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Dr. Gene Schneller, professor at the School of Health Policy and Management, W. P. Carey School of Business, Arizona State University, commented on the recent ruling by the 8th Circuit Court in Missouri that confirmed basic supply chain premises and reinforced the fact that GPOs save money.
“Virtually every industry achieves success through supplier base reduction. When equivalent products are available, there is great cost associated with the management of multiple brands as well as increased risk in the unfamiliarity in their use. For the most successful organizations, supplier base reduction is accomplished by seeking out the best quality for the best price and service.
The 8th Circuit Court of Appeals decision affirms this as a basic contracting and operating principle. It does not advocate for sole sourcing under all conditions - but rather provides "license" to engage in best practice purchasing. And of course it is also a signal to the purchasing world to continue to follow processes that allow new products and competing products into the market. Cost savings should also be recognized all along the supply chain.
The increased costs of managing multiple products is recognized by distributors - who have to support additional space in their service centers and in negotiating multiple contracts. And for successful suppliers there is a great opportunity to begin to work more closely with those who choose to use their products - improving service to buyers - and, for their own benefit, having much better vision into the demand for goods. Through reduced uncertainty, suppliers can bring added value to the customer.”
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