How GPO's And Distributors Can Benefit Each Other

While not as prevalent today as in the past, there has been tension between group purchasing organizations (GPOs) and distributors over the years. A good deal of the tension was the result of a misunderstanding as to the roles each plays in the supply chain. For instance, many distributors believed — and may still believe — that they are in competition with GPOs.

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While its not true for all GPOs and all situations, in the health care industry and in scores of other industries, that is not the case. In fact, instead of competing, distributors often can benefit from their association with GPOs.

The Truth is it's almost impossible to exist in the health care supply chain without some GPO affiliations or membership.

But the fact remains that the distributor remains the key element in the supply chain: the manufactured products are distributed and sold by the distributor and the distributor receives their typical fees and rebates for providing these services.

What Is a GPO?

A group purchasing organization helps its members realize savings on scores of different products and supplies by aggregating member purchasing power. The GPO negotiates discounts from manufacturers and suppliers, which are then passed on to members.

The first GPOs date back to the early 1900s and served the healthcare industry. Today, healthcare still has more GPOs than any other industry sector. According to various studies, from 85 percent to more than 90 percent of all medical facilities in the United States are members of a GPO, and many are members of more than one GPO. These healthcare facilities are purchasing everything from toilet paper to medical supplies through GPO networks.*

The key reason these healthcare facilities have signed up with GPOs is the same reason most organizations join GPOs, and that is to save money. The savings can be significant and tend to be even more significant the larger — and the greater the purchasing needs — of the GPO members. For instance, according to a 2011 report from the Healthcare Supply Chain Association, “GPO enabled hospitals [have] saved up to $33 billion each year through lower priced products [purchased through GPOs].”**

While healthcare is still prominent, many other industry sectors have also embraced GPOs. Among them are foodservice and grocery; industrial manufacturing, especially manufacturers purchasing raw materials; farming; and now cleaning. The following identifies the essential components of a GPO:

• GPOs do not purchase products in large volumes in exchange for price reductions that are then marketed to GPO members (buyers). (That would be a more like a buying group, not a GPO.)
• GPOs do not market a manufacturer’s or organization’s products. They are not marketing organizations. Manufacturers decide to work with GPOs because they see it as another profit center that can benefit them and their distributors.
• Most B2B GPOs make money by receiving a percentage of the purchase price of each sale, along with membership and administrative fees charged to GPO members. These charges do not impact commissions paid to the distributor.
• GPOs do not distribute products to their members. Delivery of goods or services is between the GPO member and the distributor…and this is where the distributor comes in directly.

In fact, most GPOs know they cannot be successful without having a strong relationship with distributors. According to Steve Tackett, vice president of national accounts with Amerinet ( now IntALere), a GPO that works with the healthcare industry, “Our big allies in all this are the distributors, given the fact that they have more ‘feet on the street’ [calling on end-customers] than we do.” However, it’s a two-way street. One way distributors benefit from GPOs is that GPOs can bring in buyers for one product who then purchase other items from the distributor. And because most GPOs work with larger organizations — for instance, most members of GPO's are large health systems or chains with larger sales — very often these larger customers also become larger buyers of a distributor’s products when compared to a non-GPO member. Another benefit is that very often manufacturers essentially beta test new products with GPO members. This provides the distributor with firsthand knowledge of new technologies entering the industry that may benefit many of their other non-GPO customers.

GPO's also level the playing field to a large extent in that the Pricing you can now get access to from your manufacturers and suppliers is on par or in some cases better then your larger competitors. This is often because the healthcare systems directly negotiate with your suppliers and just as you to service the contracts they have put in place. 

But nothing in life is free....  

The price for this wonderful arrangement is typically in the form a processing fee and a rebate agreement between you and the manufacturer. Most GPO's will take a percentage on top of a rebate you would have to claim and in many cases require and have fairly stringent reporting requirements. 

The Net affect is that when you sell a product figuring out if you are really going to make a profit becomes that much harder. 

This is where the MDS-Nx System comes in, by allowing you to load both contract eligibility and contract pricing into your ERP / Supply chain management system. This allows you to see your true acquistion costs net of your potential future rebate and calculate if the item is really profitable. 

In turn it will also track the sales and create a sales tracing claim for the rebate amount you would normally have to calculate manually 

and creates a Debit claim in your General ledger to tie out your additonal rebates against. 

This allows you to pay vendors with your rebate claims and debit memo's increasing cash flow and available purchasing power. By doing so you can take advantage of positive terms like a 2% cash discount because you are effectively paying them with their own money. 

Rebates and GPO's can sound like a problem and something to avoid. 

But the business climate today doesn't allow you to ignore them any more. 

