In many cases across the professional cleaning industry, distributors sell and cleaning contractors buy what can be termed “commodity” products. Commodity products, in this case, are essentially similar products that cost and perform about the same no matter which manufacturer makes them. This can apply to paper products, chemicals, many cleaning tools, and equipment.
In order to secure more competitive pricing, some cleaning contractors belong to buying groups. A buying group is basically the coming together of several independent, typically similar businesses that leverage their combined purchasing power in exchange for better pricing and terms on the products they buy. In essence, the greater buying power allows the group members to get a better deal on products.
This “better deal” often proves to be more than just a cost savings. It invariably can result in contractors offering more competitive bids and prices for their services. For instance, if a cleaning contractor bidding on a large facility can purchase supplies that are 10-percent, 15-percent, and possibly as much as 65-percent less than what their competitor’s pay, those cost savings can be reflected in the contractor’s bid, increasing the possibility that he or she will win that contract.
Distributor buying groups evolved in the professional cleaning industry starting in the 1970s. Some are still operating today, some have closed down, and some have merged with other buying groups to form larger organizations with more members and more power.
But there is another type of “group” cleaning contractors should be aware of. These are group purchasing organizations (GPOs), and while they offer many of the same benefits as a buying group, they work quite differently. To understand the difference between buying groups and GPOs, here are some frequently asked questions about both types of organizations.
Q: What is a GPO?
A: Similar to a buying group, a GPO helps its members realize savings on products and supplies by aggregating their purchasing power and securing negotiated discounts from the manufacturers of those products.
Q: How do buying groups and GPOs differ?
A: Unlike a buying group, a GPO does not purchase products. It also does not store or deliver any products. Instead, GPOs negotiate special pricing contracts with manufacturers. The contracted savings are then passed on to GPO members.
Q: Must the BSC purchase products through the GPO?
A: No. The cleaning contractors continue to work with their same distributors. The distributor is simply notified that the contractor is to benefit from special pricing on certain products and equipment. This arrangement should have no impact on the distributor’s profit margins or profits.
Q: Is the BSC restricted to just those products from the manufacturers that have partnered with the GPO?
A: In most cases, yes. If a contracted arrangement has not been made for a specific product or machine, the contractor will have to pay the “sticker” price. However, in order to be successful, a GPO typically contracts with several major manufacturers. Due to the discount and the fact that larger cleaning contractors are typically members of a GPO, the manufacturer typically views these agreements as a potentially lucrative opportunity.
Q: How do GPOs make money?
A: Most of the funding for GPOs comes from the annual membership fees as well as administrative fees on items purchased. However, fee arrangements can vary depending on how the specific GPO is structured.
Q: What are the average savings for BSCs belonging to a GPO?
A: Depending on the GPO, cost savings on cleaning supplies typically range from 10 to 15 percent on some products to as much as 65 percent on others. A BSC who belongs to one of the larger GPOs reports an average annual savings of nearly 51 percent on tools, chemicals, and equipment.
Q: Outside of cost savings, are there other benefits of joining a GPO?
A: While this can vary depending on the organization, some GPOs offer training programs presented by manufacturers, networking opportunities, the ability to test new products before they have been introduced, and the opportunity to collaborate with manufacturers on new products and technologies.
Q: Is membership in a GPO open to any BSC?
A: GPO membership is primarily comprised of large cleaning contractors that have sales of more than $2 million annually. It’s frequently reported that cleaning contractors grossing $2 million or more per year spend about 10 percent of their gross earnings on cleaning products and supplies, or about $200,000. The savings and other benefits of GPO membership are most realized when contractors are purchasing at this level.
Robert Kravitz is a frequent writer for the professional cleaning and building industries.