Group purchasing organizations (GPOs) are business entities that assemble groups of like-minded businesses to negotiate discounts through volume purchases on goods and services such as medical supplies, food products, equipment, software licensing fees, building materials, and more.
GPOs are also known as ‘purchasing cooperatives’ or ‘purchasing alliances.’
These organizations save money for all members by aggregating bargaining power, negotiating discounts, facilitating contracts, managing logistics, and more.
We pass the resulting savings along to GPO members at lower prices on supplies they purchase.
First, it is essential to consider the following questions before starting a GPO:
What specific products or services will you be providing?
Who are your target members?
How many members do you want to have, and what is the minimum number of required members to start an effective GPO?
How to Start a Group Purchasing Organization
Consider the Products and Services You Will Provide to Your Members.
If you are starting a GPO that will provide software licensing fees to its members, you need to have at least one member who can supply the products or services.
If you are starting a GPO that will deliver its members cleaning products for their office, you need to have at least one member who can provide the necessary products or services.
Have a Detailed Business Plan Before Starting GPO.
While GPOs are growing in popularity, your GPO’s success will depend on how detailed your business plan is before you start.
As more GPOs appear on the market, there will be stiffer competition for GPO purchasing members and GPO services.
This means that it will be harder to attract new members or keep existing GPO members if your GPO does not have a cohesive business plan and GPO standards.
As a GPO, you should have a detailed description of GPOs and how GPOs work in your business plan.
A helpful tip is to include how GPOs will benefit GPO members and their customers on your GPO’s website.
This information will be beneficial to potential GPO members when they are comparing GPOs to decide which GPOs services are the best fit for their company.
Also, current GPO members may use this information when they are considering renewing their GPO membership.
Compile a List of Vendor Types You Can Include in Your Vendor Partners.
This is a must before you start a GPO. Group purchasing organizations can be used to obtain discounts on commonly purchased items by leveraging large quantities of purchases in bulk.
Planning GPO purchases will help ensure they are successful.
When choosing your GPO’s [Group Purchasing Organizations] vendors, GPO’s should include a list of vendor types they can consist of in their partners.
By having and compiling this list before starting a GPO, GPO will benefit.
The List Should Include the Following Vendor Partners:
Office Supplies Vendors
Technology Vendors – Including Servers, Storage, Switches, Routers, and Wireless Equipment.
Medical / Lab Vendor who can provide supplies for Medical office buildings.
Construction companies will provide materials at discounted prices when purchasing in bulk quantities. These construction companies would often include companies that manufacture doors, windows, roofing materials, and flooring.
The more of these GPOs can be included in their list of vendor types in a vendor partner, the better the return on investment they will have on money spent. The time involved with contacting many vendors for quotes or placing orders will be reduced.
Select an Office Location for Ordering Supplies.
When setting up your office, you will want to ensure that you have sufficient room for all the supplies you may need for various jobs.
The space should be well-organized and attractive to employees if space is limited.
Store items in cabinets or desk drawers until they are needed. It may be a good idea to set up an area specifically for organizing and storing items, such as a closet or storage room.
This will keep everything organized and easily accessible when you need to find supplies.
A home office can also work well for your employees. However, if they are working from home, they must have access to supplies quickly.
Set up your home office with everything you need to get the job done, including appropriate furniture and business equipment.
There are many original supplies for starting a GPO business. They can order many items from an online supply company.
Set up Group Staffing.
One of the most important moves to start a group purchasing organization is establishing your staffing.
Whether you are hiring full-time staff members or looking for part-time employees, it is best to put together a set of rules and documentation ahead of time so that each person knows what to do if something goes wrong.
If problems occur, have a process to deal with them and then document your response.
A rule of thumb is that you should expect to pay employees approximately 20% more than other outside vendors would charge an individual company for the same services.
For example, if it costs your organization $100,000 per year for external assistance, expect to pay group employees at least $120,000.
Set goals as KPIs (Key Performance Indicators) with staffing. This will ensure that each team member knows what is expected of them and can work to meet those goals.
It will also help them appreciate how effective they are at their jobs and the organization.
Write out Policies for Your Business.
A crucial step in starting a group purchasing organization is to make sure you have written all the different policies regarding operation procedures, expectations around paperwork management, and handling general issues that might arise.
Having your policies written out will help all of your employees know what is expected of them and how they are expected to act- this ensures high-quality business procedures right from the start, even if you are starting on a small scale with only one or two employees.
However, policymaking is not a simple process and can even be difficult for someone who has experience with GPOs.
For this reason, you may hire a third party to help make your policies or vet them through an external advisory board that can give you well-informed feedback.
Group Purchasing Organizations (GPOs) negotiate contracts with vendors on their members, essentially merging all the original members’ buying power and discounts.
The most significant benefit of launching a Group Purchasing Organization is the opportunity to take advantage of discounts – it’s like getting a discount for being in a group, but even better because you make the group and negotiate with vendors.
The biggest downside is that GPOs require a lot of organization and work; GPOs must also be mindful of their bottom line and that of their members.
This is why the above ideas will help you start on a good note.
Jonathon Spire
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