Sometimes there is confusion about the benefits of a group purchasing organization (GPO). Let me explain what it is and is not. It is not a competitor that is trying to replace you as purchasing agent. It is a group of people working full time for your benefit. A GPO is a facilitator that creates and manages group purchasing contracts to streamline the buying process, helps with day to day needs, and frees you to concentrate on areas where you can devote more time and add more value.

A GPO complements your department, it doesn’t compete. Group purchasing organizations do not do the buying for you. Contracts are tools that you can use to speed up customer service to your end users. The good work that is accomplished is to your credit.
     
A few years ago Neil Markee, then Executive Director of the National Association of Educational Procurement (NAEP), did a study of colleges, universities and group purchasing organizations. He identified some good rules-of-thumb that I have found to be very consistent over time. Whatever a school’s total budget, about 25% of it goes for goods and services. If a highly centralized organization or a school has some very large projects going on, it can be a little more than 25%. If highly decentralized, it could be a little less.
     
Of the 25% of the budget that goes for goods and services, about 10% of it can be addressed by a purchasing consortium. So, if you actively use group purchasing contracts from several sources, it may help you address 20-30% of your buying responsibility. That frees you up to focus on the remaining 70%. If a department can telephone, order a product using a procurement card and have the product tomorrow, you have really given your customers good service.
     
Contrast that with writing specs, going to bid, opening and referring bids, justifying the award, ordering, receiving and paying for the item. You may have cut 4-6 weeks out of the process. End users care more about saving time than saving money. Contracts can help you do both.
     
GPOs should not waste time creating contracts for one entity. If it is that special, the school should handle it. Group purchasing contracts should be aimed at serving the needs of many schools. If enough need it, start a new contract. If the numbers and dollars don’t justify it, cancel the contract or send it back to the school.
     
A group purchasing organization is not free. Remember that old ad, “You can pay me now or you can pay me later”? But that does not mean they are not a bargain for members. There are two models. One is supported by a percentage from the vendors. One is supported by member dues. That is not to say one is better than the other. It is far more efficient for a few people working full-time to create and manage contracts than 50 schools creating those contracts 50 times.
     
A good matrix used by purchasing departments is to take your total budget and divide it by your total purchasing volume responsibility. That factor is how much it costs to manage total spending. For the Massachusetts Higher Education Consortium (MHEC) the factor is .35 or 1/3 of 1%.
     
Finally, it is not just about saving money. A GPO like MHEC will bring you many years of purchasing experience offering many benefits, for instance, access to more vendors and brands. As Paula Polito, Senior Vice President of Merrill Lynch Global Private Client Group has said, “One-size-fits-all never really fits.” MHEC’s 73 contracts are with over 600 vendors and cover 100,000 products and 3000 brands. Some vendors are minority, woman-owned or small businesses that may be a requirement of grants or town/gown goals, and some vendors accept procurement cards and/or online orders.
     
Group buying demonstrates to accreditation teams that your school is trying to use good business practices, and provides you with an auditable paper trail looked upon favorably by external auditors. Other benefits, like discounted maintenance agreements, more clout with vendors to correct errors, contracts that include freight to FOB destinations, and consistency and continuity in the buying process also establish good business practices for your school.
     
A GPO like MHEC can provide consultation advice, expertise in leasing and access to Master Lease Agreements, and can maintain a variety of listings from our databases for your school. Information sharing, whether from meetings that bring people together, links from your web site, or vendor sites and catalogues, will help with your needs and provide better choices for your school.
     
Remember, the idea behind group purchasing organizations is that the whole is always greater than the parts. The greater power of the whole will work for your school, providing you with information that will help in decision making, and that will certainly enhance the bottom line.

Jake Bishop is CEO of the Massachusetts Higher Education Consortium located in Amherst, Massachusetts. He can be reached at (413) 545-4669, or at: jakebishop@mhec.net