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How Can a Group Purchasing Organization Reduce Your Supply Chain Costs?

Posted by ASE Direct Team on Mar 8, 2019

Staying competitive in today’s markets means finding ways to reduce costs in your supply chain without sacrificing quality or your ability to operate. Complicating this challenge is the fact that critical supplies are often expensive, and vendors only offer discounts or deals to the largest companies. Everyone else must pay a premium which can prove unaffordable for smaller organizations.

However, to overcome this obstacle, businesses often utilize collective buying power in their supply chain management. Through membership in a GPO, companies can access special discounts and prices reserved for large purchases. We take a deeper look at the nature of GPOs and the benefits which ASE Direct’s GPO solutions can provide.

What Is a GPO in Supply Chain Management?

A group purchasing organization, or GPO, is an entity which helps businesses leverage collective buying power to reduce supply chain costs. It’s sometimes referred to as social purchasing, especially when the group is open for anyone to join. Any company can start a GPO with other members of the same industry. This puts power into the hands of businesses to self-organize.

Essentially, GPOs work by leveraging the concept of “power in numbers.” To illustrate this concept, consider the following simple example. A vendor offers a ten percent discount to businesses when they spend $10,000 or more on its services. An individual business may not need or be able to spend the full $10,000. However, if four businesses pooled their orders and each spent $2,500, then the final order would reach $10,000. The ten percent discount applies even though the individual members spent far beneath the required total.

Participation in such an organization allows members to obtain benefits or discounts from another company or vendor which they otherwise might not have been able to achieve individually. For the vendor, the GPO enables a larger scale. Likewise, small businesses often use GPOs in their supply chain management in order to operate more cost-effectively. The GPO itself makes money by charging a membership and membership is, of course, voluntary.

GPOs have been around for roughly a century. According to HIGPA, hospitals first used them to purchase costly but necessary supplies. This allowed hospitals to provide better services without charging prohibitive costs. Today, they’re common in many industries, including electronics, agriculture, and industrial manufacturing.

Even the US government employs the GPO strategy across a number of industries, as well as within its own contracted work. This strategy promotes access to cost-effective, high-quality products and services. ASE Direct is proud to work with healthcare providers to form GPOs for healthcare technology and supplies.

How Does a GPO Work for the Customer?

GPOs have numerous advantages for businesses which get transferred to the customer. Small businesses are often more expensive than large companies because they are not able to access the same discounts or markets on account of the quantities they need to order.

In many industries, such higher prices might be merely annoying. In healthcare, higher prices are downright problematic in supply chain management. However, GPOs introduce other benefits for patients beyond decreased costs, including an overall higher quality of care as well as standardization of procedures or equipment.

GPOs Lower the Cost of Healthcare

Since their inception, GPOs have been instrumental in providing savings to hospitals. In 2018, it was estimated that group purchasing helped reduce supply chain costs for hospitals by 18 percent. This, in turn, resulted in $55 billion saved between hospitals, government healthcare agencies and taxpayers combined.

GPOs Promote a Higher Quality of Care

The primary advantage of GPOs is that they allow smaller actors access to supplies or services which might have otherwise been off limits. In healthcare, this translates to things like technology, surgical supplies, and life-saving medications. GPOs are extremely common in pharmaceuticals for exactly this reason. With more buying power, a GPO can negotiate better deals with a wholesale drug distributor. The result is that patients can access medications outside the reach of independent pharmacists.

GPOs Help Standardized Supplies and Their Prices

By making supplies more widely available, GPOs help to standardize both supplies and their prices. Access to these supplies helps ensure that patients will have access to what they need regardless of where they go. Additionally, accessibility makes it harder for vendors to price gouge, and it helps keep prices stable during a shortage.

Get Started Leveraging Group Purchasing

We’ve taken a deeper look into what GPOs are and how they work to the benefit of businesses in numerous industries. In healthcare especially, GPOs provide many critical advantages in healthcare for both hospitals and their patients. ASE Direct works with healthcare providers in order to develop GPO solutions to accessing critical, affordable technology and supplies.

If you’re looking for such a solution for your healthcare organization, we encourage you to reach out and start a conversation with us today.

Topics: account executive

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