What is a group purchasing organisation?

Group purchasing organisation definition
Updated on August 16th, 2022
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A group purchasing organisation (GPO) is a collection of companies that aim to optimise its members' shared purchases. Like a purchasing group, its objective is to give them access to the best trading conditions. However, their operating rules differ.

In this article, you will find all the answers to your questions about group purchasing organisations, not to be confused with purchasing groups:

  • The differences between a purchasing group and a listing group;
  • The definition of a group purchasing organisation;
  • The different types of group purchasing organisation;
  • The benefits and limitations of group purchasing organisations.

Purchasing group and listing group: What are the differences?

By definition, a purchasing group is a company responsible for centralising the purchases of its members. It acts as a service provider. Its members can be retailers, wholesalers or independent distributors. The aim is for each of them to benefit from the economic strength of the group.

A purchasing group provides services such as:

  • Product research and analysis;
  • Supplier sourcing;
  • Purchasing negotiation.

It can also carry out activities which involve distribution, organisation and documentation.

Note that the services offered are reserved exclusively for members with a fixed-term contract. A structure is considered to be a purchasing group if it is responsible for placing orders for all its members. Legally, it acts as a commission agent and is paid by its members.

Also called a bargaining group, a listing group does not place any orders. It handles the selection of products and communicates the list of suppliers to its members. In order to be listed, suppliers must be able to offer competitive prices and advantageous conditions.

A listing group operates independently. Only a membership contract is signed between the group and its members. This structure thus acts as an intermediary and broker between the supplier and the buyer. The suppliers pay it on the basis of the turnover achieved with the members. The advantage for members is that they do not sign any bulk contracts with suppliers. This gives them greater flexibility.

Unlike a purchasing group, the members of a group purchasing organisation are shareholders. One thing is certain: the legal structure must be carefully chosen in order to best meet the business objectives.

Group purchasing organisation: Definition

A group purchasing organisation (GPO) is a collection of companies that aims to optimise the shared purchases of its members. They pool their purchases to benefit from advantageous conditions and services (prices, payment terms, delivery solutions, etc.) through the bulk effect (economies of scale).

Particularly suited to Small and Medium-sized Enterprises (SMEs), Small and Medium-sized Industries (SMIs) and Very Small Enterprises (VSEs), this system gives them more leverage with their suppliers. Together, they strengthen their bargaining power and stimulate competition.

Just like purchasing groups, group purchasing organisations can be purchasing or listing structures. There are various types of organisation:

  • Cooperative (the number of voting rights is equal among the members and governance is democratic);
  • Capitalist (members’ rights depend on the capital held and the statutes).

Rules of procedure or a charter of commitment are usually signed between the members of a group purchasing organisation. This provision outlines the role and obligations of each party and the procedures to be followed.

The different types of group purchasing organisation

The composition and operation of group purchasing organisations have greatly diversified over the years. First of all, a group purchasing organisation can address different audiences:

  • Vertical market group purchasing organisations: these are dedicated to a single business sector (agri-food, automotive, etc.);
  • Horizontal market group purchasing organisations: member companies come from different sectors, but they buy the same type of products or services;
  • “Master Buyers”: group purchasing organisations put in place a sufficient number of contracts with various suppliers and allow member companies from different sectors to buy through these contracts.

Secondly, the tasks of a GPO depend on how it operates. Indeed, it can take on several roles:

  • The buyer/reseller collects information regarding the requirements of its member companies and places a joint order, before reselling the products to them;
  • The negotiator/lister negotiates the most advantageous purchasing conditions with its suppliers;
  • Sometimes each member company is responsible for a particular product line. The delegator then acts as an agent and orders on behalf of its peers.

Depending on how it operates, a group purchasing organisation is remunerated on margins or commissions.

The benefits and limitations of group purchasing organisations

Through group purchasing organisations, member companies can:

  • Benefit from better rates and contractual conditions thanks to the bulk effect;
  • Rationalise purchasing processes, which saves a considerable amount of time for procurement teams.

Being part of a GPO also enables companies to share purchasing tools, advice and best practices.

They can systematise the integration of environmental and social criteria into their procurement strategy and specifications.

Lastly, they stay informed about market developments, consumer trends and new products.

Group purchasing organisations are therefore particularly attractive for small companies that have neither the resources nor the clout to optimise their procurement.

At the same time, it is important to note that GPOs also have certain limitations, such as:

  • The co-existence of competing companies within the same group purchasing organisation (especially in a vertical market);
  • The lack of expertise with regard to certain product categories;
  • A degree of rigidity in terms of operating procedures and standardisation of products and/or services;
  • Administrative and decisional delays;
  • Etc.
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