HOW DOES A GPO MEMBERSHIP WORK?

Without a GPO membership, you could be missing out on free savings. Membership provides access to trusted suppliers and distributors and, most importantly, the opportunity to earn rebates on your purchases.

But how does this process work? Is joining a GPO worth it?

This guide explores how GPO memberships work, the different types available, their main benefits and potential drawbacks. Read on to find out if this is a suitable cost-reduction strategy for your business operations.

What Is a GPO?

Under usual circumstances, an organization would research vendors, compare prices, and negotiate contracts. Naturally, the larger your company is, the bigger your purchase volume and the more likely you are to get a good deal from suppliers/vendors.

But the purchase volume of many organizations isn’t quite large enough, and that’s where GPOs (group purchasing organizations) come in handy.

Think of GPOs as an intermediary between organizations and vendors. The GPO attracts a bunch of organizations (with similar needs) as members. It then pools their collective buying power and uses the aggregate demand as leverage to negotiate better deals.

For example, if ten restaurants need ten orders of dairy products, the GPO can create one bulk order on their behalf. Naturally, the pricing for the large bulk order will be much better than that of any of the ten smaller orders.

Who Can Join a GPO?

There’s a misconception that only large businesses and large-scale operations can join a GPO. But that’s simply not true.

In fact, this buying solution can be particularly beneficial for small and medium-sized businesses (SMS). Why? They usually don’t have access to the same volume-based discounts that large corporations get. GPO memberships can boost their profit margins and keep them afloat.

Overall, any business operator, organization, or firm looking for cost-cutting measures should consider joining a GPO that fits their procurement demands.

Side Note: Many believe that the first GPO members were exclusively healthcare providers. They joined the group established in 1910 by the Hospital Bureau of New York.

How GPO Memberships Work

We’ve discussed how GPOs create an ecosystem where everyone wins, including buyers, suppliers, and the group purchasing organization itself.

Now let’s check out some operational insights from the typical membership:

Operators Join the GPO

The process can be a bit different from one GPO to another, but it’s typically straightforward and quick.

Operators might be asked to fill out a contact form so that a representative from the GPO can get in touch with them. They’ll discuss the operator’s procurement demands to see if their contracts are a good fit.

If the operators realize that the partnership is worth it for their business, they’ll then finalize the membership application and get started as active members.

The GPO Connects You With Negotiated Supplier Contracts

Once an operator is part of the group, they get to choose from a range of programs. Each gives them access to a selection of approved suppliers (usually through the GPO’s online portal). 

Note that many GPOs now offer digital dashboards to their members. This way, the business owners can enjoy a streamlined ordering process. They can also track their savings and check usage insights that can help them make informed decisions later.

Compared to direct purchasing, the administrative burden in this step is negligible. Operators won’t have to worry about negotiations, contracts, or supplier relationship management.

GPO leaders work behind the scenes, vetting suppliers (to ensure quality standards are met) and negotiating prices. Remember, their goal is to leverage the collective purchasing power of the group to secure competitive pricing for all members.

Members, on the other hand, reap the rewards whenever they order from approved suppliers.

You Continue Purchasing Directly From Suppliers

Depending on your GPO membership details, you might be able to continue purchasing directly from suppliers outside the negotiated vendor list.

Suppliers Apply GPO Pricing Automatically

The negotiated pricing gets applied automatically as members purchase products and items for your business operation.

The GPO Provides Ongoing Support

The GPO continues negotiating the best possible deals and managing the supplier relationships to keep the operation going smoothly. Leaders also align the group’s operations with the members’ collective goals.

Besides the monthly rebates and savings statements, GPO memberships come with other value-added services.

Members at Groupex, for instance, get access to an exclusive national network of foodservice operators. This creates an opportunity for sharing insights and supporting one another.

Groupex also happens to be the only Canadian buying group that reinvests 100% of its profits into the foodservice industry. So, the GPO doesn’t just support the regular purchasing operations. It also advocates for the industry as a whole.

Types of GPO (and How Memberships Differ)

At their core, most GPO memberships work the same way. Members get together and pool their purchasing power to get better prices from vendors.

However, the member base can look a bit different from one group to another. If we categorize GPOs based on the market focus, we can see the differences.

Here’s a quick overview of the main types and their target members.

Next, let’s take a closer look at each group purchasing organization type.

Vertical GPO Memberships

Because vertical GPOs are industry-specific by default, all members within the group belong to the same sector. All of the GPO’s programs are tailored to suit that specific market and its organizations, as well.

A popular GPO example here is Groupex, which focuses on the foodservice markets. Its membership is common among restaurants, cafes, and hotels.

But there are other groups that narrow their scope to healthcare, education, and even manufacturing.

Horizontal GPO Memberships

A horizontal GPO can attract members (of all sizes) across multiple industries and markets. They might operate regionally or nationally.

