What Is a GPO and How Can Group Buying Benefit Your Business?

When it comes to bulk purchasing, a group purchasing organization can help bring individual unit costs down. This is called group buying, and it’s a mutually beneficial arrangement for both customers and merchants alike.

Small business owners can get together to qualify for discounted prices, while merchants can move a large number of products in a single transaction.

In this article, we’ll delve into what a GPO is and if joining one is the right move for your small business.

What Is a Group Purchasing Organization (GPO)?

A Group Purchasing Organization (GPO) is an entity that leverages its large number of members to negotiate preferential pricing from vendors and retailers. GPOs engage in bulk buying (also referred to as ‘collective’ or ‘community’ buying or purchasing), where they can provide companies of all sizes with the basics of starting a business.

What Is a Buying Group?

More inclusive than a GPO, the generic term ‘buying group’ refers to a collection of individuals or small businesses working together to increase their purchasing power. A buyer’s group could be a more formal collective, such as a GPO, or informal, like a hobby group. Through economies of scale, manufacturers and suppliers can offer members preferential rates.

When it comes to informal group buying, there are generally two types:

The first is when interested parties join together to make a purchase, facilitated by the group’s designated leader. Often these individuals or companies are members of the same community, whether it’s a geographical location, business association, or digital space such as a specialty forum.

The second type of group buying has emerged almost exclusively from the rise of social media. Influencers and Key Opinion Leaders (KOLs) use social platforms like Instagram and WhatsApp to organize their followers into a single massive order of products. Alternatively, they work with a retailer to sell a certain number of discounted products in a specified period. Either way, this form of group buying has become increasingly popular with both social media users and merchants.

Are There Fees to Joining a Buying Group or GPO?

The majority of GPOs do charge a membership fee to use their services and discounts. Some groups get supplier commissions, while others use membership fees to cover the overhead cost of operations, and some do both. So, it’s crucial to understand how a buyer’s group is funded and what you’re being charged for before joining.

Should you be unable to find an established buyer’s group in your category, it’s possible to start your own. If you know other interested parties, a little organizational legwork is enough to get you started. Eventually, though, you’ll need more support. If possible, it’s always best to join a group that already exists. An established group has negotiated product rates that would be difficult to match if you were just starting out independently.

The Pros of Group Buying

There are lots of advantages to joining a buyer’s group, especially for small business owners. These benefits include:

Obtaining your business products and supplies at a better price is a fundamental goal of running a profitable business. However, many vendors require large order minimums before offering discounts on goods. Buyers’ groups help you meet those minimum requirements. This means you’re able to enjoy discounts normally reserved for big box stores, wholesalers, and international businesses.

A business’s largest capital expenditures usually come from hardware like computers, tablets, smartphones, servers, and other technological infrastructure. To combat this, many GPOs have specialized programs with large technology manufacturers, helping you get hardware at a discount. The same is true for health care insurance policies, real estate leasing, vehicles, and so much more.

Your GPO or buyers’ group should be able to negotiate much better shipping rates, as well as reduce logistics for orders over a certain size. For instance, carriers like FedEx, UPS, and others offer much better pricing based on the number of items shipped. Moreover, many suppliers waive freight and shipping fees altogether for orders above a certain amount. Often, negotiated rates will continue to apply as the main order is distributed to individuals further down the shipping chain.

Another advantage of a GPO is that the cumbersome process of ordering from different suppliers is replaced with a convenient one-stop shop. Regular, streamlined ordering can help small businesses stay ahead—instead of getting bogged down by multiple suppliers.

Beyond product savings, GPOs generally aim to provide additional value for your membership investment. Many GPOs play an active role in supporting the overall business interests of their members. This includes offering quality customer service, sourcing, and representation, as well as a centralized hub for information, communication, and order assistance.

