What is a group purchasing organisation?

group purchasing
February 13th, 2020
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A group purchasing organisation is a collection of companies that aims to optimise the shared purchases of its members.

In this post, you will find the answers to all of your questions about group purchasing organisations:

What is a group purchasing organisation?

Historically, the group purchasing organisation model has been fundamental for large retailer brands. Examples include GALEC (the group purchasing organisation for Leclerc centres), created for the Leclerc network in 1962. Today, the concept of group purchasing organisations has changed, although its key mission remains the same.

A group purchasing organisation is a collection of companies that aims to optimise the shared purchases of its members. They pool their purchases in order to benefit from favourable conditions (price, payment terms, delivery etc.), thanks to their combined purchasing power.

This strategy is particularly suited to small and medium-sized businesses, small and medium-sized industries or even very small businesses, as this system gives them a degree of influence over their suppliers.

What are the different types of group purchasing organisations?

How group purchasing organisations are formed and how they operate has changed considerably over the years. Firstly, a group purchasing organisation can serve different groups in different ways:

  • Vertical-market group purchasing organisation: These are dedicated to a single industry (food, automotive etc.).
  • Horizontal-market group purchasing organisation: Member companies come from different business backgrounds but purchase the same types of products or services.
  • Finally, there are the "Master Buyer" groups: These group purchasing organisations have agreements in place with a variety of suppliers and allow member companies, from different industries, to use these agreements to make purchases.

Secondly, a group purchasing organisation's mission depends on how it operates. The group can act in several ways:

  • Buyer/distributor: They note what each member company needs and place a shared order, then distribute the products to them.
  • Negotiator/supplier partner: They negotiate the most beneficial purchasing terms with their suppliers.
  • Representative: Sometimes, each member company is responsible for a group of products and orders on behalf of the other member companies as their representative.

Depending on how it operates, the group purchasing organisation can make savings on its margins or earn commissions.

What are the benefits and limitations of group purchasing organisations?

With group purchasing organisations, member companies can:

  • Benefit from better contractual and pricing terms, thanks to combined purchasing power.
  • Streamline procurement processes, which saves teams valuable time.

The group purchasing organisation is therefore particularly attractive for small companies that have neither the resources nor the influence needed to optimise their purchases.

However, it is important to note that, alongside these benefits, group purchasing organisations also have certain limitations. For example:

  • Coexistence of competing companies within a single group purchasing organisation (especially in a vertical market).
  • Lack of expertise for certain procurement categories.
  • Some rigidity in terms of how the group operates and how the products and/or services are standardised.
  • Etc.
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