 Your competitors are doing it, you need to do it. So make sure you do it successfully. Partner with a proven solution for the NDC, NuEdge and IMCO direct vendor rebates. Team up with an industry solution that will ensure your company is taking advantage of the latest rebates and GPO management tools. 

Ready to level the playing field?

For more information on TSH or MDS call The Systems House, Inc. at 1-800- MDS-5556. Or send a message to sales@tshinc.com

Click here and tell us how we can help you with your business solutions.

What's a chatbot?

why chatbots can’t replace B2B customer support agents yet....

Chat bots are computer programs that mimic conversation with people using artificial intelligence. They can transform the way you interact with the internet from a series of self-initiated tasks to a quasi-conversation.  Often Technology can change an industry.

In the ’90s, email completely revolutionized the way customers interact with companies, and live chat made these interactions even more instantaneous. So what will be the next technology trend to come along and change the way businesses communicate with each other?

Some professionals in the B2B (business-to-business) customer support industry are speculating that chatbots, a way of receiving automated responses based on the user-submitted text in chat, will be the next major evolution in customer communication. But are they right? Let’s take a look at how chatbots currently mesh with B2B customer support and if they truly have the potential to alter the lines of communication in the future. In particular, there are three key metrics that should be evaluated.

1. Accuracy

One of the areas B2B customer support differs from B2C is related to more importance being placed on resolving issues correctly in B2B support. Losing an account for a B2C company may put a small dent in revenue, but losing a B2B account, especially if it’s sizable, could put an entire company at risk financially.

With accuracy being paramount, even the most sophisticated machine learning produces only an 85 percent accuracy rate for chatbot responses, and it’s safe to say many enterprise solutions perform well below this percentage. Especially in B2B, in order for chatbots (or any customer support medium) to be effective, the user needs to receive the correct information to resolve their issue.

If they can’t get the answer they need, then it’s a waste of the user’s time, and their frustration only increases. As an employer of B2B support agents myself, if an agent was wrong with their response 15 percent of the time, they probably wouldn’t have a job for very long. Solving customer issues correctly the first time is simply crucial to happy customers and a productive support team.

2. Integration

Speak with any technology professional in B2B or B2C and they’ll stress the importance of integrations and systems communicating together. With so many software solutions specialized in certain tasks and procedures, limiting the amount of manual work through integrations is crucial to reducing overhead costs.

As it stands today, the majority of chatbots currently on the market exist completely independently of customer support software. Sure, there are some integrations available, but these can sometimes be cumbersome and may actually result in more work for agents.

For example, a chatbot solution may not filter out bot responses, meaning an agent may have to sift through a long chatbot conversation in order to get up to speed with a customer issue. This can be problematic if supporting a customer via phone or live chat, where responses are expected to be more immediate than email. It also hurts how quickly agents can address issues as well as their overall productivity.

3. User experience

For better or worse, the B2B industry does not adopt technology as fast as its B2C counterpart. Some employees in the B2B industry still prefer to pick up the phone and will reach out to any contact they have within a company — be it sales, IT, or support — with any issue they may have because they either have a working relationship with that person or they don’t want to have to find the right contact themselves.

With this said, the current user experience for chatbots can be confusing for B2B customers. Believe it or not, some confusion still exists in non-tech industries between live chat and chatbots, where a customer thinks they are starting a chat conversation with a person and gets confused when bot responses are presented instead.

The undoubted unpleasantness of this experience may diminish over time as chatbots become more high profile, but a user experience solution I’d like to see implemented more for B2B is unifying both live chat and chatbots into a single experience. By this, I’m talking about when a chat window is initially opened, a customer has a choice on what path they’d like to pursue (live chat or chatbot) to resolve their issue.

What comes next

In conclusion, chatbots currently do not mesh well with B2B customer support and fare little better with B2C customer support. Chatbots just aren’t accurate enough currently to replace the personal touch needed to maintain the delicate, complex, and highly important relationships with B2B customers.

The sophistication of integrations supplied by chatbot systems with other software is still emerging, and overall education about the functionality of chatbots needs to increase for the B2B audience to feel more comfortable using them. Most of the functionality of chatbots today can be better optimized through the right customer support software solution that enables tickets to be specifically routed to the correct agent or team.

Even though chatbots aren’t quite ready to take over the world, the technology is certainly intriguing, and the customer support industry should definitely keep an eye on it. It wasn’t very long ago people were questioning the impact of email in the same way we’re discussing chatbots today. Although it seems unlikely chatbots will have the same impact on everyday life as email has, the possibility of refining and deploying automated assistance for daily use in business may only be a decade or two away.

Embracing these tools and understanding where they will fit in your distribution management solution will ensure your team is always ready to handle requests as they arrive, maintaining excellent customer experience at the lowest cost possible. 

Ready to tackle the chatbots?

