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As colleges and universities navigate tight budgets and look for cost savings, group purchasing organizations (GPOs) are becoming increasingly important.
By leveraging the aggregated purchasing power of their members, GPOs can typically produce savings of 10 to 15% versus what schools could negotiate on their own. This provides bottom-line savings in addition to streamlining procurement and reducing administrative overhead.
GPOs negotiate contracts with suppliers on behalf of their members. The selection is made by the college or universities, who can typically choose among multiple supplier contracts. GPO contracts include pre-negotiated pricing, terms, and conditions.
Let’s take a look at how GPO contracting works across colleges and universities with an example such as IT supplies. Your IT team might need 1,000 software licenses for a particular application. While that may be a considerable amount, you may still be limited to enterprise volume rates with suppliers—even if you aggregated demand across departments.
A GPO, however, combines your demand with that of other institutions. Instead of negotiating pricing on 1,000 licenses, a GPO contract might negotiate for half a million licenses. Suppliers can offer significantly lower pricing on such high volume, which allows you to capture significant savings. This collective buying provides economies of scale.
GPOs can also negotiate on more than just price. Besides volume discounts, terms and conditions can be modified to be more favorable. Because of the size of the contract, suppliers are more likely to be responsive and assure quality. They do not want to risk losing a large contract, so suppliers may offer other incentives or greater flexibility.
With the complex requirements and policies of procurement at colleges and universities, you need to make sure the GPO you partner with can meet your standards.
GPOs have their own way of sourcing and soliciting contracts, so you want to know that their process aligns with your policies. Most GPOs competitively solicit bids from large groups of suppliers to ensure a competitive process. However, not all GPOs work this way.
A GPO wants to make sure it is dealing with quality suppliers, so it typically vets companies for quality and financial stability. After evaluating bids and proposals, it awards contracts and makes them available to its members.
These contracts are then available, typically, in a searchable database, which allows you to find products and services in specific categories. You can compare and contrast contract prices, terms, and conditions among suppliers, and also compare GPO contracts with your existing supplier contracts.
Once you select a supplier, you opt into the contract and work directly with the supplier for fulfillment. Depending on how the deal is structured, you may have options. For example, some contracts with regional or national brands may allow you to purchase locally. Others will not.
Some of the key benefits of group purchasing include:
In researching GPO contracts, three questions come up frequently, revolving around commitments and how much a GPO contract costs. So, let’s answer them here.
GPOs have different operating models. Some require payments or membership fees or take a percentage of each contract. Fees can range widely, too, based on the GPO’s size and services and your needs.
There can be a big difference between for-profit and non-profit GPOs. Non-profits exist to benefit their members and generally have lower fees (if any). For-profit companies focus on maximizing returns for owners and investors, so fees may be higher.
In deciding what a GPO costs, you need to focus on the value you get.
You should also look for hidden fees. For example, some GPOs may have low upfront fees but require you to spend a certain amount annually or require you to spend with specific suppliers.
Who pays GPO fees? While there may be membership fees, the bulk of the way GPOs get paid is through rebates from suppliers. When suppliers are successful in winning a GPO contract, they agree to pay an administrative fee to the GPO, which is usually a small percentage of the purchase value. So, colleges and universities do not pay these costs; suppliers do.
Suppliers get access to a wider selection of buyers and demand. Instead of chasing contracts with individual schools, suppliers can significantly reduce the cost of sales and generate higher volumes. This efficiency allows them to offer lower prices.
GPO contracts can vary in length. Some are one-time purchases, although most suppliers prefer to develop long-term relationships. Contracts typically range from one to five years with three years being the most typical.
You will need to figure out which length is best for you. Shorter terms provide greater flexibility, especially in areas where technology is evolving rapidly. Longer contracts provide greater stability and price certainty. Suppliers are also more likely to provide higher discounts when they get a commitment over time. Longer contracts work well for stable categories like office supplies or furniture, where needs are consistent.
