Impacts and role of group purchasing organization in healthcare supply chain

Effective supply chain management is a key differentiator and source of competitive advantage across several industries, yet many rapid advances in supply chain and logistics have not been well adopted in healthcare industry, in particular by health care providers. Healthcare providers currently spend approximately 40% of total cost towards procuring, managing and distributing supplies and medical devices. Supply chain and related activities constitute the second largest expenditure for healthcare providers. Among the various stakeholders of healthcare supply chain, Group Purchasing Organization (GPO) are a dominant force and act as an necessary intermediary between the manufacturer, distributors, solution providers and the provider. Most hospitals in the United States have affiliation with one or more GPOs, making GPOs an important stakeholder in healthcare supply chains. GPOs aggregate purchasing volume based on demand from several healthcare providers to negotiate quantity discount from manufacturers and offer a variety of additional services such as vendor selection; product portfolio management, ecommerce, contracting, data and information services that help improve supply chain performance for providers. In this paper we discuss the value of leveraging GPO services by healthcare providers to enhance their supply chain.