Group procurement organisations originated in the US and are making their way to the UK. BBT asks a supplier, a GPO and a consultant how they work and what they offer
Although group procurement organisations are widespread in the US, they are only just starting to emerge in the UK. Using a GPO allows a buyer 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. Organisations thinking of subscribing to one need to have a good view of what they spend and where, so the GPO can see which group is the best fit. Companies can also take advantage of GPO framework contracts with numerous suppliers in a sector, such as hotel or car rental, for example, where the aggregate spend of member companies leads to best leverage. GPOs are particularly useful for businesses too small to have a procurement function, but they are not limited to SMEs.
The supplier: David McNeill, AVP global corporate sales EMEA, Enterprise Holdings
GPOs are a major element in how companies in North America procure business travel services, such as car rental, and are increasingly used in Europe and globally. They provide a higher scale of purchasing power and, importantly, they leverage value rather than focusing on the lowest price. Businesses in any sector can work with a GPO to get a contract that is fit for purpose and provides the right deal and service levels.
A GPO is different from a consortium of buyers that combines to pool resources. It is a separate entity that manages the procurement process and, therefore, does much of the legwork and analysis, so that individual member companies have a minimum of admin and negotiation.
We work with a number of purchasing groups and member companies need an organised, managed procedure that gathers detailed spend data and the profile of that spend, all in a format that can be analysed. The GPO can match it to the right supplier and get the best deal.
Travel buyers should ensure they are able to mandate use of the framework agreement and suppliers the GPO puts in place. Getting the best value from a GPO often means a global commitment, rather than letting individual countries or regions continue to use their preferred suppliers and this may not always be possible. We find GPOs usually work best for companies that play an active role in managing the selected category and have good visibility of their spend.
We have built a specialist team to work with GPOs to make sure businesses that purchase through them get the extra level of discipline they want from a procurement process, while also ensuring they get a service that suits their needs.
The GPO: Robert Kissick, chief executive, 2Buy2
A GPO pulls together the spend of multiple organisations and looks at similarities in the services they are using, what they are spending and defines a specification. It goes to the marketplace, engages with suppliers and brings stakeholders back in to evaluate the cost and the suppliers against the required criteria.
We find that two types of companies generally use our kind of services: either those that don’t have a procurement function and want to build one but the cost of putting a procurement person in place is prohibitive; or a disparate organisation, such as the Church of England. There are 15,800 churches across England, each responsible for their own purchasing, and they are looking for a way to benefit from economies of scale.
Everything in procurement comes down to identifying what the requirement is, so a lot of work goes into the initial process, identifying the similarities and differences in what organisations need and whether accommodating the points of difference would compromise the end result. That work is fundamental but time consuming, which is why a lot of organisations that intend to set up their own buying group fail. You also have to take into account factors such as imbalance of spend or power within the group; relationship management has to ensure there is a win for everybody or disgruntlement can stop the process in its tracks.
Another challenge is choosing a supplier. If there are five organisations collaborating and five potential suppliers and two of them come out close in the tender with one costing £30,000 less than the other, but the cost of changing to that organisation is £100,000, you have to build that into the process.
We have done a number of framework contracts with multiple suppliers and groups so that we can best leverage spend, such as the office products framework we have for churches and groups of schools.
We work with businesses that tried to do this themselves for years and failed. But having an external organisation gives them the glue to be able to work together.
Kavita Cooper, procurement consultant, Novo-K
Procurement comes down to money and risk, and GPO buying can be quite good for lower risk items, where organisations want to see the benefit but don’t need anything too bespoke. They are a good place to start when organisations want to collect data, especially with the huge focus on duty-of-care. They can put a contract in place quickly and have a good agreement with competitive pricing. GPOs sign up each party on a different contract under a framework agreement, so although spend is aggregated, companies should see their MI reporting quite quickly.
GPOs are popular in the US and there is growing interest in the UK. We would recommend them when companies are looking at a procurement approach: do we go out to tender or do we stay with the incumbent? Do we look at just one supplier, or do we look at a framework? GPOs are one option and should form part of a procurement strategy.
Sometimes companies have to meet certain value thresholds to join a group and GPOs will not tailor a platform, so it works better for those that conform to a particular profile. Also, contracts for GPOs tend to be longer, sometimes up to seven years, so you may sign up to something and later the market price shifts.
GPOs have huge deals with hotels, rail and air, but a lot of TMCs have considerable buying power and an organisation that has a relationship with a TMC might not want to opt for a GPO.
I work with so many organisations that don’t have any contract, so they don’t have duty-of-care for employees or volunteers. Working with a GPO means at least you have a contract in place and that is always better than nothing.