The Power of Leveraging: How collective spend can lead to drastic cost reduction for companies

Leveraging

Collective buying power is the ability of a consumer group to leverage its group size in exchange for discounts on products. By partnering with other groups and organizations, leveraging becomes a powerful tool that can provide maximum benefits for all parties involved. This article will discuss who organizes collective spending, how it works, what its benefits are, and how you can take advantage of it.

What Is A Group Purchasing Organization?

A Group Purchasing Organization (GPO) is an organization that helps businesses who are interested in buying similar products gain leverage over suppliers through their collective buying power.

GPOs offer memberships to these businesses so they can pool together their collective buying power and effectively negotiate with target industries to procure larger savings for its members. GPOs cater to businesses who are interested in acquiring discounted supplies and services from various industries such as:

●    Office supplies

●    Healthcare

●    Electrical

●    Plumbing

●    Foodservice

●    Insurance

●    Hospitality

●    Safety supplies

●    Industrial Manufacturing

Leveraging: How Collective Buying Power Works

GPOs create and manage the contracts and relationships between itself, its member businesses, and its suppliers. They leverage the members’ collective buying power in three major steps:

1)  Grow Membership and Leverage

A GPO must first build their member base in order to grow leverage. By acquiring multiple customers willing to channel their combined spending, a GPO can attract the best pricing from top-suppliers and present the GPO member base with better cost savings.

2)  Negotiate For Better Pricing

Now that a GPO has a stream of willing spenders in place, they can now source agreements with leading suppliers - those who can provide better pricing, products, services, or contract terms than GPO members can acquire on their own.

3)  Mitigate Risks Through Improvement

While members continue to take part in GPO agreements, GPOs manage these existing contracts and actively work to invite more members. As new members join, more leverage grows alongside the agreements, so GPOs can further negotiate with suppliers for deeper discounts or improved terms. Aside from improving growth, GPOs can mitigate risks by engaging with more people at multiple levels of supplier organizations.

Benefits of Leveraging

Leveraging has multiple benefits for all stakeholders. For suppliers, they are able to onboard new buyers through GPOs. GPOs, on the other hand, gain valuable market insight through their members. Leveraging is most beneficial for GPO member-buyers for three clear reasons: its ability to help reduce business costs, its control over the purchasing process, and its power to attract well-known suppliers.

●    Leveraging helps reduce business costs.

Through the power of the collective purchase, businesses are able to save their budget for supplies through bulk discounts. Aside from the negotiated prices, the leverage gained by GPO members helps GPOs track their purchases and project their expected cost savings, which will help member organizations plan ahead on how to maximize the budget allocation for the next business quarter.

●    Leveraging controls the purchasing process.

As member-buyers build up leverage, they also create a standardized purchasing process for themselves and each other. Instead of individually meeting with multiple suppliers and handling a complex negotiation process for each supplier, the GPO will take charge of this aspect. GPO members will only need to decide on the commodities to purchase, since their collective buying power will be utilized by the GPO to negotiate the best deals on their behalf.

●    Leveraging attracts well-known suppliers.

Even for a group of small and mid-sized companies, their aggregate spending power is enough leverage to attract well-known suppliers to offer aggressive pricing. As GPO members continue to join, they would be in the position to receive the best deals and the best services from top-quality suppliers.

Leverage With Other Organizations

The concept of leveraging through combined purchasing power was popularized by healthcare organizations in the 1980s and 1990s. In order to create better contracts with medical suppliers, hospitals and nursing homes consolidated their spending power with other facilities to leverage with their suppliers for lower costs and efficient systems.

That tradition is carried on across most industries today by GPOs, who constantly find new ways to bring value for their members, such as enhanced agreements and supplier performance.

CenterPoint Group is a leader in the GPO and strategic sourcing community. With over a decade of experience, we are able to leverage our purchasing power to create value for our members and reduce their supply costs. Our members are able to access top-of-the-line office suppliers, wireless telecoms, facility suppliers, corporate travel, technology, and more.

Contact us today to learn more about our membership program.

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