Not Your Grandfather's GPO

Supply management executives are discovering fresh value in group purchasing organizations and unlocking new savings through buying consortia


Quave Burton, principal with A.T. Kearney's buying consortium, called the Leveraged Sourcing Network (LSN), points to LSN members' interest in maximizing on the GPO opportunity by working with A.T. Kearney to identify additional categories to target for channeling through a GPO. "Oftentimes our members are challenged in this area," Burton says. "So a lot of our efforts are working with our members to help them ... gather, analyze and then identify opportunity to help them build the case for change." In addition to the more traditional "white-collar" categories offered by LSN — office supplies, temporary labor, office equipment and wireless — the latest LSN offering is focused on the maintenance, repair and operations (MRO) space (uniforms, safety equipment, electrical supplies, industrial supplies, lubricants, lab supplies and fasteners, among other items). They've chosen this area, says Burton, because traditional MRO categories represent the greatest challenge to most organizations.

Not Just the Tool, But the Greater Sophistication Behind Its Use

Professionals who are including group purchasing organizations in the mix of tools for their cost reduction strategies are taking a realistic, sophisticated approach to using GPOs. First, they don't surrender autonomy, nor are they backing off their involvement, to ensure continued aggregation and effectiveness of the contracts.

One example of this realistic approach: Syngenta. A global agribusiness and supplier of seeds and crop protection products, Syngenta has had great success in achieving indirect spend savings goals over the years. With $8 billion in sales last year, the 19,000-employee company continues to look for ways to drive out costs. As a member of Corporate United since 2003, Syngenta taps into CU's pharmacy benefit management contract, which has saved approximately 8 percent on the organization's pharmacy costs. Syngenta also uses Corporate United's safety supplies contract. Art Carter, purchasing manager in commercial services for Syngenta Crop Protection, says that a contract in a group purchasing situation must be "stronger than what the company can come up with itself and allow for the same level of supplier relationship involvement." Moreover, Carter says that GPO membership is just one component of Syngenta's overall spend management efforts. "Group buying is only a small part of our effort," he says.

Another strategic sourcing professional, who must remain anonymous due to corporate policy, believes the better GPOs increase return on investment (ROI) through increased knowledge and understanding of how certain commodity or spend areas work by collaborating with other companies with more experience in that commodity or spend area. "The fact that Corporate United forms committees staffed with sourcing professionals in certain commodity areas and allows members to participate gives me a brain trust I would not otherwise have," this professional says, adding, "There is expertise within GPOs on spend categories, marketplace status and sourcing strategy that supplements the expertise within the member base. This synergy optimizes the effort to get the best deal possible."

Using Corporate United's office products, copier and industrial supplies contracts, William J. Northup, C.P.M., director of sourcing for Hubbell Inc., says that the greatest return on the investment and effort of getting involved in a GPO is that his sourcing managers now can focus their time on more strategic assignments while retaining the value of the expertise (the outsourcing) on the supplier's pricing strategy with off-contract items — and keeping the pricing in line with expectations on lower overall spend. "For us, using a solid GPO has allowed us to eliminate the need to add in-house purchasing resources," says Northup. "We intend to expand the number of agreements and participate more actively on the teams working with the GPO developing and renewing the agreements."

Michelle Holliday-Levy, director of global procurement for Sigma-Aldrich has been a member of A.T. Kearney's LSN for more than three years. Sigma-Aldrich has engaged in several category spends through LSN, including PCs, temporary services and office supplies. "The reason you go into a consortium," says Holliday-Levy, "is they're doing all the work for you. The offering should be plug-and-play, especially for low-value, high-spend categories." The GPOs offering should include an implementation plan as well as a back-end audit to ensure suppliers are meeting what they said they would do, adds Holliday-Levy, who says Sigma-Aldrich has realized strong savings in most spend categories it has sent through LSN.

How to Get Out of the GPO What You Really Want, Besides Savings

While savings continue to be the major magnet for new members to a GPO, additional benefits cited by those interviewed for this article include speed to market, subject matter expertise, the ability of a new member to immediately join a consortium's master agreement, third-party management of the agreement, opportunities for customization and supplier relationships, and redirection of resources to more critical sourcing requirements.

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