GROUP

PURCHASING
By: Jackleen D. Doropan
 What is Group
Purchasing?
■also known as collective buying, offers
products and services at significantly
reduced prices on the condition that a
minimum number of buyers would
make the purchase.
What is Group Purchasing
Organization?
■ a group purchasing organization (GPO) is
an entity that is created to leverage the
purchasing power of a group of
businesses to obtain discounts from
vendors based on the collective buying
power of the GPO members.
 Who uses GPO’s?
■ Healthcare providers
■ Industrial manufacturers
■ Agricultural interests
■ Grocery and retail enterprises
■ Nonprofits
Types of GPOs
■ Vertical market: A vertical market GPO is focused on one industry
or vertical. For example, in the healthcare market, there are small-
and mid-sized medical centers or hospitals that join forces to reduce
their costs.
■ Horizontal market: Horizontal market GPO members exist in
many different industries, but they purchase a lot of the same goods
and services to build their products and run their companies.
■ Master buyer: This is when one chief buying organization has
substantial contracts in place with vendors and allows additional
companies to buy off those contracts.
How a Group Purchasing
Organization Works?
■ Step 1: Membership, Leverage and Savings Grow.
These GPOs create a membership base comprised
of companies seeking to channel spend using the
GPO's agreements. The combined spend of these
companies – and the acquisition of multiple
customers at once – creates leverage. That
leverage is what motivates suppliers to offer their
best pricing and service levels to the GPO.
■ Step 2: Better Pricing and Contract Terms
Are Produced. With a steady stream of spend
in place, these GPOs are now able to source
agreements with the right suppliers – or those
that can provide better pricing and contract
terms than GPO members can achieve on their
own. Suppliers typically forgo margin
opportunities because GPO membership
reduces the costs associated with acquiring
new business.
■ Step 3: Continuous Improvement Further Mitigates
Risk. As members continue to use GPO
agreements, contracts are constantly
managed by the GPO. As more members join
and more spend flows through the
agreements, these GPOs can negotiate even
deeper discounts and/or improved terms and
conditions with suppliers. By this point, the
GPO can further mitigate risk and create a
path toward continuous improvement by
engaging with multiple people at multiple
levels throughout supplier organizations.
 References:
HTTPS://WWW.OMNIAPARTNERS.COM/PRIVATESECTOR/BLOG/
WHAT-IS-A-GROUP-PURCHASING-ORGANIZATION-HOW-DOES-A-
GPO-WORK

HTTPS://WWW.PURCHASECONTROL.COM/BLOG/GROUP-
PURCHASING-ORGANIZATION/