members doesn’t charge fees or penalties, set minimum purchasing requirements, or leave them hanging after they sign a contract. Instead, a service-driven GPO provides value from end-to-end to all parties involved.
Not every business needs a service-driven GPO. But for those that want more from their purchasing partner, here’s what to look for.
Reducing costs versus providing value
First, let’s revisit our definition of a retail versus a service-driven GPO. A retail GPO focuses on pricing and little else. A service-driven GPO goes far beyond savings to drive value through a combination of services that addresses total cost reduction. They are vastly different models, and their offerings to members differ accordingly.
1. Free to join – and free to leave anytime
Depending on their model, GPOs can generate revenue in a variety of ways from both members and suppliers. Typically, a retail GPO charges a fee to organizations that join the group. Membership fees can be based on the size of the organization and/or the types of products and services they purchase.
However, instead of levying membership fees, service-driven GPOs focus on providing value to the organizations they serve. They usually do not charge members to join or to leave. Instead, they concentrate on attracting members with a strong value proposition and supplier relationships. If a GPO attracts a large number of members, suppliers may be more willing to offer discounts and rebates to secure business, often resulting in greater cost savings to members. In this model, GPOs are earning their money from supplier-funded administrative fees, rather than membership fees.
2. No minimum purchasing requirement
Many retail GPOs set minimum purchasing requirements for members to ensure active participation in the group. They can be based on dollar value or percentage of overall spending. For example, a GPO may require members to purchase 80% of their medical supplies through the organization to maintain their membership status. They also may charge penalties or terminate members that don’t meet minimum requirements.
Similar to the issue of charging membership fees, a service-driven GPO focuses on the value it provides members, rather than whether they are meeting purchasing minimums. If member organizations realize cost savings and other benefits, they will purchase through the GPO — and setting and administering minimum requirements is unnecessary.
3. Managed implementation
With a retail GPO, limited offerings require limited implementation. Support generally starts and stops with the sales rep. However, a service-driven GPO provides customized, hands-on and in-person project management to roll out a program, implement quick wins, and identify other potential solutions.
4. Spend cube analysis
A service-driven GPO categorizes, evaluates, and analyzes current spend from accounts payable or spend cube data to identify total savings opportunities and priorities. Artificial intelligence tools can sift through millions of lines of purchasing data to make recommendations about consolidation. Those recommendations might include buying less, buying different products, or shifting from branded to private-label goods.
5. Category management
Category management helps organizations optimize their procurement activities by reducing costs, improving supplier relationships, and mitigating risks such as those posed by supply chain delays. The larger the organization, the more sophisticated and targeted category management tends to be. The opposite is typically true of small to mid-size companies, with managers overseeing multiple categories, some of which they may not have expertise in. With both initial and ongoing analysis, a service-driven GPO can greatly improve an organization’s category management without the company having to retool or expand its procurement team.
6. Spend visibility and savings tracking
As the saying goes, you can’t improve what you don’t measure. A service-driven GPO offers 24/7 access to analytics, including customized spend dashboards that track and offer visibility to savings. The right analytics platform and spend data down to the site and SKU level can identify savings opportunities and program compliance. Monthly spend audits help recover any missed savings. For our clients, this typically drives at least 5% year-over-year total cost of ownership (TCO) savings through cost-reduction projects and active pricing control.
7. Service and support
A service-driven GPO acts as an agent for its members, providing effective issue escalation and resolution through supplier account teams. Account managers are readily available to help, going so far as to contact suppliers on behalf of members in case of undelivered goods or other issues.
Working hard for members
Taken together, these services allow service-driven GPOs to apply strategic management to tactical spend areas. That not only maximizes category value, but also frees members’ procurement resources to focus on more important priorities. A service-driven GPO shouldn’t be hard to work with – it should work hard for the members that have entrusted it with their procurements needs.