Businesses carefully safeguard trade secrets, keep strategies for growth close to the vest, and never announce expansion until it’s safe to do so. Allowing this type of information to leak out before plans are in place could provide competitors an advantage and threaten a company’s own success. There are times, however, when partnering with other businesses in your industry may make sense.
One such opportunity is combining purchasing power through a Group Purchasing Organization (GPO). A GPO is a group of businesses that serve similar sectors and that purchase the same goods and services. These companies form an entity that leverages the purchasing power they create as a group in order to obtain discounts from suppliers. Walmart can put great demands on its suppliers because it purchases in such large quantities. A GPO essentially turns small and medium-sized businesses into a Walmart.
GPOs are found in a wide array of industries, including healthcare, hospitality, food service, electrical, plumbing, heating, ventilation and air conditioning, nonprofit and manufacturing. Here are some key points to know about GPOs:
They are membership-funded. Most GPO members pay a fee to belong. Some have a single payment to join, while others charge annual dues. Obviously, members are able to save significantly more than their membership fee if they purchase enough through the GPO. In fact, some GPOs waive the fee if a member meets a minimum spend amount each year.
There are different types of GPOs. They differ in size and the types of services they offer members. Some GPOs offer members the opportunity to purchase a wide range of products within that industry, while others focus on very specific product lines or services.
GPOs can augment your own buying processes. You are not confined to purchasing only through a GPO. It makes sense to get the maximum benefit from your membership by purchasing as much as possible through the GPO. However, most GPO member companies still employ their own buying professionals who understand their company’s specific needs.
Legal guidance is recommended. Joining a GPO involves signing a contract. As such, it is wise to enlist a knowledgeable business law attorney to help negotiate and execute GPO contracts. You may also need legal services to help resolve a dispute regarding a GPO membership.