What is a group purchasing organization (GPO)?

A GPO negotiates pricing and terms with suppliers on behalf of a membership: hospitals, restaurant groups, dental practices, hotels, manufacturers. The supplier agrees to contract pricing for every member, and each member buys directly under those terms. The GPO's revenue usually comes from administrative fees paid by suppliers on member purchases through contract, sometimes topped up by member dues. For an operation too small to command discounts on its own, that's the appeal: you inherit negotiating power you didn't build. The tradeoffs sit in what you give up. Savings only materialize on the share of spend you actually route through contracted suppliers, so a GPO with 20% contract compliance delivers a fraction of its headline discount. Contracted suppliers may not be your preferred ones, minimums can apply, and switching spend to meet contract commitments can mean changing products or vendors your team already knows. Where teams trip: signing up and treating it as done. The discount exists only where purchase orders follow the contract, which means someone has to steer buyers toward contracted items and measure compliance. That steering is work, and it's why some operations get more value from procurement software that enforces preferred-vendor routing than from a membership card they never use.