In this guest post, the latest in a series of contributions, Procurement Leaders invites CoreTrust’s Scott Miller to look at the differences between the Group Purchasing Organisation (GPO) and consultancy model and where the potential value-add lies for these services.
Companies have many options when it comes to enhancing their procurement functions. They can add personnel to the procurement team, ensure existing procurement resources and processes are as efficient as possible, or augment their capabilities via a third-party consultant or aggregation company/GPO. Whichever approach is chosen, success ultimately rides on how thoroughly CPOs follow proven best practices such as better utilizing data and eliminating redundancies, as I shared in an earlier blog.
Of increasing interest to companies are opportunities to enhance leverage in the marketplace and reduce the time spent on contract negotiation, which is where consultants and aggregators/GPOs most heavily compete. Each group has its advantages; consultants like Accenture and PricewaterhouseCoopers have subject matter expertise and market pricing intelligence while aggregators/GPOs like CoreTrust have extensive experience in the indirect spend category where companies least want to be spending their time.
In reality, differences between the two models aren’t that explicit. Not all aggregators/GPOs dwell exclusively in the bottom of the spend stack. They might also delve into specific verticals, negotiating contracts on pallets and point-of-sale devices for retailers or food and linen for companies in the hospitality sector. And there’s nothing to preclude them from tackling bigger, company-specific budget items, since they already have a proven RFP process in place.
Aggregators/GPOs can in any case help CPOs in more ways than they might imagine. It’s possible, for instance to broker deals with major office supplies groups for products other than traditional office supplies and secure preferential pricing on a client’s “hot list” of most heavily used items. In the rental car space, this flexibility shows up as client-tailored contracts with best pricing in the most frequently traveled cities.
Similar to warehouse clubs like Costco, GPOs provide members access to a smorgasbord of products at low, bulk-buy rates and the convenience of not having to shop elsewhere. But unlike Costco, they also create alignment to contract awards by providing members a voice in product selection and full pricing transparency without the membership fees. Ellen Gossett, director of Infrastructure Finance at Sitel Operating Corporation, is a huge fan of the model.
"Leveraging [the available] contracts," Ellen says, "helps me drive and preserve Sitel’s mission effectiveness, meet spending goals and provide real value to our shareholders." Sitel isn’t cherry picking for price; it simply recognizes the value of having a single trusted place to offload the work and worry of initiating, writing, reviewing and managing all those contracts so they look as good at term as they did at initiation. It’s that peace of mind that has allowed the customer service outsourcing services company to support 64,000 employees in 109 centers across 28 countries with a procurement team of 20.
With so many ways to address the challenges of procurement, there is no reason to stand pat and miss out on the easy opportunities to reduce costs and gain efficiencies. If you explore options you’ve not considered before, you may well be surprised by what you find.
Scott Miller is VP sales, CoreTrust, an 850-member GPO for large corporations and private equity firms that provides access to a contract portfolio spanning multiple categories of indirect spend.
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.