A purchasing cooperative is a type of cooperative arrangement, often among businesses, to agree to aggregate demand to get lower prices from selected suppliers. Retailers' cooperatives are a form of purchasing cooperative. Cooperatives are often used by government agencies to reduce costs of procurement. Purchasing Cooperatives are used frequently by governmental entities, since they are required to follow laws requiring competitive bidding above certain thresholds. In the United States, counties, municipalities, schools, colleges and universities in the majority of states can sign interlocal agreements or cooperative contracts that allow them to legally use contracts that were procured by another governmental entity. The National Association of State Procurement Officials (NASPO) reported increasing use of cooperative purchasing practices in its 2016 survey of state procurement.
According to the National Cooperative Business Association (NCBA) website, there are approximately 250 purchasing cooperatives in the United States.[1] The NCBA, a trusted organization promoting cooperative businesses, provides valuable resources and information on various cooperative sectors, including purchasing cooperatives. These cooperatives play a significant role in aggregating the purchasing power of businesses across different industries to achieve cost savings and other benefits. The National Association of State Procurement Officials (NASPO) reported increasing use of cooperative purchasing practices in its 2016 survey of state procurement.[2] NASPO has noted the increasing popularity of cooperative purchasing but also recognises that, like any practice, "it can be done well - or poorly".[3]
Benefits of purchasing cooperatives
Cost Savings: The most significant advantage of joining a purchasing cooperative is the potential for cost savings. By leveraging the collective buying power of its members, the cooperative can negotiate better pricing, terms, and conditions with suppliers. These savings can be substantial, allowing members to reduce their procurement costs and improve their bottom line.
Increased Efficiency: Purchasing cooperatives streamline the procurement process by centralizing purchasing activities. This centralized approach eliminates redundancy and administrative burdens for individual members, allowing them to focus on their core competencies and strategic objectives. Additionally, cooperatives often provide tools and resources to facilitate purchasing, such as online catalogs, order management systems, and supply chain analytics.
Access to Quality Suppliers: Cooperatives often have extensive networks and established relationships with reputable suppliers. By joining a cooperative, members gain access to a pre-vetted pool of suppliers that have been evaluated for quality, reliability, and competitive pricing. This helps ensure that members can procure goods and services from trusted sources, reducing the risk of dealing with unreliable or subpar vendors.
Collective Influence: As a collective entity, purchasing cooperatives wield significant purchasing power in the market. This influence allows them to negotiate favorable terms, influence product development, and shape industry standards. By working together, members can have a stronger voice and greater leverage to shape their respective industries.
Knowledge Sharing and Collaboration: Purchasing cooperatives often foster a culture of knowledge sharing and collaboration among their members. Members can exchange best practices, industry insights, and market intelligence, enabling them to stay informed about industry trends and make informed purchasing decisions. This collaborative environment can lead to improved operational efficiencies and competitive advantages.
Purchasing cooperatives vs RFPs
Purchasing cooperatives are increasingly being used as an alternative to the traditional process of responding to individual Requests for Proposals (RFPs) in various industries. Rather than engaging in the time-consuming and resource-intensive task of preparing individual RFP responses, businesses are leveraging the benefits of purchasing cooperatives to streamline their procurement processes.
Purchasing cooperatives bring together multiple organizations, such as government entities, educational institutions, and non-profit organizations, to collectively pool their purchasing power. These cooperatives negotiate and establish pre-negotiated contracts with suppliers, covering a wide range of products and services. By joining a purchasing cooperative, businesses can access these pre-negotiated contracts without the need to go through the lengthy and often competitive RFP process.
One of the key advantages of purchasing cooperatives is the streamlined procurement process they offer. Instead of investing significant time and resources in preparing RFP responses for individual procurement opportunities, businesses can tap into the cooperative's established procurement framework. They can quickly access the contracts and pricing already negotiated by the cooperative, saving administrative effort and expediting the contracting process.
Working with a purchasing cooperative also increases efficiency for businesses. The cooperative aggregates the purchasing needs of multiple organizations, providing businesses with access to a larger customer base. This eliminates the need for businesses to individually market themselves to potential clients, as the cooperative's membership already represents a diverse customer network. Consequently, businesses can efficiently reach a wider audience and potentially secure more sales and revenue opportunities.
Cost savings is another significant benefit of using purchasing cooperatives. These cooperatives leverage the collective buying power of their members to negotiate favorable pricing and terms with suppliers. Businesses that obtain contracts through a cooperative can take advantage of these pre-negotiated rates, resulting in cost savings on goods, services, or equipment. This is particularly advantageous for smaller businesses that may not have the same negotiating leverage or purchasing volume as larger organizations.
