Similar to VCPs, group purchasing organizations (GPOs) used to provide much clearer value to optometrists than they do today. Although traditional buying groups & alliances still bring some value to the independent ECP, it’s marginal compared to previous decades due to, once again, the consolidation of the optical supply chain.
EssilorLuxottica owns Vision Source and PERC/IVA. Massive conglomerates like this continue to acquire buying groups & alliances around the world. Even Pivotal Group was invited to the table to discuss acquisition within three years of being founded. We disclosed that we’re not interested in selling.
If you plan to build up your optical with low-margin branded products, traditional buying groups & alliances provide seemingly compelling discounts: the higher the discount, the more you pay, maxing out at a percentage of your gross revenue.
Keep in mind that, due to ownership changes, some of the largest GPOs are only shifting profit from one pocket to another (i.e. why would they set membership fees so low that the discounts you receive on their brands gives you a significant advantage?).
If your optical is open to alternative sourcing, however, that’s where “the wheels come off” the traditional GPO.
Almost every pillar of a traditional GPO’s offering is centered around large brands, which are all subject to the same inefficiencies already outlined in this guide (overpriced brand names and inefficient supply chains), and that minimizes their impact on a practice’s profit margins. This is particularly true once membership dues for most of these buying groups & alliances is factored in. They are, in effect, yet another middleman in an already compromised and broken supply chain.
It’s a zero-sum proposition: the result of a traditional GPO “winning” is you sacrificing more than you’re comfortable with, and any discounts that result with you as the clear “winner” means they sacrificed more profits than they prefered.
At Pivotal Group, we believe the only way to overcome the traditional GPO’s zero-sum challenge is to completely overhaul the traditional supply chain:
- Don’t charge for membership. A member should do business with the GPO’s vendors because the value proposition is compelling, not because they’re psychologically compromised by sunk costs.
- Replace bloated, conglomerate-owned brands with equal-quality independents (we don’t just claim they’re equal-quality: our members have put us through the wringer).
- As the group grows in size, leverage economies of scale to lower costs and pass those savings on to the members rather than distributing them to shareholders.
- Serve members through educational resources and multiple support options and not by leaving them to fend for themselves with a scrolling list of discounts.
Many of today’s independent suppliers offer the same quality that conglomerate-owned brands do, and at a price that’s frequently 50% – 70% less expensive.
They unfortunately just don’t have the marketing budgets or sales teams to get the word out like multibillion-dollar corporations do. That’s why Pivotal Group identifies who these suppliers are, negotiates a relationship, and directly connects our members to them (often with zero compensation from the supplier).
We wholeheartedly believe any GPO that truly puts independent optometrists back in control of this industry MUST revolutionize the supply chain and be willing to sustain their operations using a high-volume, low-margin business model.
That’s not something any traditional buying group or alliance is equipped to do, so we recommend approaching these relationships with caution.