There has been a noticeable increase in the emergence of buying groups — also called group purchasing organisations (GPOs) — over this past decade as more individuals and businesses have turned to the internet and social power to achieve more of their goals. A powerful entity is formed when two or more organisations join to leverage negotiating strength. Think buying in bulk; when you purchase a higher quantity of something, you’re entitled to a much lower per-unit price.
Group purchasing affords suppliers access to a larger pool of buyers and thereby allows them to offer lower prices — while still turning a profit. Being part of a buying group affords individual purchasers ‘muscle’ to gain access to better prices, a variety of services, and even technologies that may be beyond their reach as an individual. It’s a win-win situation all round.
Some advantages of buying groups
A group of businesses joining forces to order supplies gives the individual companies access to scale economy, which in turn leads to greater purchasing power through the aggregated volume. A forecastable purchase volume is even better, as it puts the buying group in a strong position to negotiate lower prices for the goods or services purchased, resulting in considerable savings of between 10 and 35 percent.
Being part of a buying group simplifies the procurement process because it means fewer contracts to be negotiated, prepared and managed, which ultimately reduces cost per unit and transaction cost.
A buying group also offers a great networking facility where members can share information and insights about suppliers, new technologies and general market knowledge. A buying group does away with redundancy within the supply chain, ultimately achieving far greater process economies.
A cost saving that is often overlooked when counting the benefits of being part of a buying group is: dreaded admin. Since the buying group handles the entire lifecycle of contracts on behalf of their network, the separate companies gain from a substantial cut in their workload, freeing them up to focus on their core business.
An additional consideration is that the savings generated in the network by centralised purchasing will increase profits in each individual network company without having to increase sales.
An extra bonus of being in a buying group is that most of the modern organisations that handle the network are industry experts for each individual product market they manage, and demand best practise from the network. They are constantly seeking out and researching more effective methods and technologies to improve the processes, the quality and efficiency of the supplier, thereby optimising processes at increasingly competitive prices. This is known as improvement in the total cost of ownership (TCO).
So, which buying group are you in?
