How to Start a Group Purchasing Organization

Many companies who are in the same industry form group purchasing organizations to save on ordering products and supplies. Because of bulk ordering, the group can ask vendors for discounts. You can start a group purchasing organization if you understand some of the selling points for such a group and know how to fund it.

Know the Selling Points

1. 1.

   Review the advantages of a group purchasing organization before contacting potential members. You will need to make a sales pitch to them, and you need facts at your fingertips. You should point out that a large group of purchasers has bargaining power to reduce the cost of goods. Also, point out that ordering becomes easier because a large organization can streamline the ordering process through more efficient procedures. Finally, a large ordering organization can establish stronger relationships with vendors, who will be more responsive because of the purchasing power of the collective.

2. 2.

   Compile a list of vendor types you can include in your vendor partners. The group purchasing organization will look more attractive to potential members if is offers a comprehensive set of vendors. You can include services, such as payroll services, insurance, postage meters, marketing services, information technology services, collection agencies, answering services and shredding services. Also include suppliers for all the tools and equipment you need in your industry. Lastly, include vendors for wholesale products your members are likely to purchase for resale.

3. 3.

   Explain how the group will be funded. It is common for members to contribute an administration fee to join the group. You must make sure this fee is more than offset by the savings you will receive through group buying. Set this fee as low as possible to make it attractive. Figure the cost savings vs. administrative costs, and you will easily win over potential members. Explain that the fee will go for staffing, office expenses and warehousing of goods.

4. 4.

   Set up group staffing. Designate a position title for the person who will do the ordering, coordinate the shipping and keep financial accounts of which member should be billed for specific goods and services.

5. 5.

   Select an office location for ordering. Your group purchasing organization will need a place for staff to work. Keep this cost as low as possible, because it is a back office function that does not require contact with the public. You should be able to find a small space that is relatively inexpensive because you do not require signage or public access.

6. 6.

   Decide whether you need warehousing. You should consider the option of having each order drop-shipped to the person who needs the supplies. If you must order and receive large quantities at the premises of your group purchasing organization, find warehouse space and determine the costs that the group will need to cover.

7. 7.

   Contact potential members and give them a run-down of the savings they can achieve by joining your new group purchasing organization. If you have your figures in front of you, this should be an easy sale. Once you have a commitment from several members, you can begin the staffing process and start saving immediately on goods and services.