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Joining a group purchasing organization (GPO) can be a great way to save money and create a more efficient procurement process for your school. However, not all GPOs work the same way, so you need a clear understanding of the different types. Make sure you have a clear understanding of how group purchasing organizations work before you commit.
With tightening budgets, increasing demands for cost containment, and inflation driving costs higher, exploring GPOs just makes good business sense. In this guide, we will break down the types of GPOs, their different pricing models, and the pros on cons of group purchasing.
A group purchasing organization (GPO) enables multiple colleges and universities to pool purchasing power. Aggregating the demand for goods and services allows GPOs to negotiate better pricing with suppliers on behalf of GPO members.
This combined purchasing power produces volume discounts and often attracts a wider diversity of suppliers. Besides lower pricing, there may be options for rebates or preferred terms in contracts. The right sourcing cooperative can provide contracts for:
E&I Cooperative Services has more than 200 cooperative contracts from leading suppliers, which are competitively solicited and ready to use. Because E&I Cooperative Services focuses solely on the education sector, contracts are constructed to help overcome some of the unique challenges schools face.
Educational institutions join GPOs that align with their needs. Depending on the GPO you choose, there may be membership fees, dues, or minimum purchasing requirements.
There are for-profit and non-profit purchasing groups as well. You can find savings using a for-profit GPO, but you should remember that its goal is to maximize revenue opportunities for its owners and shareholders. A non-profit GPO is focused on serving its members, often returning any excess profits to members.
E&I Cooperative Services is a non-profit organization that is member-owned. There is no fee to join and no required minimum purchases. E&I Cooperative Services also provides patronage rebates annually for members based on purchase volume.
There can also be a difference in how GPOs are governed. Most have a governing body that oversees operations. Often, these are made up of member institutions that can help define needs. The best purchasing organizations will have procurement experts and category specialists on staff.
For procurement teams, crafting requests for proposals (RFPs), soliciting suppliers, and vetting and responding to quotes is time-consuming. Buying groups handle this process, creating competitive solicitations with reputable suppliers that can meet the needs of the group’s members.
When appropriate suppliers are identified, negotiating teams leverage the purchasing power of members to secure better pricing, discounts, and terms. Contracts are reviewed and managed to ensure compliance with organizational needs.
There are significant benefits to being part of a group purchasing organization, starting with lower costs.
Collective buying power typically produces much lower prices than colleges or universities could negotiate on their own. Savings of 10 to 15% are typical. For large schools, this can translate into significant amounts.
For smaller schools, cost savings might be even higher since they do not have the same level of purchasing power as larger institutions.
Participating with a group purchasing organization can streamline procurement, reducing the administrative burden (and overhead) and freeing up procurement teams to work on more strategic initiatives. For colleges and universities that are under intense pressure to reduce costs, this can be a big advantage.
GPOs typically establish key expectations from suppliers, including quality standards that must be met for continued access to members. This produces a built-in quality control system and consistency.
GPOs often have a broad selection of suppliers.
Larger contracts are more valuable to suppliers so they will typically respond to GPO solicitations. This gives you access to suppliers that might not bid on your individual requests. It also creates increased competition, which helps lower prices.
This can help to broaden your potential pool of suppliers, especially when you are looking to meet sustainability or diversity initiatives. You can often find such suppliers easily through a GPO rather than having to source them yourself.
The best sourcing cooperatives will provide opportunities to share best practices and leverage the expertise of procurement professionals. Members can provide insight into problem-solving techniques.
At E&I Cooperative Services, we have a team of procurement experts and category specialists, many of whom have come from the ranks of education procurement leadership. There is a community of like-minded procurement professionals who work together for the benefit of all members.
This expertise fosters better relationships with suppliers, often producing new products or innovative solutions that benefit members.
Multi-year contracts can lock in pricing, allowing schools to budget more accurately and hold the line on costs when prices continue to rise.
There are some potential disadvantages you should be aware of as well. Depending on the GPO you partner with, there may be limited opportunities for customization. Not all contracts have the flexibility to customize products or services.
