The Purchasing Power of a Buying Group
As an independent business owner, you're constantly seeking ways to minimize expenses, optimize financial management, and outperform the competition. A group purchasing organization (GPO), commonly known as a buying group, provides a solution that tackles all three challenges effectively.
By joining a buying group, you can offload payments, sourcing, contract, and supplier management tasks to the group, which uses its collective purchasing power to negotiate better pricing than you could on your own. This enables independent businesses to rival their larger competitors who enjoy more efficient supply chains. In many cases, these large corporations offer similar products at lower prices, and may even have exclusive access to new products before independent businesses do. When products are in short supply, larger competitors are often better positioned to obtain stock, leaving smaller businesses with lower profit margins or the possibility of closure.
To stay competitive while maintaining independence, joining a buying group is essential. We explain the purchasing power behind them.
What Is a Buying Group? And How Do They Operate?
Buying groups are composed of businesses looking to establish stronger relationships with their suppliers and harness collective purchasing power. Typically, suppliers offer better pricing and services to businesses that place larger orders or spend more money with them each year. By joining a buying group, multiple businesses can consolidate their purchasing power to rival that of larger multinational companies. This allows the group to negotiate better pricing discounts and establish relationships with suppliers on behalf of its members.
Moreover, buying groups can secure additional benefits for their members beyond pricing, such as exclusive promotions and rebate deals. They can also help businesses source their stock and supplies, resulting in lower costs per item and higher profits. While some buying groups serve all small businesses, others specialize in specific niches. It's essential to research whether a dedicated buying group exists for your industry.
What Industries Use Buying Groups?
According to IBIS World there are 728 buying groups in the USA which make up a market size of 5 billion. So, there are many industries where smaller businesses leverage their combined purchasing power to obtain goods and services, including:
- Hospitality and Foodservice
- Construction and Building
- Information Technology
How Much Does It Cost to Be a Member of a Buying Group?
The cost of being a member of a buying group varies depending on the group and the industry. Some buying groups charge a membership fee or require members to pay a percentage of their purchases as a commission. Others may offer free membership, but require members to meet certain purchasing minimums to remain in good standing.
The benefits and savings provided by a buying group can often offset the cost of membership. For example, the group may negotiate better pricing with suppliers, offer rebates or incentives, or provide access to exclusive promotions. Additionally, the group may provide support services such as contract management, supplier relationship management, and procurement assistance, which can save businesses time and resources.
Before joining a buying group, it's essential to carefully review the membership fees, terms, and conditions to ensure that the benefits outweigh the costs. It's also a good idea to compare multiple buying groups to find the one that best fits the needs and budget of the business.
Benefits Of Being a Member of a Buying Group
There are many benefits to joining a buying group, such as lower cost of goods purchased from vendors, lower shipping costs, centralized ordering, and support from the organization itself. We discuss all the benefits in more detail.
- Increased “purchasing power”
Small businesses can leverage their buying power by joining a buying group. These groups combine the purchasing power of multiple businesses to negotiate better discounts that would otherwise not be attainable by a single company. The more businesses join the group, the more significant the discount they can negotiate with suppliers. Being that there are about 30.2 million small businesses in the US. Imagine what kind of purchasing power you can have when you join up with even a handful of them.
- Reduced costs for purchasing goods and services
One of the primary functions of a buying group is to consolidate orders from different businesses and place a single large order with suppliers. Known as group purchasing, this method allows buying groups to enjoy preferential rates and discounts for buying in bulk. These savings are then passed on to the group's members, resulting in reduced costs for goods and services.
- Further cost savings on freight and delivery
Buying groups can also negotiate discounted rates or free shipping on group orders over a certain size. This results in further cost savings for members. The centralized ordering process also ensures that members receive their portion of the order.
- Saving time by centralizing your purchasing
As a small business owner, time is another one of your most valuable assets. A buying group makes it easier for businesses to buy everything they need from one place, saving them time and increasing efficiency. This is especially useful for small businesses that need to order supplies regularly.
- Reduction of transaction costs
Joining a buying group can simplify the procurement process, reducing the per unit cost of goods and transaction costs due to the reduced number of contracts to be negotiated, prepared, and managed.
- Excellent support and advice
Some buying groups provide additional services such as legal advice, business help, industry news, seminars, and support forums. These groups play an active role in supporting and furthering the interests of their members.
- Networking with the members
Businesses that will benefit the most from a buying group are those that understand and welcome greater collaboration. When bringing together many different professionals, businesses are able to share best practices and exchange information. Bringing together different professionals in multiple industries with similar challenges and spends, allows members the opportunity to exchange tips and recent experiences whether good or bad.
- Reduced workload
Since the buying group manages all stages in the lifecycle of contracts on behalf of their network, you as an independent business will benefit from a significant reduction in your workload and are free to focus on the strategic side of your business.
- Lower purchasing risk and high-quality service
Buying groups strive for longevity when it comes to keeping their members; because of this, the pressure to support the member is immense. In order to give members, the best quality in suppliers, buying groups should subject potential suppliers to a full vetting process which ensures the credibility and value of the supplier, in return the members have a lower purchasing risk. Working with suppliers that are simply the “cheapest” option and provide little overall value may harm a buying groups reputation.
- Navigating international suppliers
Many businesses want to source their goods from abroad because of lower labour and materials costs which translates into lower costs per item, meaning more profit. Unfortunately, navigating international suppliers can be tricky, especially with language barriers, cultural differences, and product requirements. Specialized buying groups can support you with this.
Rebate Management Software Specifically Designed for Buying Groups
To handle the complexities of dealing with numerous members, buying groups require a rebate management system to ensure maximum returns on investments for everyone in the supply chain. By streamlining trading agreements and calculations, this system reduces the likelihood of disputed claims and makes the process more efficient. At Enable we have seen the proof of this having worked with buying groups since 2002, including Unitas Wholesale and Netplus Alliance.