Group Purchasing Organizations: What They Are and Why They Help Reduce Risk

THE RESILIENT ENTERPRISE | THE RISKMETHODS BLOG
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A group purchasing organization (GPO) can offer many benefits, such as better pricing, increased service levels and account representation. But can it also help you reduce your supply chain risk? Read on to find out more about what a GPO is, and why you should consider it when developing your supply chain risk management program.

by Dan Grant, Senior Vice President, OMNIA Partners 

What’s a GPO?

GPO stands for group purchasing organization. At OMNIA Partners, Private Sector, we define a GPO as an organization that uses  the purchasing power of a group of businesses (its members) to negotiate better pricing, service levels and account representation from vendors (its suppliers) to simplify the buying process for procurement or purchasing professionals. In return, suppliers gain increased market share and access to decision-makers at customer organizations throughout their industries. 

Because they’re negotiating on behalf of a group of businesses, GPOs are able to negotiate deeper discounts and continuously improve terms and conditions with suppliers. This saves all GPO participants money, time and resources. 

But a GPO can do more than that—it can also help you reduce supply chain risk. Here’s how.  

GPOs use risk indicators when pre-selecting suppliers. 

Vetting potential new suppliers can be a long and time-consuming process—but one that can’t be overlooked if your goal is to develop a resilient enterprise. When you utilize a GPO, the suppliers in the network are already pre-vetted for their financial standing, quality, innovation and new product development capabilities, saving you this sourcing groundwork. Of course, supply chain risk management is an ongoing process that should be tailored to your organization’s specific supply chain and needs (for example, with a tool like The riskmethods Solution)—but starting with suppliers that have already been thoroughly vetted via a supply chain risk management program is an important first step in the process, and one that a GPO can simplify and streamline. 

GPOs can help you mitigate rising tariff costs. 

When selecting suppliers from your GPO partner, you’ll be able to consider a variety of suppliers and solutions. If you’re trying to mitigate rising tariffs—or any other kind of geopolitical event affecting specific goods in general—a GPO can help your organization adapt to sudden changes in trade policy by uncovering savings. Specifically, at OMNIA Partners, we act as a buffer to members to help alleviate the stress of tariffs by offsetting price increases through our unique sourcing process, which includes benchmarking, market research and thorough vetting. Our market-leading, pre-negotiated contracts are continuously managed to ensure they won’t lose effectiveness over time and provide your organization with the best value. There may not be a catch-all to avoid tariffs, but with the right GPO partner you can mitigate some of the unexpected costs from disrupting your supply chain. 

GPOs make it easier to recover from a supply chain disruption. 

Even the most proactive supply chain risk management (SCRM) program can’t completely eliminate the possibility of a supply chain disruption. If one of your suppliers goes down, what’s the first thing you need to do? Find another supplier, of course. And that’s where a group purchasing organization comes in. As a member of a GPO, you can immediately access the information you need to make a quick move and select a secondary supplier. And the more quickly you move, the more quickly you can recover. 

A robust SCRM program is the only way to most effectively reduce supply chain risk, but working with a GPO who mitigates the risk of their members by providing access to prequalified, benchmarked and thoroughly vetted suppliers is often a good start. To learn more about building a full supply chain risk management program, register for the upcoming webinar, “Moving Towards Real-Time Risk Management,” from OMNIA Partners, featuring Bill DeMartino, General Manager of North America at riskmethods.  

Dan Grant

Dan Grant

Senior Vice President, OMNIA Partners

Dan Grant is the Senior Vice President for Direct Materials with OMNIA Partners. Dan leads a team dedicated to bringing innovative raw material programs and solutions that not only reduce costs but also ensure supply, enhance quality and minimize risk for OMNIA Partners members and suppliers.

Use this template to calculate a simple numerical score that will tell you how risky each of your suppliers is.

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