For our recent State and Local Procurement Snapshot of Q4 2017, we interviewed two leading thought leaders in the cooperative purchasing space to gather useful insights on cooperative trends among SLED governments and to help suppliers appreciate and consider this maturing form of government buying.
Part 2 of this 2-part series focuses on the future of co-op purchasing and ways in which suppliers can take advantage.
Summary of Recent Cooperative Purchasing Trends
As we explained in Part 1 of this series, cooperative purchasing – defined broadly as multiple agencies or government buyers making purchases off a single contract - continues to attract attention as one of the fastest growing and most dynamic parts of the procurement landscape. Our 2018 Forecast report noted that cooperative methods of purchasing – including co-ops, statewide contracts and other forms - have risen from 12% of all procurement spend in 2011 to 18-20% in 2017, a growth rate of 50-67% in six years.
Our 2017 agency buyer survey indicates that a majority of all state, local and education (SLED) agencies are now using one or more of the various types of cooperative buying methods including co-ops.
Future Potential for Growth in Co-ops
Jeremy Schwartz from the National Joint Powers Alliance spoke to us regarding the potential for further growth in purchasing from co-ops. Rather than slowing down as part of a shift toward maturity, he expects growth to continue at a healthy pace. This will include expansion in services and “areas of procurement currently not readily accessible through a cooperative model.”
From what we are seeing, growth among co-ops in the next two years will be at or greater than the pace reached over the past two years. There will be more awareness, greater understanding of strategic applications, better contracts, and further expansion of products and services competitively accessible.Jeremy Schwartz, Director of Operations and Procurement at the National Joint Powers Alliance
Profiting from the Co-op trend – Advice for Suppliers
We asked Tammy Rimes from National Cooperative Procurement Partners to share advice for vendors interested in working with a co-op. She recommends that companies first appreciate the strategic benefits in terms of marketing efficiency:
Being awarded a cooperative contract does save a company time and resources from having to research and submit proposals in response to multiple bids and RFP’s across the country. Cooperatives can be a great resource, and they can be seen as an additional marketing arm for your company and its contracts.Tammy Rimes, Executive Director for National Cooperative Procurement Partners
As she points out, being able to successfully and profitably fulfill a cooperative contract requires that the bidder does their homework and factors in issues of capacity and flexibility:
“When a supplier decides to submit a proposal response for a cooperative contract, they need to be fully aware of and able to rise to the challenge and expectations of having many different customers across the defined region. This includes providing customer service, deliveries, uniform pricing, invoicing and support. If a contract becomes highly successful, they need to be prepared for this type of expanded use and still maintain all the standards, terms and conditions of the contract.”
Smaller vendors that can have difficulty scaling up or fulfilling a flexible range of orders may need to focus on timely performance at the local or regional level, rather than commit to a national contract. One exception we found is that the co-op NASPO ValuePoint structures some of their contracts so that smaller vendors can still participate within certain geographic areas.
Finally, because a co-op contract will often involve a much larger combined volume than in a single traditional purchase, there will be an expectation for some degree of “volume discount” - even though the sizes of each individual purchase along the way might not normally qualify.
“One area to be prepared for is that contract pricing is often discounted, based on overall volume,” said Rimes. “Be cautious that the pricing is not set too low, in case the ultimate use is not what was expected, or contract adoption is slow during the first couple of years.”
Key Takeaways for Cooperative Purchasing
Suppliers should keep in mind the following rules of thumb and insights about cooperative purchasing:
- Cooperative purchasing is maturing and is no longer “emerging” but still has further to go in its development. Part of the key to unlocking that remaining potential will be in how quickly agencies can figure out new guidelines or best practices for when to use co-op contracts. Companies should expect growth to continue faster than the broader market and in the short-term there shouldn’t be any slowing.
- It is not just about commodities or routine purchases. It includes many services including technology solutions, installation and small construction repairs.
- The trend is driven by limitations in staff and funding resources.
- It can offer better access to the latest technology versus a long-term contract with a single vendor.
- Co-ops offer companies a great opportunity to maximize revenue while minimizing marketing costs on a per-unit or per purchase basis.
- Suppliers working with a co-op contract must be capable of offering uniform pricing, fulfillment and support regardless of how many individual purchases are made.
- These firms must offer a realistic discount based on the combined volume over multiple years, but not so deep that they can’t afford to keep supporting the contract terms if the demand is less than planned.
You can view the entire feature, as well as data and analysis on the state, local and education government contracting market, by downloading a copy of the report for free today.
Meet the Experts
Tammy Rimes formerly served in the City of San Diego for over 20 years in management positions for Financial Management, Equal Opportunity, Community Service Center Program and Water/Wastewater departments. In her current role as the Executive Director for the National Cooperative Procurement Partners, she advocates and educates on the concept and use of cooperative procurement.
Jeremy Schwartz, in his current position as Director of Operations and Procurement for the National Joint Powers Alliance (NJPA), provides leadership and strategic direction for NJPA procurement including category development, competitive solicitation and contract administration. Additionally, Jeremy leads the NJPA Operations Team in implementing an Integrated Management System.