There are over 5,500 hospitals in the United States, all needing similar, if not identical, products and services to support their operations. Not all operate independently; there are hospital systems, like Kaiser and Tenet, comprised of multiple facilities, with the largest of these groups, Hospital Corporation of America, managing 174 hospitals. That volume, while certainly substantial, represents just over 3% of the market. It’s a similar landscape to private aviation, where you have a mix of independent owners, management and charter companies, and small to mid-size regional airlines.
With similar procurement needs, but limited buying power, the group purchasing organization (GPO) concept was born. The very first healthcare GPO was founded in 1910, but the concept really took hold in the 1980’s, with hospitals looking for ways to keep their costs down under increased Medicare restrictions. GPOs aggregate purchasing across their membership, creating economies of scale, which give a single member the buying power of the larger network. Even hospital networks with dozens of facilities under management see benefits – if 50 hospitals give you better buying power than 1, imagine the value a network of thousands will yield. Today, it’s estimated that over 90% of US hospitals belong to at least 1 GPO, and around 80% of all purchases are made through GPOs.
So how can this be applied to Business Aviation? AVIAÂ, founded by James Hall and Dustin Dryden, is the first global group purchasing organization for general aviation. The company streamlines the procurement process for Part 91 and Part 135 owners and operators using the collective buying power of its members to secure the best value for key operational items, including fuel, insurance, training; MRO; FBO services; aircraft and engine parts; avionics upgrades, and more.
The GPO model also rewards service suppliers. Driving aggregated purchasing to suppliers not only delivers committed volume, but also reduces customer acquisition and on-boarding costs. AVIAÂ uses proprietary algorithms to analyze spending data, providing valuable insights on customer preferences and behavior.
Hall, an entrepreneur who was a key player in the expansion of healthcare GPOs in the 1980’s, had a chance meeting in Oxford last year with Dryden, fellow entrepreneur and Hangar 8 founder, and his expertise in business aviation. Both men had exited their respective businesses three years prior. Having struck up a friendship, they decided to marry their skillsets to introduce the GPO model to business aviation, identifying the US and Europe, the two biggest markets in business aviation.
“There are many similarities between healthcare and business aviation. Both are highly fragmented industries, dominated by big players, which can make it challenging to compete. We work with suppliers to help members reduce their friction costs (which comprise commissions, fees, interest rates, research time, etc). A typical example would be flight training, where we would look at where there are spare hours on a flight simulator and where are our members who need training, maximizing the situation for both parties,” James Hall notes.
While the AVIAÂ team has hundreds of years of combined aviation experience, they see themselves as equal parts a technology company. The company’s CEO Gillian Hayes has a PhD in Computer Science and holds a chaired professorship at the University of California, Irvine. Under her leadership, AVIAÂ is a data-driven company that makes decisions and supports the community with empirical evidence. Hayes sums up this approach, “In a fragmented industry, our focus must be on managing and predicting needs in the supply chain to aggregate volume and reduce friction in a way that is smart and based on data.”
Working with Hayes in the US is Chief Product Officer Rick Tilghman, who brings two decades of experience making cutting edge technologies that handle massive scales of data. Formerly Senior Director for User Experience Design at PayPal and Director of User Experience at Roundarch Isobar, Tilghman has a history of designing innovative products and seamless user experiences. Having recruited engineers from some of the biggest and most innovative tech companies and consultancies, AVIAÂ is focused on streamlining the user experience for everyone in the business aviation supply chain.
A recent report notes that GPOs save hospitals nearly 20% of operating costs. Beyond driving value through volume purchasing, GPOs can optimize supply chains for mutual benefit of all involved. Increasingly, hospitals and their vendors rely on GPOs to provide market research, data analysis and benchmarking, innovative technology integration and information sharing, and support for communities of knowledge across the entire supply chain.