Buyers’ groups are often formed out of trade associations, industry organizations, lobbyist groups, or other networking bodies. As such, they represent a valuable collection of ever-changing business opportunities for its members. Not only in purchasing power but also in broader areas like lobbying, legal advice, business assistance, seminars, and support forums. The exchange of information about industry

news, advancements, best practices, and challenges is invaluable. Savvy business members will lean on a GPO for both product sourcing and networking opportunities.

Keeping members satisfied is one of a GPO’s main objectives. Therefore, building long-term, positive relationships with both vendors and members is paramount to their success. GPOs thoroughly vet all their suppliers for this reason, only working with the most reliable and proven sources. Thus, if you’re working with an established GPO, you can be confident that your purchases will meet your needs.

It can be difficult for small businesses to meet the order minimums required for direct purchases from manufacturers overseas. Joining a GPO can help you lower the labor and materials costs of purchasing from abroad. Dealing with language barriers, different time zones, cultural differences, and varying product requirements can be challenging when working with foreign manufacturers. Luckily, specialized GPOs work closely with foreign factories and trading companies to help ease this burden.

The Cons of Group Buying

While there are plenty of pros to group buying, it’s far from a perfect system. Consider the potential cons as well:

Joining isn’t free

Operating a buyer’s group larger than a handful of members often requires volunteerism, support, or compensation. While some GPOs (and many buyer groups) operate as nonprofits, there are still administrative functions, an e-commerce site to manage, and orders to process. Hence, many members would rather pay dues than share responsibilities or take turns running the group. Depending on your industry, these dues could range from a small monthly fee to a sizable annual membership. However, if you utilize your GPO effectively, your net savings should far exceed any membership fees. Just don’t forget to include these membership costs when you’re tracking your business expenses.

Limited vendor options

Picking and choosing your own vendors is part of what makes a free market great—but when you work with a GPO, your choices of vendors are severely limited. GPOs typically maintain a set roster they work with, meaning if your preferred vendor isn’t among them, you’ll need to switch to take advantage of the discounted pricing. In other cases, GPOs work with a large number of vendors or even have a flexible ordering system—but the qualifications for discounts are far more strict. Make sure to look closely at all membership levels and minimum ordering requirements before signing up.

Another reality of GPOs is that, by ordering from a limited number of suppliers, you could end up offering similar products and amenities as your competitors.

Time commitment

Depending on the size of your buying group, you may need to volunteer some of your time to help the group or its members as part of your membership. Even large GPOs occasionally enlist certain business owners for mentorship roles, panel discussions, and committee service. If the GPO is smaller, these might be membership requirements. As business owners often find it challenging to fit in additional commitments, ensure that you fully understand all the responsibilities of membership before joining.

Less quality control

One of the benefits of a GPO is the ability to source goods and products from overseas, where labor and material costs are lower, thereby reducing unit costs. However, this can sometimes lead to a decline in quality, over which you’ll have little control. Product requirements differ abroad, leading to inconsistencies. Moreover, each GPO will maintain different quality control standards and policies for their goods.

Possible order minimums

Just because you join a GPO offering all the products, materials, and services you’re looking for doesn’t mean you’ll qualify for the order minimums required by the group.

You’ll need to do more than a cursory check even with a large GPO; it could be that your preferred vendor won’t qualify, and/or your business won’t be eligible based on certain ordering requirements. Before you sign up, examine your supplies list to see what, if any, order minimums are required and whether you’d qualify for the pricing you desire.

Final Thoughts on Group Purchasing Organizations

When individuals or businesses band together into a buyer’s group or GPO, just about everybody wins. International and wholesale ordering becomes accessible, the cost of goods and shipping decreases, and businesses that might otherwise struggle to enjoy the benefits of bulk purchasing can do so.

If you decide to join a GPO, it’s crucial to have a robust system to process your credit card payments and transactions efficiently. To find buyer groups in your specific field, get to know the business leaders in your industry, even those whom you might consider competitors. As long as you’re upfront about why you’re asking, most business owners would be happy to share information. At the end of the day, purchasing groups are about joining together to garner more buying power as a group—sharing the cost of production and distribution so that we can all enjoy higher returns.

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