You'd Better Shop Around
- By Amy Milshtein
- February 1st, 2012
There’s strength in numbers. That’s the guiding principal around purchasing cooperatives. These entities promise to lower cost, save time and reduce redundancy for their members. While their popularity, and potential profitability, has caused their numbers to skyrocket in the last few years, buying co-ops may not always be the right answer for procurement professionals. When is the right time to join the herd and when is it best to go at it alone?
Co-ops and consortia have grown in leaps and bounds recently. “It seems like there are new co-ops to choose from every couple of months,” marvels Mary Beth Brennan, program assistant, Keystone Purchasing Network. But she’s not surprised. “I don’t believe there is a downside to working with a co-op.”
Chris Robb, national operations director, U.S. Communities, remembers when the biggest pushback he heard from members was disbelief. “People couldn’t fathom that buying through a coop was legal,” he recalls. “It just seems too good to be true.” Procurement professionals clearly got over their initial reservations. Robb reports that U.S. Communities did $1.6 billion in business in 2010. And while savings vary from contract to contract, “studies suggest that members save an average of 10 percent by utilizing our program,” he reports.
“I’ve heard chatter that the market is flooded with co-op options,” says Andrea Scobie, vice president, marketing National IPA. “But that could be good for our members. More competition means that we have to work harder for them.”
Co-ops differ from entity to entity, but they all basically work the same way. One lead agency solicits a bid for goods or services and that contract is made available for members to piggyback on. Members’ benefits are immediately obvious. “It removes your costs of writing and soliciting that bid,” explains Andy Pechacek of The Cooperative Purchasing Network (TCPN). “Members are not required to make any level of purchase, so they can get a volume discount no matter the size of their order.”
Schools welcome the reduction in paperwork. “Co-ops definitely improve efficiency,” reports Chris Steele, senior director, department of Purchase & Supply, Norfolk Public Schools. “They can leverage volume and decrease cycle times. It’s a good procurement tool.”
Co-ops thrive on transparency. “We can provide a more pristine environment if you will,” says Pechacek. “They filter out that ‘good ole boy’ network and prevent anyone from getting a sweetheart deal. That makes taxpayers happy.” Robb agrees. “Transparency is crucial for a government agency,” he says.
Not all co-ops are created equal. Some work as their own lead agency. “We bid everything ourselves,” says Ellen Bickelman, executive director, Massachusetts Higher Education Consortium. “We birth the contracts, manage them and then stand behind them.” Others like U.S. Communities work differently. “All of our contracts are bid out by public agencies,” explains Robb. “We then make those contracts available to our members.”
Some co-ops and consortia are nonprofit, others, like the National Intergovernmental Purchasing Alliance are for profit. Some, like MHEC, charge a membership fee to join but that is rare. “We are moving to the more common model of charging a percentage of the contract to the supplier,” says Bickelman.
“Our suppliers pay us when they fill one of our contracts,” says Scobie. Scobie insists that both members and suppliers are benefiting. “We have a well-seasoned staff of procurement professionals that know how to vet competitive contracts,” she says.
Co-ops offer a variety of goods and services to their members from office supplies to technology contracts to food service to fuel. National co-ops deal with companies with a national footprint. “We don’t offer local things like landscaping services or pest control,” says Scobie. “However if there is a national player in a market, we will go after it. Water treatment services, for example, were thought to be too local but we now offer a contract for that.”
“We’ve had some local business people complain that co-ops take them out of the picture,” admits Jeff Kimball, director Keystone Purchasing Network, “that they can’t compete with big, national firms. But co-op purchasing is just another tool in a procurement professional’s toolbox.”
For schools looking to spend their dollars closer to home, a regional entity might be the answer. “We don’t offer national buying power,” admits Bickelman of MHEC, which only serves the six New England states. “But we have lots of local options, as well as minority and women-owned businesses.”
Along with different products, co-ops offer contracts that differ in commitment times and payment terms.
“There’s concern that the co-op is compliant and legal,” says Pechacek. “Most people have a handful, between two to seven, that they have vetted and are comfortable using.” Then schools can cherry-pick the best contracts and terms for them.
One should never assume that a co-op will always have the best deal. Sometimes the best contract is reached when flying solo. “There are always examples when you can beat the co-op and get a better deal,” says Norfolk Public Schools’ Steele. “You always have to keep an open mind and do the legwork.”