Multi-Billion Dollar U.S.-Based Engineering and Construction Firm Utilizes GPO to Strategically Source Audio Conferencing: Does It Really Matter?

When I first received the news that Corporate United, the nation’s largest group purchasing organization (GPO) had played a critical role in helping a Fortune 500 firm whose annual revenues exceed $6 billion in spend to “strategically source audio conferencing services,” I wondered why this would be important news.

After all outside of the parties directly involved with the transaction itself, the relevance for all intents and purposes to the broader procurement community would most likely be lost on many.  This is not intended as a slight in terms of what was achieved through an organization that has undoubtedly become one of the most prolific performers in the GPO space.

However, in a sea of events ranging from declining revenues to the worsening unemployment rate  (long-term unemployment is at its highest point since 1948), as well as other acute challenges of a complex, globally linked economy even a deal of this magnitude can easily fall from the collective market radar screen relatively quickly.

So I ask the question again, why should this recent transaction, or for that matter any GPO-driven transaction matter against the backdrop of the current economic climate?

As you probably already know, GPO’s certainly are not new.   One of the first was established in 1910 within the health care sector (the Hospital Bureau of New York).  Ironically, issues regarding health care costs are one of the flash points at the center of the financial storms circling within the morass that is the present day economy.

And even though the number of GPOs grew slowly to only 10 in 1962, by 2007 there were hundred’s of health care GPOs with 96 percent of all acute-care hospitals and 98 percent of all community hospitals holding at least one GPO membership.  While I do not have the exact data at hand I would imagine a similar growth arc within other applicable industry sectors.

With this growth of course there have been a number of concerns that include GPOs receiving funds from the very vendors they are charged with “policing.” These types of concerns, which are linked to the potential for anti-competitive contracting practices, have some calling for tighter controls.

However, and referencing a 2007 analysis of the myths and realities pertaining to GPO contracting practices in relation to antitrust laws, one can see why GPOs have found the spotlight.   From the same report, I also see why Corporate United’s recent news is relevant especially for what it symbolizes.

In an excerpt from the 2007 report (An Analysis of Group Purchasing Organizations’ Contracting Practices Under The Anti-Trust Laws: Myth And Reality), the following key observations were made:

“The fundamental purpose of a GPO is to allow its members to join together to leverage their purchasing strength in order to purchase goods and services at lower prices, which in turn should enable them to lower their costs and become more competitive in the provision of their own services.  In its basic form, a GPO is a cooperative of buyers.  Over time, however, GPOs have evolved significantly to offer other competition-enhancing programs such as networking, benchmarking, and educational quality improvement programs. These functions are pro-competitive and consistent with antitrust policy – they offer GPO members increased efficiency, eliminate wasteful administrative duplication, and they increase competition between manufacturers/vendors, and within the hospital members’ own markets, which translate into lower prices and higher quality for consumers.”

It is of course the reference to “competition-enhancing programs such as networking, benchmarking, and educational quality improvement programs” that is at the heart of the Corporate United service.

A cursory review of the Corporate United web site’s main page which provides service-centric links to Solutions for Buyers, Solutions for Suppliers, Member Resources and a Knowledge Center, aligns with what the report highlighted as being essential for achieving a “collective” best result outcome for all stakeholders.

In essence, Corporate United gets it!  The “it” being the fact that maintaining an optimal balance between market intelligence, uncompromising member service levels, supplier convenience and leveraged spend is essential to being an effective GPO.

Going back to my original question, why should this matter.   Because a balanced view of diverse stakeholder interests, especially in a volatile market such as the one we are in, is absolutely critical to driving sustainable savings.

Echoing the findings in the 2007 report, sustainable “best value” savings are important to all enterprises across all sectors.

In the end, the reason why this latest news from Corporate United is important is that it provides yet another example of how a GPO was meant to work.  The only question that remains is whether a GPO is right for you?  If it is, then Corporate United is a good starting point to learn more.