Groupon might have made group purchasing popular in recent years, but the concept has been around for much longer than most people realize. Group purchasing organizations (GPOs) can be traced all the way back to farmers’ cooperatives of the early 1900s.

    GPOs have come a long way since the 20th century. Today’s GPOs are highly organized and streamlined associations that provide excellent benefits to purchasers and vendors in all types of industries the world over.
    The main reason to join a GPO is to combine your limited purchasing power with the purchasing power of other companies. The synergies that GPOs create increase opportunities for businesses to receive highly competitive discounts that typically aren’t made available to stand-alone companies.

    In an economy that is improving but still volatile, supply chain professionals who haven’t embarked upon a GPO initiative may want to seriously consider doing so in 2012. As you are undoubtedly aware, vendors typically offer much better rates and discounts when certain volumes and spend thresholds are reached. This is particularly true in the parcel industry.

    In addition to enabling you to achieve greater savings, becoming a member of a GPO can help you increase your company’s national or international presence almost immediately. When you become a member of a GPO, you become more visible as a result of having corporate exposure. New access to a global network of vendors allows you to consolidate and streamline your company’s vendor relationship portfolio. It also reduces the amount of separate fees and other costs involved in maintaining multiple partnerships. 

    Other potential benefits of becoming a GPO member include:

    • The ability to work confidently with vendors already endorsed within your industry;
    • Rebates (determined by how much your group purchases), which entitle your company to benefits for which it does not necessarily have to pay;
    • Increased buying power in multiple areas of your supply chain, e.g., a food service buying group that gets excellent discounts on restaurant equipment might also be able to get great discounts on linens services, disposable food containers, office supplies, airfare, and more;
    • Strategy sharing and vendor referral opportunities within your GPO, and
    • Bottom-line savings that are immediate and easy to measure.

    Keep in mind that a GPO’s organizational decisions are usually made by its members. As a member of a GPO, you should always have a voice when it comes to which vendors are approved and the services that are eligible for GPO discounts. You should also reserve the right to make final decisions regarding how much is purchased by your company.

    If your company isn’t large enough to qualify for a GPO, you may still be able to reap transportation savings through a 3PL that also uses buying power to leverage strong discounts.

    A good 3PL will have in place much better rates than any small or mid-size company would be able to achieve. Normally, it could cost you $220 to move a $1,500-pound pallet from Chicago to Los Angeles. If your 3PL has negotiated competitive LTL rates, the cost of moving the same pallet could be as low as $175.

    Partnering with a 3PL to gain leverage that allows for better rates and discounts isn’t the same thing as group purchasing, but it may allow you to obtain many of the same benefits—without having to sign complex agreements or commit to participating in a group.

    The recession might be over, but post-recession challenges continue to require supply chain professionals to look outside of their own organizations for high-level cost-saving solutions. Streamlining operations and making cutbacks can increase budgets up to a point, but sooner or later, it becomes necessary to turn outward rather than inward to achieve significant, ongoing savings. A GPO or 3PL partnership that leverages combined purchasing power can go a long way towards helping you meet your transportation savings goals.

    Kevin McCaskey is Senior Project Manager — Market Analysis, BridgeNet Solutions, a Chicago-based supply chain technology solutions provider. Kevin specializes in LTL, FTL, parcel, and international shipping. He currently works with BridgeNet's local and international clients to execute high-level cost-savings initiatives that result in ongoing savings. He can be reached atkmccaskey@bridgenetsolutions.com.  

    Follow