In addition to cost savings, purchasing cooperatives provide businesses with established supplier relationships. The cooperatives have nurtured relationships with a network of reliable suppliers over time. By obtaining contracts through the cooperative, businesses can benefit from these existing relationships, reducing the effort and risk associated with identifying and vetting suppliers individually. This streamlines the supplier selection process and ensures businesses receive quality products and services.
Purchasing cooperatives also offer expertise and support to businesses throughout the procurement cycle. These cooperatives possess industry knowledge and experience in navigating complex procurement processes. They can provide guidance, support, and insights to businesses, helping them make informed decisions, adhere to procurement regulations, and mitigate risks. The expertise and support from purchasing cooperatives can significantly enhance businesses' procurement capabilities.
Moreover, partnering with a purchasing cooperative encourages long-term collaboration. Cooperative members often engage in multiple contracts and projects over time, fostering ongoing partnerships. This can lead to additional business opportunities, repeat contracts, and a more stable revenue stream for businesses. The cooperative environment encourages relationship-building and the cultivation of sustainable business connections.
Overall, purchasing cooperatives offer businesses a compelling alternative to traditional RFP processes. By joining a cooperative, businesses can benefit from streamlined procurement, increased efficiency, access to a broader customer base, cost savings, established supplier relationships, expertise and support, and the potential for long-term collaboration. Embracing purchasing cooperatives enables businesses to optimize their procurement efforts, focus on building relationships, and drive sustainable growth.
Examples
An example of a purchasing cooperative is Harris County's Department of Education (HCDE) in Texas, which has created three procurement cooperatives:
Choice Facility Partners, a facility services cooperative which serves government bodies throughout Texas and elsewhere in the United States [4]
Gulf Coast Cooperative, a food cooperative primarily serving schools, and
HCDE Purchasing Cooperative, offering more than 275 vendor contracts for commodities.[5]
Various schools, colleges and universities, municipalities, counties, municipal utility districts and other governmental entities sign an interlocal contract with HCDE, thus becoming members that can access any of the multitude of competitively bid and legally awarded contracts available through their cooperatives. To optimize processes, these three cooperatives were combined into Choice Partners national cooperative in 2012. Through use of Choice Partners, HCDE generates revenues to support the school districts within Harris County.[4]
In a similar way, Catholic parishes in the Archdiocese of Cincinnati, Ohio, have established a cooperative purchasing process to combine buying power and reduce costs.[6]
Missouri State Statutes (Chapter 34, Chapter 37 and Chapter 67) authorize the State's Division of Purchasing to conduct a cooperative purchasing program, and allow eligible local governments, political subdivisions, and quasi-public governmental bodies to participate in the program.[7]
Costs
Many cooperative purchasing programs levy charges for usage and access. Fees may be assessed as an annual enrolment fee or a transaction fee such as a levy of 1% or 2% on the value of every purchase.[3]
Purchasing cooperatives typically generate revenue to sustain their operations and cover administrative costs by charging fees to vendors or suppliers. These fees are designed to compensate the cooperative for the services it provides in facilitating transactions and managing the procurement process on behalf of its members. The specific fee structure may vary depending on the cooperative and the industry it operates in, but some common methods of fee collection include:
Membership Fees: Purchasing cooperatives may require vendors to become members and pay an annual membership fee. This fee grants vendors access to the cooperative's network of members and the opportunity to bid on contracts or supply goods and services to the cooperative's members. Membership fees often vary based on the size and scope of the vendor's business.
Rebates or Commissions: In addition to membership fees, purchasing cooperatives may negotiate rebates or commissions with vendors based on the volume of purchases made by cooperative members. These rebates or commissions are typically a percentage of the total sales generated by the cooperative's members for a particular vendor. They provide an incentive for vendors to offer competitive pricing and preferential terms to the cooperative's members.
Administrative Fees: Purchasing cooperatives may impose administrative fees on vendors to cover the costs associated with managing contracts, coordinating procurement activities, and providing support services. These fees help offset the expenses incurred by the cooperative in maintaining systems, personnel, and infrastructure required for efficient procurement operations. Administrative fees can be structured as a flat fee per transaction or as a percentage of the value of each transaction.
Marketing or Advertising Fees: Some purchasing cooperatives may charge vendors marketing or advertising fees to promote their products or services within the cooperative's network. These fees are typically used to fund marketing campaigns, trade shows, or promotional activities that increase the visibility of vendors and drive sales. Marketing fees can be based on the vendor's participation level or tied to specific marketing initiatives.
While these fees contribute to the financial sustainability of purchasing cooperatives, they are generally intended to be fair and reasonable. The cooperative's goal is to create a mutually beneficial relationship between vendors and members, ensuring competitive pricing, quality products, and efficient procurement processes. The fees collected from vendors are often reinvested in the cooperative's operations, allowing it to continue providing value to its members and supporting their collective purchasing needs.
