You'd Better Shop Around
- By Amy Milshtein
- February 1st, 2012
There is 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? Determine the answer to this question for your institution, and it will be a win-win situation for everyone.
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 co-op 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 $1.6B 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.”
Six of One, Half a Dozen of Another
Co-ops differ from entity to entity, but they all basically work in a very similar 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.”
Colleges and universities welcome the reduction in paperwork. “Purchasing departments are always squeezed,” reports Ted Nasser, assistant director, procurement and contracting, University of Arizona. “I’m down to six buyers. Using a co-op saves time and that saves money.”
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 from the deal. “We have a well-seasoned staff of procurement professionals that know how to vet competitive contracts,” she says. “And suppliers like working with us because they don’t have to answer hundreds of bids a day.”
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.”
“Another benefit of cooperative agreements I often share is access to expertise. You may not be an expert in phone systems, technology solutions, or complex equipment. Even if you are able to draft the RFP, do you have the knowledge to confidently evaluate the responses?” offers Duff Erholtz, manager of Membership Services for The National Joint Powers Alliance (NJPA).
“Cooperative agreements have undergone strict review and have been selected based on their merits to meet industry needs. Your ability to utilize solutions often comes down to trust and the willingness to allow a contracting agency to scrutinize the necessary specifications for you.”
“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.”
National or Regional?
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. If there is a problem with the product or service, the co-ops suggest members should start with their contact at the supplier, but all agreed that they can help facilitate solutions. “We have cut off companies that couldn’t meet commitments,” says Robb.
With all of the co-ops to choose from, procurement departments still have paperwork to do. “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. “We have found that now and then we can get a better price on our own,” states University of Arizona’s Nasser. “Fisher Scientific, for example, wants us to use a co-op but we have a better deal in place now. I’ll always go with what’s better for the University.”