Many builders join a group purchasing organization (GPO) for a specific goal – rebate savings. It’s not a surprise. Members of CBUSA’s GPO report millions of dollars in savings per year in rebates alone.
Still, a GPO is more than just a rebate program, although it’s often not until after a builder has joined that they realize just how many benefits a GPO brings to the table.
In this article, explore the various benefits that being a GPO member can bring to your construction business, including financial, operational and relational gains.
The benefits of a group purchasing organization for builders
1. Establishing builder buying power
Builders should always be on the lookout for better prices and terms from suppliers. In a competitive market, builders that can offer potential clients more attractive pricing due to supplier cost savings can gain an advantage over competitors vying for the same business. A GPO creates an opportunity for builders to gain purchasing power in order to achieve these cost savings.
But how? In construction, purchasing power is created when a group of construction companies and contractors comes together to procure goods and services. Because these types of arrangements result in high-volume bulk orders for suppliers and vendors, the contractors are able to negotiate better terms, prices and conditions.
Purchasing power can help construction companies reduce overall procurement costs, mitigate supply chain risk, build negotiating strength and gain access to preferred suppliers – which can be a selling point for potential clients when choosing which builder to enter into a construction contract with.
“It wasn’t until my framer came to me and said, ‘You’re paying way too much for lumber,’ that I started to look for a buying group,” said Sean Forth, owner of Shawn Forth Homes. “It’s a great opportunity for us smaller builders to get big builder pricing.”
2. Protecting home builder profit margins
According to a recent Association of Professional Builders report, 60% of builders monitor gross margins per project on a monthly basis. This is an important practice to continue because it can help detect financial issues early on in a project’s lifecycle, identify which projects are the most profitable and ensure builders are operating profitably and efficiently on a project-by-project basis.
Being a part of a construction GPO can significantly bolster profit margins for residential home builders in several ways.
As a result of increased purchasing power, home builders can reduce prices, gain volume-based discounts and establish more favorable payment terms that may have been impossible to secure as an individual entity. This type of cost control can drive down expenses, increasing net profit. Higher profit margins signify that a construction company’s bottom line and long-term financial sustainability are healthy, which can affect the volume and scope of projects the company is able to take on in the future.
“In the rising cost market, [GPOs] provide the stabilization we need,” said Alan Degen, director of operations at New Leaf Builders. “With the contract locks and committed buys, we are doing significantly better.”
3. Streamlining procurement processes
With varied delivery schedules, multiple vendors and client expectations putting demands on a builder’s resources, effective procurement management is essential to ensuring a smooth workflow throughout each phase of the construction process.
A GPO can help centralize a builder’s procurement platform so that the builder has a single point of access for all necessary materials and equipment. Through a GPO, you can also streamline order placement and management while consolidating orders to reduce shipping costs and delivery times. GPO membership can also be leveraged to gain access to a diverse supplier base. This is important for more than just adding volume to your selections offerings – it helps create flexibility for construction companies if unforeseen supply chain disruptions come up in the middle of a build. For example, if one of your lumber suppliers is experiencing a shortage due to harvesting issues or a factory disaster, a GPO can tap into an alternative lumber supplier, keeping your projects on schedule.
Disasters and volatility aren’t the only things a GPO can help protect against. It can also help ensure quality control throughout your procurement process. A GPO typically evaluates suppliers for quality and reliability. If a vendor supplies subpar materials, their contract with the GPO could be at risk. A GPO ensures members receive high-quality and certified products, helping support your reputation as a builder and the quality of your finished projects.
4. Strengthening your builder network
Building a network with industry peers is important in construction as it fosters collaboration and knowledge-sharing, best practice insights and market trend expertise. At a local level, a robust builder network can lead to increased project opportunities through referrals and partnerships. Nationally, it can open the door to broader markets and potential business expansion.
A GPO plays a pivotal role in strengthening these relationships. Depending on the GPO, builders can meet locally, regionally or nationally at networking events and conferences. A GPO can connect your company with a network of peers and suppliers across the country, ultimately strengthening your position in the industry.
“It’s because I’m a part of this group that I have the opportunity to sit down with people like David Kohler, head of Kohler, and have a discussion,” said Jon Showalter, chief operating officer at Homes by Dickerson. “The doors are open to so much more networking than any one business.”
5. Supplementing construction overhead and resources
It’s estimated that only 12% of builders are able to spend time improving the way their businesses work as they focus on day-to-day projects and administrative demands.
For some, this is strategic – builders want to stay involved with minute details as a method of staying updated on the needs of their clients and construction team. With recent labor shortages, however, it’s more likely this work is more out of necessity than choice.
A GPO can help supplement a construction company’s in-house operations. Leaning on your network and GPO contacts’ expertise and connections, your business can gain access to support in procurement, market research and analysis, compliance, quality assurance and contract management – all responsibilities that small builders often take on themselves and that large builders would otherwise hire additional employees to oversee.
“We’re a smaller builder compared to some of the production builders in this market,” said Mitchell Bode, president of Boone Homes. “We have an estimator and a purchasing coordinator, but no one really attacking negotiations and new contracts on a day-to-day basis. That’s where belonging to a GPO has really helped.”
6. Building your rebate program
While rebate programs shouldn’t be the only benefit you try to gain from a GPO membership, it’s also important to not forget about their value.
GPOs often have established rebate agreements with suppliers based on their collective purchasing volumes, enabling contractors to access prenegotiated rebate opportunities.
GPOs also typically have a way to track and manage active rebates for a builder, helping to calculate, verify and ensure contractors receive qualified incentives. “$1.7 million – that’s just our company’s rebate dollars,” said Jon from Homes by Dickerson.
Learn more about the No. 1 construction GPO: CBUSA
CBUSA is the leading group purchasing organization, offering a variety of benefits to builders nationwide.
As a member of CBUSA, you gain access to an extensive network of home builders, including opportunities for collaboration and industry connections, alongside measurable cost savings and construction rebate programs.
Learn more about CBUSA and begin experiencing all the benefits a leading construction GPO can provide.