What is a Group Purchasing Organization (GPO)?
When shopping for groceries, batteries, grass seed, buying in bulk will almost certainly save you money. For example, buying a 24-pack of paper towels could cost as much as 30% less per roll than buying them individually.
Imagine that you wanted to maximize this opportunity by buying 1,000 rolls of paper towels. The per unit price would be even lower. Obviously you would have trouble using 1,000 rolls of paper towels, but what if you were to purchase these with a group of friends or neighbors? You may only use 18 rolls in the next 12 months, but collectively your group could use 1,000. By combining your purchasing with the rest of your group all group members realize the savings, though your spending is a only a small part. Group Purchasing Organizations operate under this principle; the more a collection of members can purchase together, the lower the individual cost.
How GPOs Can Help
A group purchasing organization (GPO) is an entity that is formed to leverage the purchasing power of many businesses to obtain better pricing for it’s member businesses. Since many businesses purchase the same types of products, by collectively purchasing they can reduce the per unit price. GPOs can be known as co-ops, collectives, consortia, leveraged buying or procurement groups.
Group Purchasing Organizations exist in many verticals: healthcare, foodservice, utilities, and industrial manufacturing are a few of these. There are two main types of GPOs – vertical and horizontal. Vertical GPOs serve customers mainly in specific industries, while horizontal GPOs have members in many different industries. Vertical GPOs have great purchasing power in industry-specific categories; horizontal GPOs leverage buying power in categories that all companies commonly purchase regardless of vertical. For example, a vertical GPO in the healthcare industry would have great purchasing power for MRI machines; a horizontal GPO would have great purchasing power for printer paper.