Procurement leaders face constant pressure to reduce costs, increase efficiency, and manage supplier relationships more effectively. One proven strategy to achieve these goals is partnering with a Group Purchasing Organization (GPO). By aggregating demand across multiple businesses, GPOs secure better pricing and contract terms than individual companies typically can on their own.
While group purchasing organizations are well-established in industries like healthcare, they are now widely used across manufacturing, retail, foodservice, and education. But joining a GPO isn’t always a clear-cut decision. Businesses need to understand not only the cost-saving potential, but also the operational implications, risks, and long-term trade-offs involved.
What Is a Group Purchasing Organization (GPO)?
A Group Purchasing Organization, or a GPO, helps businesses save money by combining their purchasing volume. Think of it as a buying club for companies: instead of negotiating individually, each member taps into the collective buying power. The result is better pricing, stronger contract terms, and more efficient procurement processes.
Traditionally, companies go directly to suppliers, negotiate one-to-one, and manage their own contracts. It’s can be time-consuming and can be expensive, especially for smaller organizations without much buying power. GPOs flip that model. They centralize the process, do the heavy lifting on supplier negotiations, and offer pre-negotiated contracts that any member can use.
Quick History and Evolution of GPOs
Group purchasing organizations got their start in the healthcare industry. Back in the early 1900s, hospitals began teaming up to lower the cost of supplies and medication. Over time, this model proved so effective that it spread to other industries — retail, manufacturing, education, and even hospitality.
Today, GPOs are everywhere. Some are highly specialized, focusing on a single industry. Others serve a broad range of sectors with a wide catalog of suppliers. Group purchasing organizations have become a strategic tool for managing procurement complexity, especially in fast-growing or resource-constrained companies.
How Do GPOs Work? A Simple Breakdown
While the concept of GPOs is quite straightforward, the process involves several structured steps to ensure procurement is efficient, scalable, and aligned with business objectives.
Here’s how it typically works from start to finish:
- Member Enrollment. Businesses join a GPO, some at no cost, others via membership or tiered fees. Once enrolled, members gain access to pre-negotiated contracts with approved suppliers.
- Supplier Negotiations. The group purchasing organizations handles negotiations on behalf of all members. Representing a larger volume gives them leverage to secure lower pricing, better terms, and stronger service commitments. This is one of the biggest value drivers: suppliers are often more flexible and competitive when they’re bidding on large-scale, guaranteed volume.
- Contract and Pricing Access. After agreements are finalized, members can purchase directly through the GPO or from the supplier using the negotiated terms. This reduces sourcing time and ensures consistent pricing across purchases.
- Ongoing Procurement Support. Beyond contracts, many group purchasing organizations offer support tools like order tracking, invoice handling, spend analysis, and supplier performance reporting. Some provide sourcing guidance or benchmarking for added value.
Most GPOs earn revenue through administrative fees paid by the suppliers. These fees are usually a small percentage of the total spend. In return, suppliers get access to a larger customer base with consistent demand.
Some group purchasing organizations also charge GPO membership fees, onboarding fees, or offer tiered pricing models depending on service levels. Fee transparency varies, so it’s worth reviewing cost structures before committing, especially if you’re tracking procurement ROI.
Types of GPOs
Not all GPOs operate the same way. Depending on your industry, spend categories, and procurement goals, one type may be a better fit than the other. Most GPOs fall into one of two categories: horizontal or vertical.
- Horizontal GPOs
Horizontal type of GPOs serve businesses across multiple industries. They focus on common spend categories like office supplies, logistics, IT services, facility management, or marketing tools — things that most businesses need, regardless of sector.
If your company needs broad-based savings on everyday items or indirect spend, a horizontal group purchasing organization can be a great way to streamline costs without getting into complex contract management. They’re especially helpful for organizations that want to consolidate non-core spending and cut down on vendor sprawl.
- Vertical GPOs
Vertical GPOs are industry-specific. They focus on categories that are unique to a particular field like medical equipment for healthcare, chemicals for manufacturing, or food products for restaurants and hospitality chains.
Vertical group purchasing organizations often go deeper into compliance, supplier performance metrics, and category-specific service requirements. They’re usually run by experts who understand the operational and regulatory challenges of the industry they serve.
For businesses with highly specialized sourcing needs, vertical GPOs tend to deliver more tailored value and better supplier fit.
Key Benefits of Joining Group Purchasing
The real value of joining a group purchasing organization comes from a combination of cost savings, process efficiency, and access to supplier relationships that most companies would find difficult to build on their own.
Here’s what companies typically gain by becoming GPO members:
- Volume-Based Discounts. The primary benefit is cost savings. By consolidation demand, GPOs secure 15–20% lower pricing on average. This is especially impactful for indirect spend, where smaller companies typically lack negotiating power.
- Faster Procurement Cycles. With ready-to-use contracts, businesses skip the time-consuming steps RFPs, RFQs, and supplier vetting. Orders can often be placed within days of joining, which is ideal for fast-moving or resource-tight teams.