For more information on TSH or MDS call The Systems House, Inc. at 1-800- MDS-5556. Or send a message to sales@tshinc.com

Click here and tell us how we can help you with your business solutions.

Same Day Shipping is here to stay...

A recent survey of 1,250 U.S. adults found 25% of those claiming to be Amazon Prime subscribers purchased goods via the Prime Now rapid-delivery service in January. The firm declares the figure to represent "extremely impressive early penetration of our estimated 40MM+ US Prime members."  24% of respondents said they purchased goods weekly via Prime Now, and 70% multiple times per month. Prime Now users bought from four categories (Media, Electronics, Groceries, etc.) on average in January, with 33% of respondents in the 18-34 demographic using the service to buy goods from a local grocery store.  

Prime Now , launched in Dec. 2014, is now available in 24 U.S. markets. The service provides (via dedicated Prime Now apps) free two-hour delivery to Prime subs for orders involving qualifying items, a 1-hour delivery for a $7.99 fee. Amazon has partnered with local restaurants to enable food delivery via Prime Now, and has hired part-time delivery drivers (echoes of Uber) to help fulfill orders.

Customers today are used to having things when they want them, how they want them. With the consumerization of the supply chain comes the customer expectation that they will receive the package as quickly as possible, if not on the exact same day as the order was placed. While same day shipping is great for maintaining positive customer experience, it does place quite a strain on resources for the shipper and the supply chain manager.

Not only does it mean the shipper has to act much quicker to set the process in motion, it also means needing to ensure that logistically, same-day shipping can even occur. Read on for tips about how to use technology in same-day shipping, to ensure the shipment gets to where it needs to go, safely and effectively.

Embrace drop-ship technologies

The reason same-day shipping can place such a strain on all of the resources and parties involved is that in order to occur, the product must be in-stock and available. Further, there must be a transportation method available to deliver it. Drop shipping is extremely beneficial for same-day shipping because it removes warehouse storage and replaces it with a product that comes directly from the supplier.

As soon as the order is placed, the product will be shipped directly from the supplier to the customer. This means that instead of the buyer having to check to make sure it is in stock, from the supplier, the supplier is immediately alerted and therefore able to begin the shipping process. The use of drop-shipping automates the order-to-delivery process across the entire supplier network, and also offers real-time detail ordering abilities to allow orders to process faster, reducing cycle lead times – absolutely essential for same-day shipping.

It also means that out-of-season attire and products do not have to be stored in the warehouse, which can be costly, as the shipper is connected with the supplier and has access to goods on demand. The software that allows for drop-shipping means that information is available fast for real-time visibility into order details and the status of key steps in the fulfillment process are clearly outlined. If there are any red flags with the order, the drop ship platform can flag them immediately, before they impact the shipping time to the customer.

Embrace a wide carrier network

A big challenge to same-day shipping is having the transportation available at the ready to get the good from the supplier to the customer. This can be accomplished by having a robust carrier network. Having options for transportation is especially helpful in the rapidly changing world of omni-channel retail, as users need to be nimble and agile to keep pace with customer expectations.

The carrier network helps to alleviate operational pressures that can be a result of the expectations of the sender combined with the reality of the increased cost of same day shipping. The use of the carrier network helps to buffer these costs, given the choice of carrier to the sender.

Costs that are able to be lowered include the networks ability to ensure carrier compliance, including electronic manifesting for domestic and international origin carriers. Bigger retailers are beginning to embrace these methods, seeing it as an opportunity for more vendors to partner with them and a chance to capture affordable costs.

Embrace end-to-end visibility 

Another key to same-day shipping is having the technology in place to enable end-to-end visibility throughout the entirety of the supply chain. This means having a single platform for all supply chain managers to connect to for real time status updates on shipments and transportation. Having complete insight into every aspect of the transportation process means that if needed, shipping can be course-corrected on the spot.

These platforms can be accessed from the desktop or mobile devices, reaching all parties where they are. For example, the supplier of the winter coat can communicate over the platform with both the shipper and the customer in case there are any changes in delivery time or problems with the product. Staying connected ensures a better overall experience.

Embracing these tools will ensure your team is always ready to handle same-day shipping requests as they arrive, maintaining excellent customer experience at the lowest cost possible. 

Ready to ship your products same day?

For more information on TSH or MDS call The Systems House, Inc. at 1-800- MDS-5556. Or send a message to sales@tshinc.com

Click here and tell us how we can help you with your business solutions.

Simplicity is complex and complexity is simple..

Far too often, pricing for distributors turns into a futile exercise in juggling. At any given moment you may be dealing with up to thousands of customers purchasing from your list of hundreds of thousands of products after intensely negotiating their contracts. Mixed with supplier prices, transportation, and other costs, this can lead to razor-thin margins. Add deliberations with your suppliers and wavering inventory turnover rates and it can become too much to handle.

