As a verb, to leverage means to gain an advantage through the use of a tool. For example, you can more easily lift a heavy object with a lever than you can lift it unaided. That is what is happening in a group purchasing organization (GPO). A company, that uses a GPO as a tool, can be seen as part of a bigger organization and thus gain better pricings, service and terms than it could have on its own.
Many suppliers understand this and work with group purchasing organizations to reach more companies with less sales and marketing effort. With a GPO, suppliers are able to make large sales without having to go to each individual company and work out separate deals with each one. Working through a group purchasing organization, suppliers are confident that they will establish long term relationships with the GPO's member companies.
Group purchasing organizations allow suppliers to establish long term relationships, which means - repeatable business and with lower risk of losing the business in frequent company RFP events. When a supplier's customers are gathered through one source, there becomes less individual companies to serve, less issues to resolve, and over-all, less voices to manage. In short, business is much easier to operate when there is one giant group to focus on rather than several smaller ones.
Working with CoVest Sourcing Network, suppliers gain access to larger companies with large spends, which differs from most GPOs whose members typically include smaller companies. While smaller companies join GPOs to gain leveraged pricing, CoVest members are already large corporations, so their main goal is to further optimize their indirect spend. They do this by joining in with other large companies to achieve world class pricing that suppliers would not offer to small or mid-sized corporations.
Another way to look at it is - if $50 million of spend in a category is spread out among 20 companies versus 700 companies, though both groups have $50 million to spend, the group with less members is more likely to attract the supplier. The reason for this is the cost to serve – those with fewer and larger members represent drive cost efficiency for the supplier. In other words, all leverage is not equal.
CoVest combines these large, low cost-to-serve companies, creating a program that is beyond what our members can reach alone where everyone benefits from the aggressive pricing and other benefits that results.
If your interested, check out our blog on Leverages: A GPO Member Perspective
Image provided by Flickr user: Winnifredxoxo
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