How PE Firms Can Create More Value with Group Purchasing Organizations
Most private equity spend reduction options involve serious manual sourcing effort. Contracts, vendor negotiations, savings leakage mitigation, tail spend reduction—nothing is “plug and play.” But there is an option that’s as close to plug-and-play as possible. With a group purchasing organization, you can secure savings of up to 20% in key purchasing categories without dealing with vendors, contracts, or program monitoring. In this guide, we’ll use our relationship with OMNIA partners to show you how.
What is a group purchasing organization?
A group purchasing organization (GPO) is a company that leverages the combined purchasing volume of member businesses to secure discounted pricing and better prices with select vendors and suppliers. This type of arrangement is a leveraged purchasing program (LPP), much like a cross-portfolio contract that consolidates vendors across several portfolio companies. Group purchasing organizations can be broadly categorized into two types: vertical GPOs, which focus on a single industry such as healthcare or patient care, and horizontal GPOs, which serve businesses across multiple industries. Vertical GPOs are common among pharmaceutical manufacturers and hospital networks, while horizontal GPOs extend collective buying power across sectors—making them particularly well-suited for private equity portfolios.
How your portfolio can benefit from a GPO
Because current economic conditions have slowed or halted many of private equity’s traditional growth levers, firms are increasingly looking at procurement and supply chain operations as a source of financial value.
The first benefit of GPO engagements then, is obvious: they allow you to secure better pricing in key sourcing categories through collective bargaining, without lengthy RFX processes and supplier negotiations. Using their own sourcing experience, GPOs can also help firms identify those categories and opportunities for cost cuts.
Here are a few other, less obvious benefits that private equity firms can expect to reap from working with a GPO:
- Cost reductions for portfolio companies – Collective buying power isn’t just for the portfolio level. A GPO can help your individual companies slash spending by reducing supplier fragmentation, eliminating purchase price variance (PPV) and improving supply chain reliability, driving meaningful cost savings across the board.
- Rapid implementation and scalability – GPOs can usually set up initial LPPs in a short amount of time. If you want to use the GPO to tackle spending in other areas of your portfolio, you can begin reaping the benefits quickly through a streamlined procurement process.
- Existing relationships – GPOs work with businesses and portfolios in hundreds of industries, meaning there’s likely an existing GPO contract with pre-negotiated contracts already in place that your firm can benefit from. If not, the GPO won’t have trouble setting one up at the best possible prices.
- Perpetual improvement – Most firms are interested in one-off cost savings because they’re fast and low effort. However, GPOs will continue managing the LPP in the background, so you achieve the initial savings and all the ones that come with continuous improvement —strengthening supplier relationships over time and improving operational efficiency across your portfolio.
- Net new value creation – With regulations, economic headwinds, and interruptions all forcing PE firms to change their approach to growth, GPOs can go beyond simple cost savings and analyze spend to identify opportunities for cost avoidances, ESG compliance, risk mitigation, and supply chain protection —giving you the data you need to make smarter purchasing decisions.
The last point may be the most important benefit PE firms can gain by working with a GPO. Current economic headwinds mean that the EBITDA enhancement opportunities firms can control often lie deep within spend data, where portfolio company’s spend structures intersect. Tools like Spend Analytics can help surface those opportunities faster.
Succeeding with a GPO: Get the right start
GPOs can drive cost savings at scale that would be difficult for firms to do on their own. But they aren’t psychics. They need a way to analyze and explore your spend before they can do anything that benefits you.
In other words, you need a way to gather all the raw spend data from across your portfolio into one place and consolidate it into legible, actionable, regularly updated insights. Only then will a GPO be able to identify the areas where a scaled LPP will be effective, optimize your procurement process, and track GPO contract compliance on an ongoing basis—ensuring your GPO members are capturing every dollar of available discounts.
SpendHQ makes this data process easy and effective. For over 20 years, we’ve helped PE firms transform raw spend data into comprehensive intel on margin enhancement opportunities. By equipping a GPO with this level of perspective, firms regularly secure cost reductions of 20% or more in key categories. And that doesn’t even take into account all the other ways a PE firm can leverage portfolio-wide spend visibility.
Frequently Asked Questions: Group Purchasing Organizations
Vertical GPOs and horizontal GPOs differ primarily in the industries they serve. Vertical GPOs are built around a single industry—healthcare is the most well-known example, where GPO members pool purchasing volume to secure better prices on everything from medical devices to pharmaceutical manufacturers’ products, ultimately improving patient care while driving cost savings. Horizontal GPOs, on the other hand, extend collective buying power across multiple industries and sectors, making them an ideal fit for private equity firms managing diverse portfolios. Both models rely on pre-negotiated contracts and collective bargaining to deliver discounts that individual businesses couldn’t secure on their own.
GPO membership works by aggregating the purchasing volume of multiple businesses—GPO members—to give the group far greater purchasing power than any single company could achieve independently. That scale enables collective bargaining with suppliers and vendors, resulting in GPO contracts with better pricing and discounts that are locked in through pre-negotiated contracts. The result is a streamlined procurement process that removes the burden of one-off vendor negotiations, accelerates purchasing decisions, and strengthens long-term supplier relationships—all while improving operational efficiency across the business.
Group purchasing organizations sit at the intersection of procurement strategy and supplier management, acting as a force multiplier for businesses that want to reduce costs without building out a large internal sourcing function. By providing access to pre-negotiated contracts and established supplier relationships, GPOs compress the procurement process significantly—giving GPO members immediate access to better prices without the time and resources typically required for sourcing and contract negotiation. For PE firms, this translates directly into cost savings, improved purchasing decisions, and a more streamlined procurement process across every portfolio company.
For PE firms, the power of group purchasing organizations lies in combining collective buying power with portfolio-wide spend visibility. When firms can see where purchasing volume clusters across their portfolio companies, they can align GPO membership and GPO contracts to capture discounts in the highest-impact categories—driving meaningful cost savings without lengthy vendor negotiations. Tools like Procure Analytics help surface those opportunities within the spend data, while a streamlined procurement process ensures GPO members stay compliant with pre-negotiated contracts over time. The end result is improved operational efficiency, stronger supplier relationships, and a procurement process that creates durable value well beyond the initial deal close.
100% visibility, 0% effort
By far the best part of this entire equation is that it requires very little effort from the PE firm. We’ll work with your teams to gather the necessary files. Then we’ll normalize and categorize 97+% of that data into a sourcing taxonomy, handing you the keys to tremendous value creation potential in two months or less.
If you want to learn more about how you can kick off a GPO relationship, using SpendHQ combined with our partner integration with OMNIA partners, click here to schedule a meeting with Matt Angier, our Director of Private Equity Accounts.