Business (Managing Higher Ed)
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The Buddy System
PHOTO © ISTOCKPHOTO.COM/RENÉ MANSI
How do you do more with less? That’s the question many purchasing professionals face every day. The Great Recession might be over, but purchasing departments still find themselves understaffed and overworked. Enter the cooperative. These organizations allow colleges and universities to shop fair, open and competitive contracts that meet their needs without the money- and time-suck of the bidding process. They are so simple, straightforward and easy that they seem too good to be true. Are they?
“That’s usually the first question I have to answer,” says Duff Erholtz, manager of Membership Services, National Joint Powers Alliance (NJPA). “But there’s no catch with co-ops. They are an efficient way to get better pricing.” It seems like a no-brainer, but purchasing department staff members may be wary if it’s a new concept to them. Or if they feel it would make their position redundant.
Purchasing co-ops have been around in some form or another for over 20 years. The National Association of State Procurement Officials (NASPO) defines cooperative purchasing in an issue brief. “In simple terms, cooperative purchasing involves sharing procurement contracts between governments. The Government Contracts Reference Book defines cooperative purchasing as two or more governments purchasing under the same contract.” In even simpler terms, co-ops act as a lead agency that generates a bid for goods or services. They then allow their members to piggyback on that contract. Some co-ops are national, or even international; others are regional, some are only statewide. All offer the advantage of volume.
Leveling the Playing Field
“My school has just 2,000 students,” says Bill Wheelock, C.P.M. director, Procurement Services, Youngstown State University in Youngstown, OH. “By using a co-op I have the same buying power as Ohio State, which has 50,000 students.” That volume usually means better prices, but not always. “Large schools may be able to negotiate a better price on their own,” explains Doreen Murner, chief executive officer, National Association of Educational Procurement. “But, as any good procurement professional knows, price is only one factor to consider.”
Co-ops’ biggest advantage is cutting out the bidding process.
“Bidding is onerous, costly and inefficient,” continues Erholtz. Mary Beth Brennan, cooperative purchasing marketing coordinator, Keystone Purchasing, agrees. “The process of putting out a public bid could cost thousands of dollars.”
That traditional process also takes time, a scarce commodity in its own right. “Any time I can reduce cycle time and cost and eliminate the need for bidding, it’s a win,” says Wheelock. As example, he describes his recent rush purchase of safety training equipment. The original cost was $100,000, but, “In about 15 seconds I found co-op pricing that was $3,000 less,” he says. “That doesn’t include the $5,000 to $7,000 required to put out a bid, and I got the product in place in time.”
Wheelock continues, “The value in GPOs is not necessarily the big-dollar savings on a large one-time buy. Instead, it is the predictable, auditable savings on the vast array of everyday purchases which not only saves money, but allows procurement professionals more time to work strategically on the big-ticket requirements that have the most savings potential.”
Time and manpower are important resources to consider. The last few years have seen the size of procurement departments decrease across the board. “The recession hit purchasing departments hard,” says Chris Penny, vice president, The Cooperative Purchasing Network. As an example, he points to New York’s Nassau County. “Their department of 80 has been cut to 10.”
Co-ops help lighten the load of remaining staff members by offering a wide array of expertise.
“We have people who are experts in bidding technology, life science equipment, travel, fire safety and security products,” says Stacey Wikar, MCPPO, director of Operations, Massachusetts Higher Education Consortium. These products have traditionally been the meat and potatoes of the co-op purchasing world. “Co-ops work very well for commodities like office, janitorial and MRO supplies,” says Murner. “High-volume, commonly used products lend themselves easily to competitive bidding. Large, complex contracts, like big architectural and construction projects, aren’t well suited for competitive bidding due to the many variables and customized specifications of each institution. However, never say never; co-ops are sophisticated, innovative companies and given enough time, they just might be able to figure out how to competitively bid those contracts in the future.”
Small construction projects, however, can be purchased through a co-op. Raymond Wygonic, director of Engineering and Construction, Indiana University of Pennsylvania, shares his recent experience of building a new arena on campus.
“We didn’t have a fall protection system in place on the upper beams where staff would hang lights,” he says. “It was going to take us forever to bid that out and we needed it in a hurry. A co-op got us the product in time and at a great savings.” He also uses a construction co-op for any last-minute or emergency jobs. “Small renovations, sidewalk replacement, emergency repairs are all good candidates,” he continues. “I’ve been a co-op member since 2009 and have used it six times.”
Co-ops don’t leave your side after the purchase. They also manage the contract throughout its lifespan and help with discrepancies.
“We had a supplier try to charge for training,” says Wikar. “But we quickly pointed out that training was written into the contract. That’s real protection for our clients and suppliers.”
They can also help standardize and streamline operations across the board. If, for example, you decide to use one brand of copier throughout your institution but different departments have products and maintenance agreements with a competitor through a co-op, that co-op can work them out of the deal. “We just helped one purchasing department do just that,” remembers Wikar. “We negotiated the removal of competing machines, and everyone was happy.”
In the last few years the number of entities signing on to co-ops has exploded. “In 2010 we had 6,500 agencies that were actively using one of our contracts,” reports Penny. (He defines “actively using” as placing an order within the last 12 months.) “At the end of 2013 we had almost 37,000.” Penny feels that there’s room to grow. “Medical GPOs have gone from $1 billion to $2 billion a year to $40 to 45 billion.” With public sector coops doing about $1 billion a year, according to Penny, perhaps it’s only a matter of time before they catch up.
This article originally appeared in the February 2014 issue of College Planning & Management.