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How to Reduce Costs with Group Purchasing Organizations

By Rashan Dixon,
business.com writer
|
Feb 03, 2020
Image Credit: scyther5/Getty
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There's power in numbers. Find out how GPOs empower companies to purchase goods and services they need at a lower cost.

Group purchasing organizations (GPOs) empower separate companies to leverage their combined purchasing power to get better prices on supplies and services. Both general and industry-specific GPOs help businesses dramatically reduce their expenses while retaining access to the same products they normally use or sell. Joining a GPO leads to savings that businesses can invest in other areas, such as staffing, to maximize growth without cutting corners.

GPOs make their money by collecting membership and administrative fees from buyers, sellers, or both. Regardless of who pays, the presence of a GPO helps both sides. Buyers get access to better prices, while sellers get guarantees of volume. A good GPO, or the presence of multiple GPOs, can lift an entire market. Think of it like CostCo or Sam’s Club — when a new store moves into the neighborhood, everyone saves. 

While some business owners mistakenly believe GPOs only serve companies in specific and closed niches, like heavy manufacturing, GPOs help all sorts of people. Some cater to general business buyers as horizontal market GPOs, while others serve specific industries and businesses as vertical market GPOs. Vertical market options also employ knowledgeable industry experts who not only help members get better deals but also educate members about their options and best purchasing practices.

Consider how GPOs help companies in these industries reduce costs and improve service:

1. Educational institutions get smarter deals

Schools use plenty of supplies. Teachers and administrators require student-specific items that traditional business supply stores may not carry in necessary quantities. Smart displays, electronic quizzing tools, and desks for everyone from kindergarteners to seniors don’t appear in most showrooms. Working with an education-focused GPO, schools and school districts can turn student and faculty numbers into a powerful case for a sweet deal.

Schools face budgets stricter than even the leanest startups. Nearly all teachers have to spend some their own money on classroom supplies. According to research from the Economic Policy Institute (EPI), teachers in high-poverty districts spend about $523 per year in unreimbursed expenses, while teachers in low-poverty areas spend $434. 

Educational institutions don’t just order supplies, though. Schools also order food in large quantities, which means education-focused GPOs necessarily help schools find better deals on healthy ingredients. In a good GPO, members can coordinate with one another and with GPO employees to customize their menus as their districts’ needs change.

2. Electronics and technology companies optimize operations

In the digital era, all companies are tech companies. Some spend more on technology than others, though, and GPOs can help those tech-savvy businesses save thousands or even millions on software, equipment, and subscriptions. Some electronics GPOs can even help companies save money on non-technical spending, such as company travel and shipping costs.

Because so many companies require electronics, some GPOs in this niche have evolved to serve more general audiences. That expansion has created a low barrier to entry, allowing even the smallest businesses with just a few employees to get in on the savings.

GPOs in electronics also play a major role in counterfeit prevention. Businesses that rely heavily on tech cannot afford to be duped by fake parts. At best, a fake part will not work correctly. At worst, a bad part could contain malware to capture and distribute sensitive company data to outside parties. Instead of risking the gray market for leftover pieces and savings, tech businesses should consider their GPO options to save money without putting their security at risk.

3. Healthcare institutions combine patient care with financial savvy

GPOs may be most famous for their role in helping healthcare entities get the supplies and equipment they need. Doctor’s offices, hospitals, nursing homes, emergency rooms, and specialist clinics all depend on specific, hard-to-find items that rarely go on sale in consumer catalogs. Machines that cost millions of dollars may not look like candidates for group purchasing discounts, but when healthcare entities band together to leverage their buying power, suppliers quickly slash prices to avoid losing big contracts.

According to one study, GPOs in healthcare save members an average of 10-18% on products and services. With healthcare’s famously high supply prices, that can quickly add up to millions of dollars a year in savings. Whatever fees a healthcare GPO may charge, members can make that money back after a single big order.

Like horizontal market GPOs, healthcare GPOs typically offer a wide range of services and savings to members. A healthcare GPO may be able to help with shipping costs for sensitive biological materials in addition to stethoscopes and scanners. Available options depend on the specific healthcare GPO, its member demographics, and its choices of partners, so prospective members should think carefully about their unique needs before committing to one option.

4. Nonprofit organizations save the world on tight budgets

Nonprofit organizations work hard to solicit donations, but with so much to do and so little time, many don’t apply that same energy to saving money they already have. Enter the nonprofit GPO. Under a common umbrella, nonprofits can work together to save money, even if they focus on different missions.

Like schools, nonprofits deal with tight budgets. Nonprofit workers frequently go the extra mile to work extra shifts or make donations themselves. When nonprofits overpay for the supplies they need, they must either reduce the scope of their mission or cut overhead, which can include positions and hours. 

Nonprofit vertical GPOs help members access better prices to standard supplies and services at deeply discounted rates. By specializing in nonprofit work, these GPOs can also help nonprofit companies take full advantage of their tax privileges and identify opportunities to improve without spending more for the privilege. GPOs can also guide nonprofits to shop for unconventional needs, like rare types of insurance, which could prove vital during hard times.

5. Manufacturers solve big woes with big discounts

Healthcare organizations and manufacturing companies have something in common: they spend tons of money on expensive equipment. Healthcare GPOs may not know much about the manufacturing sector, though, which is why industrial and manufacturing GPOs arose to help these companies avoid overspending on equipment and tools that already carry hefty price tags.

Manufacturers must comply with a variety of laws regarding operations, sourcing, ethics, and environmental impact. A GPO staffed with manufacturing experts can help business owners and company leaders avoid common pitfalls and stay on the right side of the rulebook. When manufacturers can rest easy knowing all their products and equipment come from ethical sources, they can devote all their energies (and budget) toward scaling their operations.

Data matters in manufacturing as much as it matters in software, and good GPOs understand that. By keeping an eye on market trends and helping manufacturers find and acquire smarter tech, GPOs bring clarity to a complex and evolving industry. Manufacturers also need long-term, reliable partners, and GPOs provide an excellent forum to solicit advice, consider testimonials, and find the perfect match.

Businesses in these major industries benefit greatly from the influence of GPOs, but these are far from the only niches where GPOs thrive. In markets small and large, companies with common goals and similar needs band together to get better deals from suppliers, share knowledge, and make success more achievable for everyone.

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Rashan Dixon
Rashan Dixon
See Rashan Dixon's Profile
I currently am a writer, speaker, and consultant. I was a senior consultant at Microsoft and before that a systems analyst and business advisor at Kronos for 12 years. I earned a master’s in engineering from Boston University. I write for publications like Barron’s, Entrepreneur, Readwrite, and Smartbrief.
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