Ivey Business Journal
The Great Recession didn’t only harm financially troubled companies. After all, every time a bankruptcy is filed, shock waves travel along supply chains and often take healthy companies by surprise. In other words, when companies share suppliers, especially with major global corporations like General Motors, they share operational risks. Businesses can simply accept this risk. But with the global economy still struggling, it makes more sense for managers to consider using a group purchasing organization, or GPO, to insulate their operations from the ongoing business failures that are a natural result of any financial crisis or economic downturn. And let’s not forget the risk posed by black swan events like Japan’s earthquake/tsunami disaster in 2011.
Partnering with a GPO isn’t for everyone. Indeed, managing one’s own supply chain feels in line with the entrepreneurial spirit and enables flexible, one-on-one relationships with supplier partners. However, GPOs insulate companies against downturns and disasters and mitigate the risks associated with independent supply chain management. Other advantages include: 1) Better pricing: GPOs use the collective buying power of their members to negotiate better prices. 2) More advantageous payment terms: GPOs can negotiate better payment terms with sellers so that members can save money. 3) Greater reliability: When a supplier goes bankrupt, it can devastate a supply chain if there are no backup suppliers available. 4) Improved selection: Product development must continue even in a recession, so it’s essential that businesses can obtain the resources needed for new products and services. While GPOs have existed for a long time, they are growing in number in the post-Great Recession world because supply chain management is now more about guarding against market uncertainties than ever before.
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