The logic of using a Group Purchasing Organization is simple: by pooling the spend of several small companies, each of those companies can get the more heavily discounted pricing that a large company gets.
It sounds good in principle. So good, in fact, that many companies may not even challenge that logic by doing analysis.
My advice: always do the analysis!
While a GPO may claim that you will save more by engaging with them than you would on your own (and that may be true), test the waters. Yes, I know, one of the reasons to go with a GPO is that your organization doesn’t have the time to source on its own. But at least do SOME checking!
I was reminded of this principle in the last few months when sourcing health and dental benefits for the Next Level Purchasing team. We’re a member of the Pittsburgh Airport Area Chamber of Commerce (PAACC) and the PAACC has a relationship with ChamberChoice – which is almost like a GPO for small organizations that source such benefits.
According to ChamberChoice’s Web site, “ChamberChoice health plans allowed each chamber to offer its members buying power rivaling the largest companies.” Furthermore, their brochure touted “The power of 50,000 businesses negotiating member services, benefits and health care.”
A GPO-like claim, for sure. In other words, I should be able to get better pricing through ChamberChoice than I can get by sourcing benefits myself for just my organization.
Well, the analysis proved differently.
I was able to get better rates on health benefits through another provider (ARMS Insurance Group). And, while ChamberChoice offered a slightly lower monthly premium on the dental insurance than ARMS, ChamberChoice threw in an administrative fee and a billing fee on top of the monthly premium, which resulted in ChamberChoice being significantly more expensive than the provider I worked with on my own.
And we are talking the same benefits: United Concordia’s Access Program. Same exact benefits – significantly different cost depending on the “reseller” you choose.
Of course, ChamberChoice’s additional fees weren’t exactly obvious in their quote. The heading for the monthly premium column had a superscript that referenced a footnote. That footnote referenced a whole other electronic file that made the buyer do a calculation to figure out the additional fees. So they made the comparison a little tricky.
The bottom line is this: GPO’s may or may not be able to get better prices for you when compared to what you can get on your own. So always do a little checking.
As I alluded to in this post from last week, sometimes just a few seconds or minutes of checking can make a big difference. Don’t be lazy.
To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
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