Most companies across the board are dealing with a litany of economic challenges and financial pressures. It seems as if ‘doing more with less’ is no longer a catch phrase but a means of survival.
These are the days of budget cutbacks, revenue reductions, and limited resources. As purchasing requirements become more complicated and budgets become more strained, procurement professionals are forced to continually seek innovative ways to deliver savings and efficiencies. Many organizations don’t realize just how much a purchasing cooperative can help. As an important tool in the procurement toolbox, the benefits available through a purchasing cooperative may be more valuable now than ever before.
Cooperative Purchasing by Definition
A cooperative purchasing model allows a group of buyers with a common interest to pool their buying power in order to negotiate more favorable pricing on goods and services. Cooperatives—also known as group purchasing organizations or purchasing consortia—are set up to aggregate purchasing volume from many different companies and increase the purchasing power from each individual.
According to the National Cooperative Business Association (NCBA), there are about 250 purchasing cooperatives in the U.S. offering group buying and shared services. Many of these cooperatives offer contracts specifically geared toward the scientific arena, with products and services ranging from lab animals, equipment and gases, to facility washing systems, sterilizers, microscopes, centrifuges, and even lab furniture. There are a number of industry-leading distributors that have formed partnerships with cooperatives including VWR and Fisher Scientific, just to name a few.
While cooperatives can vary in size and membership base, they have all basically been built upon a common set of core values and principles. The NCBA describes these principles as:
- Voluntary and Open Membership
- Democratic Member Control
- Members’ Economic Participation
- Autonomy and Independence
- Education, Training, and Information for Members
- Cooperation among Cooperatives
- Concern for Community
So how can cooperative purchasing help you?
Cooperative purchasing can be an important element of any organization’s procurement strategy by providing purchasing professionals with the opportunity to be proactive. It allows member organizations to aggregate volume of specific commodities, and in doing so, achieve better pricing than they could have on their own.
Think of it this way: you’re getting ready to place an order for a dozen animal cages. You call your local supplier and get a quote for 12 cages. You place the order and pay the rate for 12 animal cages. Now imagine you place the same order through a purchasing cooperative that has a contract with that same supplier. Only this time, the pricing you receive is based upon the potential spend of an entire membership that may be ordering through that same supplier. The saving opportunities are exponential.
But it’s about more than just good pricing.
Cooperative purchasing can also deliver significant time efficiencies in terms of contract development. Consider the amount typically spent on administrative costs associated with preparing a bid, including research, resources, and time. By allowing the contract management and administrative functions to be provided by the cooperative, the costs associated with these time consuming tasks can be significantly reduced, if not completely avoided.
As an added benefit, many cooperatives utilize a competitive bidding process that meets the procurement standards or requirements for most purchasing professionals. This too, can be extremely advantageous from a time saving perspective.
The following are a few of the many benefits members can expect to take advantage of when utilizing a cooperative:
- Strength in numbers: the sheer volume of purchasing power aggregated by the size of the cooperative provides each individual member with economies of scale that they would not have been able to achieve on their own. This alone is a tremendous benefit.
- Superior pricing: a purchasing consortium is generally able to negotiate lower prices for goods and services than any of the single members in the collective. Leveraging this aggregate purchasing power allows members to take advantage of superior pricing. In addition to up-front pricing discounts, many cooperatives provide lower costs in other ways, such as rebates for certain products, or patronage discounts.
- Best practices: a cooperative provides access to the combined knowledge of all of its members, which it can tap into to identify best practices and efficient methods to reduce total cost and extend efficiencies. This combined knowledge and expertise is invaluable to the cooperative in terms of ensuring that it is always employing best practices, processes, and technology. This broader base of experience also lends itself to the development RFPs for the products and services that are most relevant and essential to the membership. With that said, a cooperative with a membership that includes a community of animal research professionals could share input, ideas, and past experiences to ensure the development of contracts that include the scientific equipment and supplies to meet a variety of needs.
- Strategic value and time savings: many procurement professionals simply don’t have the time or the resources to research new product categories, source competitive quotes, and negotiate pricing. These individuals realize a tremendous time savings when a contract development process has already been conducted by a cooperative. By eliminating time spent on more labor intensive tasks, resources can be reallocated to focus on more strategic projects. Additionally, procurement professionals are provided with more time to establish and develop the important collaborative relationships that are so imperative to a successful organization.
- Spend analysis and quality contracts: many cooperative purchasing organizations will conduct a spend analysis across the membership to identify goods and services, as well as suppliers, that are the most meaningful in particular contracting areas. This will result in a supplier portfolio that includes many of the suppliers most committed to meeting the specialized needs and delivery requirements of members.
Finding the Right Fit
It’s easy to see why many organizations are investigating the feasibility of joining a purchasing cooperative or group purchasing organization. The savings are both proven and quantifiable. There are, of course, challenges associated with this kind of procurement method. Procurement professionals would be wise to do the research before choosing to go the cooperative purchasing route.
The following are just a few important questions to ask when determining if a particular purchasing cooperative is the right fit:
- Does the cooperative charge a membership fee?
- Is there a minimum purchase requirement?
- Does the cooperative offer any value-added services and/or member support?
- Does the cooperative’s bidding process meet the procurement standards at your organization?
- Does the cooperative offer the products, services, and suppliers that meet your specific needs?
- Does the cooperative offer regular price, product, and contract updates? How is the information communicated to the membership?
- Does the cooperative offer local/accessible representation?
- Will you be able to quantify the time and/or cost savings realized through participation in the cooperative— in other words, is it worth it?
Cooperative purchasing is a time-tested model that can make a significant contribution to its members’ bottom lines by lowering costs, reducing redundancy, and freeing up valuable resources for reallocation to other strategic initiatives. Cooperative contracts are only useful, however, if they deliver more than cost savings. The time and process efficiencies, knowledge, and expertise available through a cooperative can be priceless.
Ultimately, a company should utilize a cooperative that will act as a reliable business partner in helping to support its mission and achieve its fundamental goals.
Nicole Katz is the Communications & Public Relations Specialist for E&I Cooperative Purchasing, 2 Jericho Plaza, Suite 309, Jericho, NY; (800) 283-2634; nkatz@eandi.org; www.eandi.org.
