Starting a Buying Group in IA

The first step is to envision what the buying group is going to look like.  Do you want to start a buying group or a GPO?  I have often been asked what is the difference between the two types of groups.  I am not aware of any authoritative or legalistic definition, however, most agree that a GPO is focused strictly upon assisting its members with selecting products among competing vendors and in acquiring them at better prices and terms than they could achieve on their own.  GPOs frequently are limited to purchasing products that are used by their members, rather than being resold by the members to their customers.  GPOs are also less likely to be owned by their members, and most do not hold meetings with their participant purchasers. The vast majority of purchasing groups that serve health care providers are GPOs, rather than buying groups.

Buying groups, on the other hand, often include objectives outside of the purchasing arena.  They may branch out into areas such as providing assistance with marketing and information technology.   They are more likely to be owned by one, or more of their participating members unlike the typical GPO.   A significant percentage of buying groups will regularly hold meetings with their membership.  At such meetings, one might find presentations being given to assist the members in the operation of their business or round table discussions held amongst the membership involving best practices topics.  Additionally, buying groups, particularly those that are member-owned, are more likely to seek membership input for the selection of vendors, product lines, and purchasing programs.  In fact, some buying groups will require membership approval before any purchasing program is adopted.  In most cases, buying groups focus on products that are re-sold by their members, as opposed to those that are kept and used by the membership itself.  As a quick example, GPOs for hospitals will have a program for purchasing products such as hospital beds and x-ray machines, whereas a buying group for RV dealers would have a program for the various RV accessories, such as camping chairs, sewer hoses, etc. that are resold to RV owners.

Regardless of whether a buying group or a GPO is the best fit for you, you will need to have expertise in the industry your group will be serving. 

If you do not have such expertise, you will need to have one or more on your team do.  Such expertise would include knowledge of who the key vendors are in the industry, their products and their brands, as well as their pricing and other terms.  Such expertise should also include knowledge of who prospective members of the group might be, including their locations and the geographical footprints of the customer coverage.  Personal contacts on both the vendor and membership side are a plus, if not a must.  We have seldom, if ever, seen a group become successfully established without having such expertise behind it.  Usually, the founder or founders have decades of experience in the industry.

Another critical question to consider at the outset is whether there is a need for the group in your industry.  If there are established groups already serving the industry, is there room for one more?  Is a high percentage of your targeted market for membership already participating in a group?  For example, it would be difficult to form a GPO for hospitals, because a very high percentage (I have seen an estimate as high as 97%) already belong to a GPO.  If there are already one or two groups serving your industry, but there is still a large percentage that do not belong to the groups, then this could be a significant opportunity.  You would need to determine if there are still enough potential members to pool more than enough volume to make your group attractive to vendors.  Such a situation could actually be a sweet spot for your group.  When attending a meeting of a group that was a leader in its industry, I heard one member remark that the group was a wave breaker for other groups following in its path.  

So, if you already have one or two groups in the lead working out deals with vendors, it should require less effort for your new group to obtain similar deals.

At other end of the spectrum is where no groups exist in an industry.  This could present a marvelous opportunity for you.  Most groups who find themselves being the first to organize in an industry seek out the largest members.  Having the cream of the crop in the group provides instant prestige, respect, and group recognition.  It also provides meaningful volume with the least amount of recruiting contacts and headaches.  But before you take the dive, take stock of the situation.  Is there a reason that there are no groups in the industry?  Is there enough competition among vendors that requires them to court favor with a group by offering better deals, or do they already have the market sewn up?  Will the vendors be willing to take on new customers?  Sometimes a supplier may have its marketing territory already allocated to its distributors and cannot take on any new ones.  Another facet of this equation is whether it would be commercially feasible to have a purchasing group in that industry.  Several years, ago, we had a new client come to us to form a group that would specialize in doors and door frames.  At some point they discovered that due to freight issues, most suppliers of that product were local and would not be able to service a national buying group of members.  These factors and more need to be explored and answered to your satisfaction, before proceeding further.