Each GPO has its way of operating, and you want to find the right partner that aligns with your values. With complex requirements and goals, finding a purchasing group that understands higher education will be a big benefit. That is just one of the reasons why 6,000 academic institutions have chosen to partner with E&I Cooperative Services. E&I Cooperative Services focuses solely on education, which provides deep insight into your unique needs.
When comparing group purchasing organizations, you should start with your high-value spending categories to look for potential savings. You want to examine individual contracts to compare prices, terms, and conditions. Focus on the overall costs, factoring in any membership fees or purchasing requirements. Some GPOs have membership and onboarding costs or have minimum spending obligations.
For any GPO or GPO contract, you should conduct a cost-benefit analysis to ensure you are getting the ROI you need.
There is no cost to become a member of E&I Cooperative Service and no minimum spending requirements. You can choose which cooperative contracts to use, opting into those that provide savings and value for your institution.
A broad selection of suppliers is more likely to produce the most competitive rates. With a GPO, you often get access to suppliers that would not bid on individual projects but would contract for large-volume deals. This lets you benefit from an aggregated buying power you could not have on your own.
If you are looking for help meeting goals for certified diverse suppliers, sustainability initiatives, or social responsibility, review the available contracts to see what is available.
Integrating GPO contracts into your procurement may require policy updates. Make sure you have clear guidelines for how and when GPO contracts can be used to ensure they conform with your policies.
A few simple steps can also help you maximize the value of your group purchasing organization partnership.
Conduct regular reviews of available contracts to avoid missing out on potential savings. Make it a habit to evaluate your purchasing needs against available GPO contracts so you can leverage every opportunity to reduce costs.
While your GPO handles contract negotiations, direct communication with your suppliers can help build better relationships. Active discussions can uncover other areas for savings or spark innovative solutions to address your needs.
Keep communication channels open with suppliers and your GPO. Feedback helps both parties perform at higher levels. Address any concerns early in the relationship
While GPOs offer substantial savings on frequently purchased items, it’s also important to support local and small businesses in your community. In fact, you may have requirements for targeting a percentage of procurement activities toward local suppliers.
Leverage GPOs for high-volume, standardized purchases where significant cost savings can be realized. On the other hand, source specialty items or those with a strong local connection from vendors in your community.
Some GPO contracts will allow you to leverage volume discounts from large brands while still supporting local vendors to fulfill specific requirements.
While you need to track supplier performance, you also need to monitor the effectiveness of GPO contracts in meeting your goals. Track the cost savings achieved through GPO contracts alongside other relevant performance metrics.
Aggressive analysis of your spending data can uncover hidden savings. For example, you may be able to consolidate purchases. This reduces the administrative burden by reducing the number of suppliers and may provide greater volume discounts to reduce overall spending.
Some sourcing cooperatives like E&I Cooperative Services can also help by performing Strategic Spend Assessments (SSAs) and reviewing your purchasing data against available cooperative contracts to find greater savings.
Networking with other member institutions is a valuable source of knowledge. Share challenges, brainstorm solutions, and learn from each other’s experiences. This collaborative approach can lead to innovative solutions that further enhance the value you get from membership.
E&I Cooperative Services is a member-owned, non-profit sourcing cooperative that focuses on the education sector.
With a team of procurement professionals dedicated to the unique needs of academic institutions, E&I Cooperative Services has access to more than 200 competitively solicited cooperative agreements. Broad selection and carefully crafted cooperative contracts offer significant savings along with terms and conditions that are uniquely suited to the needs of educational institutions.
What does GPO stand for?
A GPO is a group purchasing organization.
What types of products or services can colleges and universities purchase through GPOs?
The right GPO partner can provide products across a wide variety of categories in higher education. For example, E&I Cooperative Services offers cooperative contracts for goods and services for colleges and universities, including:
Who benefits from group purchasing organizations?
Procurement teams at schools of all sizes can benefit from GPO contracts. Small schools can stretch their budgets and augment limited resources and demand to extract savings. Large schools can produce significant savings due to the volume of products and services they purchase and the total dollars spent.
View available contracts through E&I Cooperative Services or contact your dedicated E&I rep today to learn more.