- Broader Supplier Access. GPOs connect members to a wider pool of vetted vendors, reducing risk and offering more options if needs change or service levels drop.
- Less Contract Overhead. GPOs manage contract negotiations and legal terms, reducing admin work and helping ensure pricing consistency without legal back-and-forth.
- Help for Lean Procurement Teams. Smaller or growing businesses can rely on GPOs to help manage suppliers, track spending, and stay compliant without needing to build a full procurement team.
The Hidden Challenges Behind GPOs
GPOs can offer real value but they’re not perfect. Like any business model, they come with trade-offs that should be considered before signing on. If you’re evaluating a GPO model for your business, here are the potential downsides to keep in mind:
- Limited Supplier Flexibility. Joining a GPO often means sticking to a list of preferred vendors. This can reduce your ability to source niche products, work with local providers, or maintain long-standing supplier relationships outside the GPO network.
- Contract Commitments. Some GPOs require long-term contracts or minimum spend levels. This may limit your ability to renegotiate or pivot if your business changes, especially during periods of rapid growth or restructuring.
- Assumed vs. Real Savings. It’s easy to assume you’re saving money just by being in a GPO, but that’s not always the case. If your team isn’t actively using the GPO contracts, or if your purchasing volume doesn’t hit the required minimums, the expected discounts might never materialize.
- Misaligned Priorities. If your company prioritizes things like sustainability or supplier diversity, a GPO’s contracts might not reflect those goals. If a GPO contracts don’t align with those priorities, it can cause friction between strategic goals and tactical execution.
- Lack of Transparency. Not every GPO clearly explains how suppliers are chosen or how fees are structured. Without transparency, it’s hard to measure ROI or make informed decisions.
GPOs for Small Businesses vs. Enterprises: Who Benefits More?
GPOs create value for both small businesses and large enterprises but in different ways, depending on their procurement needs and structure.
Small and Midsize Businesses (SMBs)
Smaller companies often see the fastest and most noticeable gains. That’s because they usually lack the volume or internal resources to negotiate competitive rates on their own. Here’s how GPOs help SMBs:
- Access to better pricing without high volume.
- Ready-to-go contracts without complex sourcing.
- No need to to expand procurement team.
- GPOs vet suppliers and manage supplier contracts for you.
For many SMBs, joining a GPO is one of the easiest ways to formalize purchasing and get control over spending without building complex internal systems.
Enterprises
For larger organizations that already have buying power, GPOs offer a way to streamline operations, increase visibility, and drive consistency, especially across multiple departments or locations. The GPOs advantages for enterprises include:
- Coordinating volume across departments or sites.
- Using approved vendors and ensuring consistent procurement workflows.
- Outsource low-value, indirect categories.
- Using existing supplier networks when scaling operations.
In short, SMBs gain access, while enterprises gain control. The use case changes, but the value holds across both.
How Team Procure Empowers GPOs
By providing a suite of integrated procurement tools, Team Procure platform enables GPOs to streamline procurement processes, improve collaboration among members, and achieve greater cost savings.
- Role-Based Access for Multiple Member Companies. Allow each member company to operate independently while sharing access to group-level contracts, workflows, and supplier data.
- Built-In RFQ Tools and SourceBid for eAuctions. Issue and manage Requests for Quotation (RFQs) directly in the platform. For auction-based sourcing, GPOs can implement SourceBid, a standalone eAuction tool for running competitive, enterprise-grade bidding events.
- Project-Based Purchasing. Track procurement by project, assign budgets, departments, users, and teams to purchasing initiatives for structured execution and reporting.
- Configurable Approval Workflows. Set up flexible approvals for purchase requests (PRs), purchase orders (POs), and RFQs, and apply them to specific projects and departments to ensure oversight and accountability.
- Supplier Directory Management. Centralize supplier data with detailed profiles, including activity areas, info cards, qualification documents, and performance evaluations.
- Spend Analytics and Reporting. Gain visibility into group and individual member spending. Monitor spend by currency, vendor, or project, and generate reports to analyze purchasing trends, track budget performance, and support data-driven procurement decisions.
Team Procure gives GPOs everything they need to manage procurement efficiently across multiple participants — without relying on disconnected spreadsheets or emails. It’s built for transparency, collaboration, and measurable impact at scale.
{{custom-value}}
Wrapping Up
Group Purchasing Organizations are a powerful tool for companies looking to reduce costs, accelerate sourcing, and access supplier networks they wouldn’t reach alone. The right GPO setup can provide measurable value to both a small business looking for affordable purchasing power and an enterprise managing complex purchasing across multiple locations.
But benefits don’t come automatically. Success depends on finding a model that fits your goals and having the right technology to support it.
That’s where Team Procure comes in. Our platform gives group purchasing organizations the tools to operate smarter and more efficiently. With built-in collaboration features and real-time spend visibility, Team Procure enables procurement leaders to manage group purchasing with precision. Ready to streamline group sourcing? Schedule a demo with Team Procure today.
