Managing Cooperatives

• By Michael Fickes
• 03/01/13

K-12 school procurement departments have embraced purchasing cooperatives as the answer to shrinking staffs, rising workloads and declining budgets.

“The idea behind consortium buying is aggregating the spending to get a better price,” says Rick Gay, CPPO, the purchasing manager for Baltimore County Public Schools in Maryland.

Buying through a cooperative organization also enables you to turn over the time-consuming work of issuing invitations for bid (IFBs), requests for proposals (RFPs) and requests for quote (RFQs). With a cooperative, all you have to do is issue a purchase order and piggyback on one of their contracts.

More than that, a good cooperative will assign the work of issuing solicitations, evaluating responses and making awards to experts. Not many people, for instance, know anything about buying roof maintenance or new roofs. A good co-op will assign the work of developing a contract for roofing to an experienced construction buyer.

Less work, good prices and higher-quality goods and services — sounds great, but it doesn’t always work great. While purchasing cooperatives will reduce your workload, there is still plenty of work to do. You have to select the right cooperatives to work with. You have to comparison-shop the cooperatives before purchasing. And you have to manage relationships with cooperatives.

Selecting the right co-ops

“I tell people that there is no one cooperative group that has everything you need,” says Duff Erholtz, manager of membership services with the National Joint Powers Alliance (NJPA). “We recommend joining each one that can provide you with value.”

Erholtz also recommends studying the solicitation process of cooperatives you are considering. “It should be similar to the process used by the school or school district,” he says.

Everyone agrees with this recommendation. “This is due diligence, and it is very important,” says Kevin Juhring, general manager of Gaithersburg, Md.-based U.S. Communities Purchasing Alliance. “It is all about asking the right questions.

“Ask about the procurement process. It should be transparent. What kind of oversight is in place?

“Most important, do the procedures meet your legal criteria? Does it meet your standards for transparency and competitive bidding?”

“Any co-op should be able to provide bid documentation that shows their due diligence for each contract they hold,” says Mary Beth Brennan, cooperative purchasing representative with Milton, Pa.-based Keystone Purchasing Network. “We’re asked for this kind of documentation all the time, and we’re happy to provide it.”

It is also important to talk to prospective co-ops about accountability processes such as auditing. “We have internal pricing audits, for instance,” says Chris Penny, vice president of sales with Houston-based The Cooperative Purchasing Network (TCPN). “If an office supply company charges $99 for toner, we’ll audit the documentation that led to that price. We do the same thing when a vendor updates prices. This is part of our due diligence in managing the life of the contract.”

If you come to believe that a cooperative operates the way your business model demands, compare your needs to the cooperative’s offerings. Juhring recommends four steps.

• First, identify your largest and most expensive contracts. What options does the co-op offer you in these areas?
• Second, identify the products or services that are the most time consuming to solicit and procure.
• Identify products or services that you don’t have staff expertise in procuring.
•  Finally, benchmark the cooperative contract against your current contracts. Will you save money? How much? Is it worth it? Can you do better elsewhere?

There’s more. “After you analyze pricing, look into additional fees,” says Gay. “Does the cooperative set a minimum charge per order? Are there delivery charges, restocking fees and administrative fees? You have to add these charges to your costs to determine how much you are really saving.”

In today’s world, national cooperatives provide national pricing and trumpet the size of the discounts they provide, continues Gay. One national cooperative, for instance, says that one of its contracts provides discounts of 60 percent to 70 percent. But that is only for certain items selected by the lead agency, the term for the agency that handles the IFB. If those items are not the core items that you buy in volume, a discount of 60 to 70 percent won’t save you that much money.

“Don’t forget to check references,” adds Penny. “How many other schools and school districts use the cooperatives you are considering. What has their experience been?”

Once you’ve built a roster of cooperatives, it’s time to go shopping.

Shop the co-ops

In the January-February issue of Government Procurement magazine (www.govpro.com), Steven M. Demel, the purchasing manager for the Tacoma, Wash., School District, penned an article asking if cooperative purchasing has become too successful.

The article acknowledges the benefits of cooperatives: they save time, take advantage of group buying power and so on. In recent years, however, the cooperative industry has erupted with an enormous number of new co-ops, each issuing dozens if not hundreds of contracts.

Demel says that it is virtually impossible to carry out an apples-to-apples price comparison among all of the contracts available for the same kinds of items. He goes on to note that cherry-picking several co-ops for the best price puts purchasing managers back 15 years when they were soliciting and evaluating their own bids.

He’s right. Cooperative buying saves time on soliciting bids but you still have to put in the work of evaluating the prices offered by the coops. You have to shop the co-ops.

Baltimore County Schools is experimenting with an alternative. “We used to do our own solicitations for office supplies,” Gay says. “But no matter how we structured the solicitation, it would guarantee me several months of products from the losers. I got tired of that and changed it.

“We decided that one way we could assure ourselves of the best price no matter what was to add the nationally bid contracts of all the office supply vendors to our eProcurement platform. This enables our end users to comparison-shop and select the lowest prices from any of the contracts on the platform.

Better yet, through an agreement with the Association of School Business Officials (ASBO) of Maryland and the District of Columbia, Gay has made the electronic procurement platform available to all 23 school systems in Maryland.

“They can search for office products by vendor and other products by cooperative,” he says. “It’s worked out great. All of the companies are getting some business from me, and I don’t get a lot of complaints anymore. We’re even toying with the idea of taking it national.”

Managing co-ops

Finally, you have to manage your cooperative relationships. Things change over time, and a co-op that provided good pricing may no longer be competitive. You have to check.

Gay discovered this when he wondered if national pricing for office supplies was higher than pricing around the Baltimore region. “One of our school systems did its own office supply bid to compare against the prices from big consortia,” he says. “We solicited bids from office supply stores across a half dozen counties, compared the prices and picked a winning company.

“Then we looked at the 300 top items purchased from that company in on the national contract and compared the pricing to the regional contract. We spent $2.5 million on those products in FY 2012. The regional prices would lower that cost by 7.5 percent or $187,500 or more. In these fiscally hard times, that’s a great deal of money.”

Gay put that contract in place and made it available to Baltimore County Schools as well as other schools across Maryland.

No panacea

Cooperative purchasing isn’t a panacea. It won’t address all of your challenges, but carried out with due diligence, it will help. It will ensure better prices, if not the lowest price, and it will reduce the number of bid solicitations you will need to devote your time to.

Co-ops will also create new work for you: auditing the due diligence of co-op bids; evaluating new co-ops that come on line and re-evaluating those that you currently deal with; comparison shopping products carried in common by your co-ops and managing your co-op relationships.

All states now permit state and local government agencies to purchase through cooperative buying services. Some states, like Maryland, even encourage the practice. Maryland law says, for instance, that schools should investigate buying from cooperatives first before doing their own bids.

Don’t stop here. The co-op industry is huge, growing, fiercely competitive and constantly changing. You have to keep up with all of this. Check out the industry’s trade publications and subscribe to several. Most of all, stay in touch with your co-ops so that you can respond quickly and appropriately to changes that will affect you.