Originally posted on on the e-Sourcing Forum [WayBackMachine] on April 23rd, 2008.

Another good article in the recent edition of CPO Agenda is “Collection Action” by Nick Martindale. (It should be no surprise that I’d pick up on this one, as I’ve been known to preach the “Collaborate, Collaborate, Collaborate, Collaborate” mantra – see my 5-part series on Sourcing Innovation, for example.)

The article starts off by noting that collaborative buying has yet to recover from the hefty blow that it was delivered in the nineties, after a number of GPOs quickly sprang into existence, and then failed even quicker, and that Group Purchasing Organizations are going to have to overcome some formidable obstacles if they are to grow and succeed.

One of the major problems with the original GPO model, which is still used by many of the GPOs still in the market today, is its myopic focus on cost savings. Organizations join because they think that volume-based buying will allow them to get their office supplies, energy, and contract labor cheaper, but end up saving very little and then develop a bad taste for the GPO model. Furthermore, many suppliers loathe GPOs because they believe that the whole point of a GPO is to compress prices and choose the lowest-priced supplier, and this means that it’s often hard to get your best suppliers to bid on the collective contract.

Just like Procurement needs to focus on total value on each and every buy they make, a GPO also needs to focus on total value on each and every buy they make on behalf of its customers. They need to look at the supplier from all relevant angles – cost, capability, service, and value-add. However, even more importantly, the GPOs need to encourage and enable their members to collaborate and share knowledge and best practices so that their interaction with the GPO does more than just save a few dollars on outsourced categories. With the right GPO, a member company should gain as much value from networking opportunities and shared knowledge as it gains from the cost savings associated with having a third party manage select spend categories.