What is a group purchasing organizations (GPOs)? and should your hotel be part of one?

What is a group purchasing organizations (GPOs)? and should your hotel be part of one?

Improve your procurement strategy – Learn about the pros and cons of GPOs and determine if they are the right choice for your company.

As the owner of a hotel or a short-term rental (Airbnb) in the hospitality industry, you’ve probably realized that you pay more for your supplies because you lack the volume and scale of the big companies. However, there is a way to enjoy the same kind of cost savings as your large corporate counterparts. They’re called GPOs.

What is a group purchasing organization (GPO)?

GPOs represent a grouping of companies (hotels) whose objective is to optimize the shared purchases of their members. Their goal is to give them access to improved commercial conditions, focusing on helping companies, regardless of their size, save money on their purchases by negotiating competitive discounts with suppliers and providing value to a number of industries, including Hospitality.

The original idea behind GPOs was to convey some market power to small hospitals, clinics, and individual physicians by aggregating purchases of high-volume disposable items, such as syringes, catheters, and pharmaceuticals. Over the years, GPOs have become increasingly important as industries evolved, revolutionizing the way organizations source and procure the resources they need, whether in healthcare, hospitality, manufacturing, or other sectors.

Pros of using a group purchasing organization:

     1.  Access to Lower Prices:

GPOs wield significant bargaining power due to their larger buying pool. This allows small and medium businesses (SMEs), including small and medium-sized hotels, to negotiate lower prices for a variety of goods and services, such as office supplies, janitorial supplies, food and beverages, and IT equipment. Especially from well-established suppliers like HD Supply, Guest Supply and US Foods.

     2. Reduced Administrative Costs:

GPOs streamline the procurement process, saving SMEs valuable time and resources. By outsourcing negotiation and procurement tasks, hotel managers can focus on core business activities like marketing and sales.

     3. Access to Expert Advice:

GPOs often provide expert advice on sourcing, procurement, and negotiation. This guidance can be invaluable for SMEs seeking to optimize their purchasing strategies and make informed decisions.

Cons of using a group purchasing organization:

     1. Loss of Control:

Joining a GPO means relinquishing some control over purchasing decisions. Hotel managers accustomed to autonomy may find this shift challenging and frustrating.

     2. Limited Flexibility:

GPOs typically have standardized contracts with suppliers, limiting SMEs’ flexibility to negotiate specific terms and conditions that may be crucial for their unique requirements. They also usually require hotels to commit a certain percentage of their spend to them, which can be stifling.

     3. Limited Product Selection:

GPOs might not offer the full spectrum of products and services required by SMEs, particularly those with niche needs. Hotel managers should assess whether a GPO aligns with their specific requirements.

     4. Potential Conflicts of Interest:

Conflicts of interest between the needs of GPO member businesses and their suppliers can arise. Negotiating the best possible prices and terms may become challenging for SMEs as a result.

Ways to mitigate weaknesses:

      1. Choose the Right GPO:

Thoroughly research GPOs to find one that aligns with the hotel’s size, scope, and needs. Consider factors such as membership fees, reputation, and the diversity of products and services offered.

     2. Understand GPO Contracts:

Carefully review GPO contracts to fully comprehend the terms and conditions. This ensures there are no surprises down the road and that the agreement aligns with the goals of the hotel.

     3. Stay Involved:

Active participation in GPO activities, meetings, and discussions is crucial. Providing feedback allows hotel managers to have a say in decisions that impact their procurement processes.

     4. Explore Other Options:

While GPOs can offer significant benefits, SMEs should also explore alternative cost-saving methods. Negotiating directly with suppliers or utilizing online marketplaces are viable options worth considering. Lilo offers hotels the best of both worlds. We negotiated prices with hundreds of vendors, but you could still buy from your vendors and GPOs. A win-win.

In conclusion, the decision to join a GPO requires careful consideration of the specific needs and circumstances of each small and medium-sized hotel. By weighing the pros and cons and implementing strategies to mitigate potential drawbacks, hotel managers can make informed choices that align with their business objectives. Whether to join a GPO ultimately depends on finding the right balance between cost efficiency and maintaining control over the procurement process.

Need advice choosing a GPO? We’re happy to help. Email us at customersupport@lilohotelsupplies.com and we will give you the insider scoop.