Because they cater to a wide range of businesses, they have to work with multiple vendors. In most cases, the membership fills the organization’s indirect spending needs.

Master Buyer MPO Memberships

Members in an MPO belong to one large organization or corporation. For the most part, they’re all divisions or subsidiaries.

The point of the MPO membership here is to pool the internal buying power and align contracts across all organizational tiers.

Do GPOs Control What You Buy?

There’s a common belief that joining a GPO means losing control over your purchases. While there’s always a control trade-off, it doesn’t have to be a deal breaker. GPOs can provide you with flexibility if you look for contracts that best match your organization’s needs.

That being said, organizations with specialized needs might face issues if they opt for GPO memberships that cater to generalized procurement needs. The specialized organization will then have to purchase uncovered items outside the contract, sacrificing discounted benefits.

Other business owners worry that being locked into exclusive arrangements will backfire later. If they’re contractually limited to procure from approved vendors only, they fear they’ll miss out on potential savings from alternative vendors.

Before opting into a contract, make sure to ask about the following points:

• • Purchase-Level Minimums. Does the GPO enforce a minimum order size? If so, is it a sensible limit for your business operations?
  • Product Coverage. Does the arrangement cover most (if not all) supplies necessary for your operations?
  • Outside Purchases. Would joining the GPO negatively affect your outside purchases in any way?

Finding the answers to these questions can help you weed out memberships that would weaken your buying power rather than boost it.

Benefits of GPO Memberships

There are a lot of perks to look forward to, but here are the top GPO benefits:

1. Volume-Based Pricing and Maximized Budgets

The number one benefit is cost savings. No matter how small your business is, you’ll be able to get the same opportunities as the large corporations. This will help you stretch your budget further.

2. Streamlined Procurement

Opting for a GPO membership is way faster and easier than direct procurement. You no longer have to spend resources vetting vendors, meeting with suppliers, and haggling over contract terms.

Plus, there will be fewer tasks for your employees to tackle after each purchase. After all, tracking your savings and optimizing your spending is much easier when the GPO platform provides audit reports and detailed statements.

3. Stability and Consistency

Since GPOs represent a large customer base, they can demand higher standards from their approved suppliers and vendors.

Most importantly, the GPO can help maintain stability during times of disruption. Take COVID-19 as an example. During the pandemic, GPOs were on the frontlines, making sure their members had what they needed (at the right price) to keep their operations running smoothly.

4. Consults and Exclusive Industry Insights

Joining a GPO can help you expand your network and build valuable partnerships. You might also gain insights and tips from industry experts.

Is a GPO Membership Right for Your Organization?

GPO memberships are ideal for any organization looking to reduce the per-unit cost.

And if you’re in the foodservice sector, our programs might just be what you need to maximize your purchasing power. After all, Groupex memberships cover more than 35,000 rebate-eligible products from 300+ partners.

Here’s how things work at Groupex:

Connect With Consultants

To become a member at Groupex, all you need to do is fill out a contact form or submit your request to info@groupex.com.

We’ll then connect you with a personal account consultant. They’ll provide you with a free, fact-based cost analysis.

This will help you find out if the expected savings justify a yearly membership.

Get Access to Our Programs

Once you complete your membership application, you can start using our programs.

Every month, Groupex members receive a cheque with their rebate earnings, along with detailed savings statements to make spending optimization less taxing.

FAQs

Can I belong to multiple GPOs?

It depends on the GPO specifics. Some groups have loyalty requirements. This means active members can’t join other GPOs.

Keep in mind that some business owners want to belong to multiple GPOs so that they can comparison-shop before buying. The issue here is that one group might end up losing credit for valid sales when there’s an overlap with vendor deals.

To protect the GPO’s bottom line, leaders might choose to enforce loyalty requirements or purchase-level minimums.

How do GPOs make money?

There are two main models. The first is through applying a small administrative fee on each purchase made through the GPO’s programs and pre-negotiated contracts.

Other GPOs charge membership fees. They either collect one-time fees or run on a subscription-based model.

Of course, it’s possible for a GPO to use a hybrid model. In this case, it would make money through both subscriptions and administrative fees. It’s worth noting, however, that some groups waive the membership fees whenever a member meets a set purchasing threshold.

What types of products or services can I buy through a GPO?

It depends on the GPO type and coverage. As we mentioned earlier, some GPOs operate on a horizontal model, which means that they cater to a wide range of industries and sectors. A membership in one of these GPOs can help with indirect procurement management.

The product range can include everything from office supplies to software. Similarly, the offered services tend to be broad, like legal, accounting, and IT.

Members in vertical-type GPOs, however, get great deals on a range of industry-specific products.

Just note that the product range being market-specific doesn’t necessarily mean that your options will be limited. Take Groupex’s programs, for instance. 

The range of products offered by Groupex is both expansive and tailored to suit foodservice-related sectors. The categories include smallwares, beverages, dairy, protein, paper/packing, tech solutions, and more.