Healthpro vs Medbuy Who to partner with?

Introduction
A group purchasing organization/consortium (GPO) is a collective that helps groups locate better cost
control measures in their supply chain. By utilizing the combined purchasing power of the groups, GPOs
can pinpoint inefficiencies and make decisions that better support a companys supply chain. Entering into
a purchasing consortium or cooperative will increase the profitability of a company. Once a transition is
made to enter into a GPO the companys bottom line will rapidly show improvements. Leveraging the
purchasing power of a group of institutions will allow the cooperative to achieve economies of scale. This
essentially will allow purchasing consortiums to negotiate a lower purchase price from their vendors. The
concept of group purchasing is also appealing to institutions because of the opportunity to reduce their
overhead costs.
Switching to a consortium/GPO carries with it a series of risk and reward opportunities. The advantages
of a successful consortium include:
1) GPO has a collection of professionals with a diverse background that will help streamline
requirements.
2) Reduce a companys overhead by utilizing activity based costing. A group will lower indirect
labour as labour will now be spread across multiple institutions.
3) Increase a firms buying power, effectively achieving economies of scale.
There are also risks associated with transitioning into a GPO. The greatest risk will be centralized around
participation levels of the groups members and operators. If a membership does not provide enough
information to the purchasing group they will make faulty sourcing decision and have ineffective inventory
management. As well, if a group is reluctant to change this can bring down the purchasing power of the
GOP.
Observations
There are two major models of GPOs, these include a collaborative model and a third party model
(Wooten, 2003). The collaborative strategy is most effective when utilizing overall performance by
increasing the purchase volumes. Essentially this strategy encompasses achieving economies of scale.
The third party model targets companies who are looking to make blanket purchase orders and are more
hands on when ordering. If a consortium binds itself to this model they will be very involved in the early
stages of negotiation and sourcing. The GPO will mostly be responsible for administrating the contracts
and evaluating the alternatives.
Medbuy:
Medbuy is a classic example of a GPO that is modelled after the third party approach. Their core
competency is to provide the maximum value while also chasing costs out of the supply chain. Medbuy
does not make any of the purchase orders. Their value is realized in the areas of sourcing and
negotiation. Their sourcing strategy is centralized around the concept of single sourcing goods and
services. Since the needs of a health region range from pharmaceuticals, equipment, and services there
strategy of single sourcing allows for them to capture the lowest price.
The areas that Medbuy defines as their strengths are as follows:
1)
2)
3)
4)

Using market information and data to leverage purchase price variance.

Defining risk sources to individual items and removing that risk.
Ensure that Request for Proposal are all sent in accordance to procurement laws and regulations
Involves vendor management responsibilities such as product evaluation and price creeping

5) Allows the purchasing department to run on a more automated ordering system. Responsibility is
effectively removed from the health region and given to Medbuy. This relationship will mimic a
Vendor Managed Inventory (VMI) system.
6) Standardizes a companys items to comply with group stands. This reduces risk, and price while
increasing availability and quality.

Healthpro
Healthpro deploys the opposite approach to Medbuy. They deploy the collaborative GPO model.
Healthpro has a more hands on business model. The business model employed by Healthpro is more
conducive on achieving price variance rebates. Essentially Healthpro will post its request for proposal on
an online bidding site. Healthpro will negotiate with the vendors and get the best rebate they can on an
item. After they secure the rebate, hospitals will order the products. Healthpro makes their money as the
rebates are payed to them. They will then take 2% of the total rebate and issue the rest as dividends to
their members based on their participation.
Pro/Con
Medbuy,
Pro
The way Medbuy conducts business forces a specific Health Region to bare down and standardize their
products. Not only does this cut costs but also increase KPIs like increased efficiency and lowered
operating expenses. Their invoicing is far superior, the members of Medbuy share their portion of the
operating expenses on a pro forma basis on a contract based on current purchases to ensure cost
accuracies with each member.
Con
Since Medbuy participates in a single sourcing strategy they are forced into entering into committed
contracts. If a contract is made that contract will be valid across all of their members supply chains.
Healthpro
Pro
1)
2)
3)
4)

Reduced invoice price

Efficient
Accountable
agile

Con
1) revenue stream
2) Do not inforce single sourcing
3) Tailor more to specialized items that are not standardized.
Recommendation
I recommend going solely with Medbuy. Their push to standardize across members and implement single
sourcing align with cost savings strategies that will have direct visibility in the institutions financials. Also
the business revenue stream Medbuy uses makes more sense. Paying for operating expenses straight up
opposed to paying a percentage of purchase rebates and getting the rebates payed out as dividends later
makes for stronger collaboration across the members. The main goal with any GPO is collaboration and
creating strategies that will positively affect everyone in the group. Medbuy will force the institution to

standardize goods, not only will this save in purchase prices but will increase operational efficiencies. If
there is one less part number that translates to less storage space (holding costs), less administrative
time, and more sustainable quality control.