Small firms offer customers huge benefits: personalized service, niche products and truly individual attention. Perhaps that is why small businesses make up such a huge part of the nation’s economy.
Unfortunately, one thing that small companies may struggle to offer is competitive prices because they tend to lack the buying power of large corporate competitors. If economies of scale are working against your small business, you might consider starting a group purchasing organization (GPO).
How does a GPO work?
Perhaps your small company is not ready to place bulk orders on its own, but you are eager to cut costs on office supplies, technology, insurance and other facets of doing business. Find other firms in the same boat, band together, consult a local business lawyer familiar with the process and set up a GPO.
The complete rules surrounding the use of GPOs – also known as ‘buying groups’ – are described in detail in the Canada Free Trade Agreement. This type of collective buying offers several benefits:
1. Pay less for products and services
One obvious advantage is that larger orders trigger discounts from most vendors. This means your group can receive bulk pricing in many cases. Along with larger orders comes reduced shipping costs. Freight costs are sometimes waived completely for orders of a certain size. If you do still pay freight, the per-unit cost usually goes down when shipping more at a time.
2. Enjoy preferential treatment from vendors
Bigger customers not only get better prices, they also tend to get better service. To a large corporation, the more you spend, the more important you are. Your GPO may enjoy priority scheduling and more attentive sales representatives than any of your members would alone. Group purchasing may also allow you to buy from wholesalers rather than retailers, consolidating and streamlining the purchasing process.
3. Boost your stature among peers
Aside from the economic benefits, GPOs have intangible rewards as well. Starting a GPO is, in some ways, an enhanced networking activity. Pooling resources among others in your area may introduce you to suppliers and customers that you may not have found otherwise. Bringing businesses together increases your importance among your peers, and you may find yourself regarded as an industry expert.
No two businesses are alike. Whether a GPO is right for you will depend on the unique circumstances of your company. As with any major business decision, it’s advisable to consult with an experienced business lawyer ahead of time – to understand all your options as well as their implications.
