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 GPO solutions can provide.
What Is a GPO in Supply Chain Management?
A group purchasing organization, or GPO, is an entity that 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 to operate more cost-effectively. The GPO itself makes money by charging a membership fee 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 several industries, as well as within its contracted work. This strategy promotes access to cost-effective, high-quality products and services.
How Does a GPO Work for the Customer?
In many industries, 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 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 buyers 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 for both hospitals and their patients.
ASE Direct works with healthcare providers through several GPO contracts to allow access to critical and 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.