The 12 Days of X-emplification: Day 7 – GPOs & Marketplaces

Little GPO, you’re really lookin’ fine
Three staplers and a printer only $389!

   “GPO” by Dot and the ‘Riba Brothers

If this is all you’re looking for in a GPO, then you’re looking for the wrong thing. It’s not selection or price, it’s service. Furthermore, the fact of the matter is that it doesn’t matter how much volume the GPO has or how good they claim to be, you’re still not going to save a fortune on office supplies!

If you’re looking for a GPO or a Marketplace, you’re looking for an organization that can not only help you with greater volume leverage, but for an organization that can help you with better processes, best practices, and supply risk. Of course, you can’t just select a GPO on these factors alone, which is why I bring you seven questions you should be asking each and every GPO that you are considering as a potential business partner.

1. Are you a for-profit enterprise?

Non-profit consortiums might sound like a good thing, especially if you’re in the public sector, but let’s face it – unless we’re already filthy rich, most of us are in business to make money, so just how driven is the non-profit going to be if the income opportunity for each of its employees, including senior management, are capped? In a for-profit enterprise, even if the buyers aren’t driven to make money, the shareholders definitely are and you can be sure they’re going to be making sure that each and every employee is doing their best to deliver value – the key to attracting and retaining your business.

2. How are you compensated?

There are multiple compensation models – including variants of buyer pays, everyone pays, and supplier pays – but some of these are dangerous. The most dangerous is, as you can probably guess from yesterday’s post on supplier networks and catalogs, supplier pays. You don’t want a GPO that provides suppliers an opportunity to bid on the provision that they have to pay a percentage of their award to the GPO, because it’s likely that the only suppliers who are going to be attracted to the GPO’s RFXs are those that are desperate – and that’s not the kind of supplier you want to be doing business with.

You want a consortium where all costs are born by the members, and preferably one that works on a fixed cost model (unless you expect the savings to be so significant that the percentage of the savings is acceptable for the next few years) with incentives if they exceed a performance baseline (then they get a percentage of additional savings beyond the baseline as a bonus). The reason you want incentives is you want them to perform above and beyond what your in-house team can do. (If you just gave them a percentage of all savings, the incentive to perform is not as great.)

3. Are you vertically or horizontally focussed?

Although there’s no wrong answer from a GPO’s perspective, there could be a wrong answer depending on what you’re looking for. If the GPO is horizontally focussed on getting all of its customers the best deals on telecommunications, legal services, and marketing services but you just want a better deal on your chicken, french fries, and cups and lids, then it’s the wrong GPO for you. Similarly, if they are ultimately focussed on servicing the food-service and retail industries but you’re in the automotive industry, then it is again the wrong GPO for you.

4. What economies of scale, process, and information do you provide?

You want more than volume leverage. After all, if you’re buying a lot, the quote difference between buying a lot and buying five times that from most suppliers isn’t much. And if you’re not buying a lot, then you’re not going to get much in the way of savings – so there’s not a lot of point in spending a lot of effort on the category. The real savings is going to come if it allows you to achieve economies of scale (they can do a lot of categories you’re willing to outsource), process (they can help you in categories you want, or need, to keep control of), and information (on the market trends for the categories important to you).

5. How do you protect my confidential information?

Unless you’re just using them for office supplies, telecommunications, and temp labor services, chances are you’re going to have to share some confidential information with them above and beyond basic demand requirements to get what you need. You need to make sure that this information is protected from your competition and the marketplace at large. You want to know that they have measures to safeguard that information, which include physical, process, network, and communication security measures.

6. How much control do I have over requirements and decisions?

You want the ability to insure that you are not tied to a contract unless you have approved the project requirements, the potential supplier pool, and the communications issued at each stage of the sourcing process. A good GPO knows that the deal, as well as its bonus, gets better as volume is aggregated, and such a GPO will be aggressive in its attempt to identify and amalgamate as much demand as possible across its subscribers. You have to be sure that they aren’t too aggressive and don’t leave out key requirements in their effort to aggregate demand.

7. Do I buy through my e-Procurement system or yours? How do I integrate my system with yours?

If you have to buy through their system, you want to make sure that it meets your needs and that it’s easy to get your transaction data back into your ERP, e-Payment, and spend analysis systems. If you buy through your system, you want to make sure it’s easy to do so at the contracted rate and easy to provide the GPO with the information they need to track project success.