Flipping through channels after a long day of supply chain cost-savings finding, it occurred to me that supply chain managers who participate in group purchasing organizations (GPOs) are kind of like viewers of reality TV shows. At some point, they inevitably have to ask: What am I really getting out of this?
Fortunately for supply chain managers, the value of participating in a GPO, unlike the, ahem, value of watching Here Comes Honey Boo Boo or The Real Housewives of—insert the city of your choice—is actually quantifiable.
According to a white paper put forth by the business consultants at Organon Professional Services in late 2010, which acknowledges that hospitals are the main users of GPOS, "Using independent data, hospitals should be able to determine how or how often to engage GPOs and, once engaged, if they continue to deliver value. Continuous data-driven due diligence is the best practice way to engage GPOs."
I cite these findings not only because they support the notion that it is possible to find value in GPOs through data analysis, but because they point to the reality that it is up to the supply chain manager to take on the responsibility of determining the value that a GPO is bringing to the table.
Do you want an answer to the question: What am I really getting out of this? You won't get it unless you monitor and assess the value of your GPO on a regular basis.
Monitoring and assessing the value of your GPO will likely require the assistance of a third-party logistics provider (3PL) that is able to perform high-level analyses and generate regular reports that you and your colleagues can use to:
• justify your organization's engagement with its GPO,
• uncover things like whether or not you should be using your 3PL to do things that your GPO can't (such as provide auditing and consulting services, measure compliance, and assist with the optimization of your supply chain network), and
• determine whether or not continuing to engage with a GPO will be in your organization's best interest moving forward.
Employing the services of a 3PL that is able to determine the value of your engagement with your GPO may seem like just another expense that you will need to justify, but keep in mind these two important points:
1. If your 3PL determines that your organization can't justify its engagement with its GPO, you could potentially let go of one or both partners and move forward independently based on your 3PL's recommendations and/or your own assessments of the data with which your 3PL has empowered you.
2. If your 3PL determines that your organization is reaping significant benefits from its engagement with its GPO, you could potentially use your 3PL to help you get even more out of your GPO and increase supply chain savings—and cost-savings—across the board.
You should also keep in mind that engaging a GPO in conjunction with a qualified 3PL generally makes good sense for organizations that have gross annual revenues that are under $1B, i.e., organizations that are relatively small or mid-sized.
Vendors benefit from participating in GPOs, too. Though they pay an administrative fee to their GPOs, the fee is typically one set percent for all vendors with whom a particular GPO has agreements, and is transparent to all vendors and other GPO members. (It's worth noting that these administrative fees provide most GPOs with their main sources of revenue.) As members of a GPO, vendors are guaranteed new volumes and deeper incentives that they otherwise wouldn't be able to achieve and are able to win accounts that might otherwise be out of reach.
Should your organization participate or continue to participate in a GPO? Find a qualified 3PL that can conduct the required analyses, and let quantifiable data decide.
Mikael Trapper, Managing Partner, BridgeNet Solutions, has worked in the logistics industry since she graduated from Fordham University with a degree in Economics and English. Mikael joined the BridgeNet team in 2008, and now manages Xonar, BridgeNet's propriety visibility dashboard. She currently serves on the board of the Midwest Chapter of Women in Logistics and Delivery Services Council.
Fortunately for supply chain managers, the value of participating in a GPO, unlike the, ahem, value of watching Here Comes Honey Boo Boo or The Real Housewives of—insert the city of your choice—is actually quantifiable.
According to a white paper put forth by the business consultants at Organon Professional Services in late 2010, which acknowledges that hospitals are the main users of GPOS, "Using independent data, hospitals should be able to determine how or how often to engage GPOs and, once engaged, if they continue to deliver value. Continuous data-driven due diligence is the best practice way to engage GPOs."
I cite these findings not only because they support the notion that it is possible to find value in GPOs through data analysis, but because they point to the reality that it is up to the supply chain manager to take on the responsibility of determining the value that a GPO is bringing to the table.
Do you want an answer to the question: What am I really getting out of this? You won't get it unless you monitor and assess the value of your GPO on a regular basis.
Monitoring and assessing the value of your GPO will likely require the assistance of a third-party logistics provider (3PL) that is able to perform high-level analyses and generate regular reports that you and your colleagues can use to:
• justify your organization's engagement with its GPO,
• uncover things like whether or not you should be using your 3PL to do things that your GPO can't (such as provide auditing and consulting services, measure compliance, and assist with the optimization of your supply chain network), and
• determine whether or not continuing to engage with a GPO will be in your organization's best interest moving forward.
Employing the services of a 3PL that is able to determine the value of your engagement with your GPO may seem like just another expense that you will need to justify, but keep in mind these two important points:
1. If your 3PL determines that your organization can't justify its engagement with its GPO, you could potentially let go of one or both partners and move forward independently based on your 3PL's recommendations and/or your own assessments of the data with which your 3PL has empowered you.
2. If your 3PL determines that your organization is reaping significant benefits from its engagement with its GPO, you could potentially use your 3PL to help you get even more out of your GPO and increase supply chain savings—and cost-savings—across the board.
You should also keep in mind that engaging a GPO in conjunction with a qualified 3PL generally makes good sense for organizations that have gross annual revenues that are under $1B, i.e., organizations that are relatively small or mid-sized.
Vendors benefit from participating in GPOs, too. Though they pay an administrative fee to their GPOs, the fee is typically one set percent for all vendors with whom a particular GPO has agreements, and is transparent to all vendors and other GPO members. (It's worth noting that these administrative fees provide most GPOs with their main sources of revenue.) As members of a GPO, vendors are guaranteed new volumes and deeper incentives that they otherwise wouldn't be able to achieve and are able to win accounts that might otherwise be out of reach.
Should your organization participate or continue to participate in a GPO? Find a qualified 3PL that can conduct the required analyses, and let quantifiable data decide.
Mikael Trapper, Managing Partner, BridgeNet Solutions, has worked in the logistics industry since she graduated from Fordham University with a degree in Economics and English. Mikael joined the BridgeNet team in 2008, and now manages Xonar, BridgeNet's propriety visibility dashboard. She currently serves on the board of the Midwest Chapter of Women in Logistics and Delivery Services Council.
