Rising building costs and supply chain issues are causing home builders to look for ways to put money back in their pockets. That means cutting costs and guaranteeing inventory so they can deliver projects that are on time and on budget.
Over the last few years, supply chain disruptions and fluctuating prices have made that goal far easier said than done.
Group purchasing organizations can help check all these boxes. Still, some home builders are hesitant to join.
Construction companies want to know that the GPO will bring value to the table. To help you make the best decision for your company, we’re answering the top questions builders have about group purchasing organizations.
What is a group purchasing organization?
A group purchasing organization – sometimes called a GPO – exists when a group of companies combine their resources to purchase goods. In doing so, they secure discounts on products and services.
In the construction industry, supplies are often cheaper when purchased in high-volume orders.
Being able to afford and store that kind of inventory is difficult for many buyers. Instead, they settle for paying higher prices to acquire fewer products. By using the combined purchasing power of a GPO, construction companies can buy collectively to hit high-volume orders.
Do GPOs work for smaller custom and independent construction builders?
GPOs can benefit builders companies of all sizes.
Looking at year-over-year increases from 2018 to 2022, building material prices are up over 19%.
Larger companies tend to carry more capital on the books, meaning they can absorb price hikes easier than smaller companies. Even with cash reserves, smaller builders are often priced out of minimum purchasing requirements by suppliers. As a part of a GPO, many small construction companies can compete on an even playing field as the bigger competition.
Every business is different, regardless of size. Use this tool to estimate your savings.
What are the benefits of a group purchasing organization?
GPOs offer members help construction companies maximize the dollars they spend on each project. This happens through:
- Procurement savings – using combined buying power, GPOs can reduce procurement expenses. That means having to spend less for the same number of supplies.
- Construction supplies and material cost analysis – builders can stay ahead of changes in the supply market and adjust their expenses based on GPO forecasts for supply and demand.
- Pricing protection – many contracts negotiated through a GPO offer pricing protection. This prevents suppliers from raising prices higher than the agreed upon amount – even during times of inflation.
- Administrative savings – procurement teams can leverage negotiations and deals from a GPO. This saves time on individual negotiations and contract management, where you can rely on an account rep from your GPO to handle the heavy lifting.
- Access to premier brand and products – GPOs have access to top brands demanded by customers. These suppliers provide materials to builders and also help work with GPOs on cost of supplies, labor, education and training.
- Supply chain improvements – GPOs help protect builders from product shortages or supply chain disruption, providing alternate suppliers when necessary.
- Peer networking – many GPOs offer access to national and local chapters. These relationships give builders opportunities to connect on shared issues, like local pricing or permit challenges. Preferred local vendors also distribute purchased products, making getting supplies in hand easier.
Are there other ways GPOs help construction companies save money?
Apart from product discounts and overhead costs, GPOs help construction companies save even more with supplier rebates.
What are supplier rebates?
Supplier rebates are a tool builders can use to get the best price on material goods. GPOs use supplier rebates to add extra savings to builders’ project budgets.
Within a GPO, builders can take advantage of two different kinds of rebates: group buys and brand partnerships. This means different savings can apply to high-volume purchases and by purchasing specific items from brand deals managed by the GPO.
How much do builders save on supplier rebates?
In 2021, CBUSA, a construction-specific GPO, offered builders $2.08 million in rebate savings. GPOs constantly review rebate programs with their brand partners, ensuring members are getting the most value in the market.
How do builders choose the best group purchasing organization?
Every builder should consider these four things when thinking about joining a group purchasing organization.
Look for GPOs with local chapters.
Many GPOs have national chapters, but there are a lot of benefits to having access to local networks, too. Not only does it streamline product distribution, local chapters can also discuss community-specific topics, like local housing market trends, ordinances, permit regulations and environmental needs. (For example, rebates on air conditioner units probably matter more to builders in Central Texas than those building in the Pacific Northwest.)
Ask GPOs questions about how they support scalability
As a home builder, you want to make sure the benefits you’re receiving match your specific needs. A great GPO can provide just as much value to a construction business that builds ten homes a year as one that builds 150.
Examine brand partnerships
GPOs are great in forecasting buyer demand and addressing those needs. Still, you know your current supplier relationships best and if you make a change, you want to know that it’s for the better. Make sure GPOs are offering established, quality brands as a part of their exclusive partnerships.
Do your research
Ask GPOs about the speed and reliability of their procurement process. Reach out to current members and get their feedback. These double-checks can ensure you’re entering into a reputable group with lots of industry experience.
Bonus points if it works well with rebate software
Rebate programs can be tricky to keep track of, but rebate management software can help track the status of the incentive program through to payment. Make sure the GPO is providing clear and accurate details of rebate programs you can feed into your software solution to streamline your cash flow even further.
Is CBUSA’s group purchasing organization right for you?
The best group purchasing organizations have ties to the best construction software businesses. That’s why CBUSA is the GPO of choice for home builders – it does all of the above, and it works side-by-side with Buildertrend to help home builders work simpler.
Ready to learn more about becoming a member? Hear directly from the CBUSA team about the reality of using a group purchasing in your construction business and feel free to reach out about a membership.