Why Successful Procurement Departments Leverage GPOs
If you work in procurement, you’ve likely heard of Group Purchasing Organizations (GPOs) – a name that quite accurately reflects how these organizations work. GPOs have been around for over 100 years, dating as far back as 1910, when hospitals in New York City pooled their spending to negotiate larger discounts on common healthcare supplies. Since then, GPOs have cropped up in many different areas, but the model remains the same: connect companies who spend in similar categories, aggregate their spending and negotiate better pricing from a group of carefully selected suppliers.
Today, GPOs are critical for extending the reach of your procurement organization. Thanks to new spend management technology that is automating tactical procurement, organizations are working to focus more on strategic sourcing. With a shortage of senior talent in this area, working with one or more GPOs can help maximize talent that’s already in place, offering a practical solution for companies that don’t have the resources or the negotiating power to individually source each of their spend categories. That’s why we decided to offer our customers Coupa Advantage, the first GPO that is part of a spend management technology platform.
Horizontal and Vertical GPOs
There are two main types of GPOs. Vertical market GPOs work with suppliers for specific industries and have branched out from their healthcare origins to encompass everything from food to manufacturing to legal services.
Horizontal market GPOs work with suppliers in a wide variety of indirect spend categories—things like office supplies, rental cars and IT products--that are applicable to almost any industry. Coupa Advantage is a horizontal market GPO.
Many companies don’t realize that they’re missing out on substantial savings by not effectively managing these indirect spend categories, but they’re starting to catch on: According to Spend Matters, up to 20 percent of Fortune 1000 companies are leveraging GPOs to achieve substantial savings on indirect spend.
It’s the Data
So, why wouldn’t you use a GPO? Traditional GPOs are standalone, for profit companies. They make money through participation fees, and by taking a cut of each deal. Typically, there are purchasing minimums in place. If you’d have to overspend just to meet your threshold, that might not be your best option. We’ve all been there – adding a $20 item to your online shopping cart, just to qualify for free $5 shipping. For smaller companies, the ROI from joining the program sometimes isn’t there.
With Coupa Advantage, there are no fees and no minimum spend or minimum number of categories to participate in. Coupa customers can join the program at any time, and use it for any category where we have an Advantage vendor.
Another barrier to participating in a traditional GPO: Data. Being able to aggregate spending data from their customers is the basis of a successful GPO, but the data has to come from each individual customer. That means there’s ongoing work on your end to get them the data for the categories you want to participate in.
If you’re a Coupa customer, we already have your data in our cloud platform, so we’re able to help you identify those opportunities, and provide flexibility and transparency that most GPOs simply can’t. And, the more of your company’s spend flows through Coupa, the smarter Advantage can be with our recommendations.
We also have aggregated, sanitized customer data from $15 billion in indirect spending across hundreds of companies that’s flowing through out platform. We use that data see exactly where we can save our customers money, how much, and which categories and suppliers it makes sense to bring in to the program. We’re able to use data to continuously improve our supplier pricing and grow the program. We handle supplier enablement and relationship management within the program, reducing many change management concerns.
The Embedded Advantage
Coupa Advantage operates as a nonprofit within Coupa. The objective of the program is to add value to our customers and their communities. Through our embedded giving program, we donate a percentage of each dollar spent within the program to charitable organizations around the world that are nominated by our customers.
GPOs have tremendous buying power, and can save your organization between 10-20% per year on across different categories of spending. But, you have to have enough spend in enough categories for it to make sense to pay the fees and meet the minimums, and to do the work of collecting data to manage your program. Embedding a GPO right into your spend management platform brings unique capabilities to the GPO world and is one of the many reasons why Coupa Advantage is a no-brainer choice for customers around the world. As our company grows, so does our data store and our spending power, leading to bigger discounts and smarter spending opportunities.