Is it Time to Consider a GPO?

For today’s small- and mid-sized manufacturers, group purchasing organizations can offer more than just better pricing on supplies and raw materials.

Columns From: 4/19/2010 Modern Machine Shop, ,

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Simply put, group purchasing organizations (GPOs) leverage the collective buying power typically of small- and mid-sized member businesses to obtain discounts from vetted vendors. Group purchasing is a common practice used in the grocery, agricultural and health care industries to acquire raw materials and supplies. However, there are also GPOs geared toward industrial manufacturing. While cost savings inherent to being included in an overall larger purchasing pool are certainly attractive, there are other reasons why GPOs can be of valuable service to manufacturers these days.

Prime Advantage is one such industrial manufacturing GPO. It points out that group purchasing from pre-qualified suppliers addresses specific challenges small manufacturers face in establishing a stable, flexible supply chain. One of these is limited staffing. As many manufacturers have been forced to downsize, employees often must wear multiple hats. Not only can this hamper a company’s ability to effectively source supplies, but it can result in an incomplete roster of qualified suppliers and a lack of depth within certain product segments. Building and maintaining relationships with key vendors can be tricky, too.

Similarly, supplier qualification and auditing can be daunting. In fact, it’s Prime Advantage’s experience that small manufacturers oftentimes don’t have prescribed procedures for tracking, evaluating and communicating supplier performance. On the other hand, most GPOs have a formal evaluation and auditing process that suppliers must pass to enter and remain in the GPO’s network. Letting a GPO be the supply chain watchdog eliminates the chance that an under-performing vendor will continue to fly under the radar.

GPOs can also improve supplier depth across a variety of categories. Having a stable of pre-qualified, alternate vendors means shops won’t be left in the lurch if a key supplier was to suddenly become unavailable. In addition, small manufacturers can more easily gain access to national or global supply chains than they likely could on their own. This enables them to establish a more competitive supplier environment than would be possible by sourcing only local vendors.

Of course there are instances in which GPOs might not be appropriate, such as times when product shipping is prohibitively costly due to size or weight. In these cases, it clearly makes sense to buy from local suppliers. Outside of that, GPOs are certainly worth investigating. Purchasing assistance via a GPO enables managers to devote greater attention to other vital aspects of running a successful manufacturing business.

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