Now factor in the multiple technological solutions distributors tend to use to manage their various data elements, such as customer rebates, supplier programs, competitive cross reference files, etc. This creates a cycle of missed opportunities to improve margins and profit. One could make the point that it's likely that you need a real system to help you navigate the complexity of such a pricing model, but the reality is that when you think about it, Simplicity is complex.


Most distributors still adhere to traditional pricing methods that focus their efforts on avoiding complications. Whether they base prices on cost, their customers, or their competition, a simplified pricing model does more harm than good, despite the occasional growth spurt. But today we make that point that we need to change the way pricing is viewed. “Embrace the complexity” because in the end it's really very simple.

But, how you ask? There are three aspects of the distribution pricing model that are primed for disruption and it starts with being open to change.

Step 1. Building a Pricing Function

Pricing, as distributors know it, relies heavily on the cost of the product or raw material. From the get-go, it seems like minimal control of the price is in the hands of the distributor; the supplier sets the starting price level. More often than not, the price charged by your supplier will fluctuate, and you will follow suit as you see fit to avoid losing much business. Wouldn’t it be nice to have the guidance to know when and where you can pass along these price increases? Within the structure of your organization should be a pricing function.

This can be in the form of a centralized group controlling the prices for the company, a decentralized function that allows each region or product manager to utilize their localized knowledge, or a center-led format, which uses the centralized group to set prices, but allows the decentralized group to have the final say on what to do. No matter what you choose, the important facet of this model is focusing more on pricing as an adjustable asset in your control to emphasize the value of your products, not the cost. Above I mentioned cost, customers, and competition. With the pricing function established, your new pricing models can incorporate all three, rather than just one at a time. As each aspect is incorporated, the value of your product begins to take shape.

This is the first step, but your pricing function cannot succeed with disconnected data.

Step 2. The Unified Pricing Database

Your new pricing team needs visibility. If they are pricing blind, you are leaking margins. By using multiple systems, your team is handcuffed by the level of analysis that can be performed. Consequently, cost plus or list price models become the chosen pricing option. Defaulting to these models removes the ability to deeply analyze how your business and products fit into the greater ecosystem.
To increase visibility into pricing options, adopt a platform that brings your data into one space. New profit opportunities will arrive as a result of the increased cross-analysis capabilities. Take your large accounts as examples. You likely have a few large accounts that receive the bulk of your attention. These are negotiated heavily and scrutinized at every step of the process to ensure maximum profitability. Market factors, competitor movement, and cost are all considered when setting and analyzing these prices.
Now, imagine if your data is in one place and that large account scrutiny can be automated across your entire portfolio of accounts, increasing the profitability of those deals.

With a unified source of pricing data, you will also be able to uncover opportunities to negotiate better supplier costs, optimizing your supplier rebates and costs.
The staff is in place and the technology is up and running. Progress is being made, but you still aren’t quite sure what to look for.

Step 3. Where to Look

Standard distribution pricing models segment at the base level: product category, region, and size of customer for example. While a good start, this is nowhere near enough. With the cross-analyses in your new system, you must look into internal and external data — current and historical. From these analyses you will be able to look horizontally, in addition to vertically.
Market factors are a great place to start. Are there big changes occurring? Are your suppliers’ raw materials being affected? Be proactive in your analysis and research to prepare your own system for changes.

Additionally, your customers are possibly the biggest source of insight. It seems obvious, but this group is frequently overlooked. When analyzing your contracts, look at your customer’s willingness to pay. Are they buying more of a certain product? Are they purchasing more products off contract? Are they not purchasing off contract at all?
These questions lead to immense profit opportunities and take all factors into account when defining your value. Of course, these are small on a case-by-case basis, but the incremental impact to your bottom line is substantial.
Segmentation by product category, region, and customer size is still useful, but more so when used in conjunction with other product, customer, and transaction attributes like: commodity versus non-commodity, strategic customer versus non-strategic, customer value and product classification.
Your pricing team can then work with your frontline sales organization by guiding them with data-based insights along with the supporting metrics and tools to ensure your frontline is confident in the guidance. A strong collaboration between pricing and sales solidifies positive pricing behaviors.

Focusing on cost or list price is a temporary profit squeeze that keeps you chasing an unsustainable benchmark of success. Often customers ask - What is the price for this item? , but in the MDS-Nx System that price is really a function or algorithm - so it's not a simple answer. But if you build a function and rely on your system it becomes a simple task , with a much more complex answer.

Ready to build a relationship with your technology providers?

For more information on TSH or MDS call The Systems House, Inc. at 1-800- MDS-5556. Or send a message to sales@tshinc.com

Click here and tell us how we can help you with your business solutions.