Since GPOs must negotiate contracts that fit member needs, agreements can be complex, spanning multiple years and locations. Managing and monitoring complex contracts across multiple departments or campuses can be challenging for small or understaffed procurement teams.
Depending on the group purchasing organization you choose, there can be the potential for conflicts of interest. A for-profit GPO may prioritize profitability over member savings. Some GPOs require you to use their preferred vendors or hit spending thresholds.
With E&I Cooperative Services, you can opt into any of the available contracts that make sense for you, but there is no obligation to do so. Most schools see significant savings and may also find opportunities to consolidate purchasing for greater discounts.
If you are buying in bulk, you may need to account for storage for supplies. However, just because you are using a cooperative contract does not mean you need to take delivery all at once. Depending on the terms, you may be able to set up recurring deliveries to keep your supplies stocked.
GPOS can have different pricing models and fee structures, so you need to have a clear understanding of how things work. Some common pricing models include:
There may also be key differences in how GPOs make money. Sources of income may include:
GPOs may charge administrative fees to their member institutions. These fees can be structured as annual membership dues, a percentage of the purchase value, or a combination of both. Administrative fees help cover the GPO’s operational costs, such as staff salaries, technology infrastructure, and contract management expenses.
GPOs may receive fees or rebates from the suppliers they contract with. These fees can be structured in various ways, such as:
Some GPOs generate revenue by offering marketing and sponsorship opportunities to suppliers, allowing them to promote their products or services to the GPO’s member institutions.
GPOs may offer additional value-added services, such as consulting, eProcurement platforms, data analytics, or educational resources, for which they charge fees to member institutions or suppliers.
One additional service that E&I Cooperative Services offers its members is a no-cost Strategic Spend Assessment (SSA). An SSA will evaluate your spend, comparing it to available contracts through the cooperative to proactively find areas where you can save. An SSA can also uncover options to consolidate purchasing to opt in to volume discounts for suppliers.
Maximizing the value and benefits of a GPO requires a proactive approach. Here are a few tips to get you started.
You will want to evaluate the group’s contract portfolio, pricing models, and fee structures. An in-depth analysis will help you determine whether the offerings align with your needs and budgets.
By examining the contract terms, you can assess the potential cost savings, discounts, and services provided by the GPO.
Take advantage of opportunities to provide feedback to help shape future contracts and negotiations. A collaborative approach helps the GPO to remain responsive to the evolving needs of members, creating a mutually beneficial relationship.
You should regularly review and benchmark the GPO’s pricing and terms against your existing contracts and other options in the market. This comparative analysis allows you to make sure you are receiving competitive rates and favorable conditions.
Market analysis can help you get the most out of your contracts. Keep an eye on market trends, such as new product lines or features. Talk to your suppliers about whether they have products or services that can help you fill a specific need.
You should also leverage spend visibility and analytics provided by your GPO to help you make more strategic investments.
When looking at any purchase, you should focus attention on the total cost of ownership (TCO), including any administrative fees, membership dues, or additional costs that may be associated with the GPO’s services. This same consideration applies to individual contracts as well.
What are examples of group purchasing organizations?
There are a few high-quality group purchasing organizations that serve the education sector. For example:
How do GPOs handle contract renewals and renegotiations?
GPOs typically have processes in place for contract renewals and renegotiations as existing contracts approach expiration dates.
This might involve re-evaluating the market, soliciting new bids or proposals from suppliers, and negotiating updated terms and pricing based on member needs. Member institutions may have opportunities to provide input during these renewal and renegotiation processes.
What types of institutions can join a GPO like E&I Cooperative Services?
E&I Cooperative Services is open to a wide range of educational institutions, including colleges, universities, K-12 school districts, and other academic institutions. Since E&I focuses solely on the education sector, only education-related, such as hospitals, religious organizations, libraries, museums, and higher education institution organizations are eligible.
View available contracts through E&I Cooperative Services or contact your dedicated E&I rep today to learn more.
