The Group Purchasing Model
Can you obtain better pricing on on lab supplies and equipment as a member of a purchasing group than you can on your own?
Will the compliance terms required by the purchasing group have a significant impact on your labs' operation? Are you willing to live up to the compliance terms or do you simply intend to "cherry pick" the best deals?
How quickly will you recoup the membership fees? What is the return on your investment?
Does the group purchasing agreement allow you to negotiate separately on the items you buy most (your "hot list"?)
"By joining with a group of other labs, our combined volume will allow us to obtain the best price."
In theory, this sounds promising. But it depends heavily on compliance. Small labs hate mandatory compliance but that is the only thing that ensures new business for a contract vendor. Voluntary compliance yields prices and terms that are seldom worth the expense and the efforts.
"Because I am a small lab, this is the best way to get low prices."
This may be the best way to get a lower average price on everything in a distributor catalog, but due to the 80/20 (Praeto) rule, it will almost never be able to yield better prices than the other procurement models.
"It cost quite a bit to join the Group Purchasing Organization (GPO) and I have pledged to support it."
Generic GPO's such as offered with membership in regional life science groups (e.g., Bio/Biocom) which don't mandate compliance may cost a few thousand dollars per year and may have more benefits beyond the supplies discounts. You can still "cherry pick" these contracts and depending on what you buy, you may come out ahead.
The problem is that most people spend 80% of their money on 20% of the items they buy. These are items that under the contracting model would be priced as a hot list. Most GPO contracts offer hot lists but they are very restricted. For items you spend the most on, a manufacturer direct contract makes a huge difference. These are impossible under a GPO contract.
"I have been shown proof that items priced on the GPO contract are far lower than anything I could negotiate on my own."
This is just good, old fashioned marketing. No doubt you will be shown the advertised specials ("door busters") but do you buy them? Contract holders make up the margin on all the other goods you buy without comparison shopping.
"I will get the protection of a contract that has been negotiated by experts."
And you will now be under the governance of the terms and conditions of the contract holder. Will the GOP person who negotiated the contract come to your defense in a dispute? Typically GPO contracts lack "fixed" prices. They "float" and many GPO members are surprised and disappointed when prices change multiple times during a calendar year.
The Pros and Cons
- -The GPO has invested the time and effort to negotiate prices and terms so I don't have to make that investment.
- - Utilizing a GPO gives me discounts on everything I buy so although it may not be the lowest on individual items, it saves me more overall - especially on equipment.
- - As a member of a GPO, I will be entitled to more support and benefits from my distributor than I would get on my own.
- - My lab is small. A GPO is the best chance I have to save money.
- - GPO's provide broad discounts rather than targeted discounts to your hot list.
- - GPO's restrict the number of items and when and what can be added to your hot list.
- - GPO's eliminate the possibility of manufacturer direct contracts.
- - GPO's have various compliance polices some of which carry financial penalties for buying off-contract, others with no compliance required. The buyer should beware!
The Group Purchasing Buyer and LPS
Every client that utilizes LPS participates in a virtual GPO. With each new client LPS total purchasing volume and our ability to leverage better pricing with existing and new vendors increases. Since LPS sells the majority of its products directly from the manufacturer to the end use, we drastically reduce the huge markups the big distributors must add due to their overhead.
Group Purchasing is a very effective way to control and reduce costs with minimal effort. LPS provides its clients with most of the benefits of a GPO but without the expensive membership or contract access fees.