In an article I wrote in August of 2017, I shared a story about how the city of Kansas City uses Cooperative Procurement contracts to enhance its buying power.
Since that time, I have learned about a number of ways that cooperative buys can be used and I have leveraged cooperative contracts in my own practice.
Another article I found in December of 2017 also references cooperative contracts. This time the entity leveraging cooperative buying was the procurement department of Kirkland Washington.
In that article, Michael Keating interviews Greg Piland purchasing agent for the city of Kirkland.
Piland shares the benefits of using cooperative contracts and tells us that cooperative contracts are an essential part of his City’s strategy for dealing with peaks in demands.
Cooperative contracts are quite common in government procurement, but seem to have had less traction in the private sector.
I’m aware of very few cooperative contracts being used in private industry, but in those rare exceptions, I find that they offer a great deal of benefits for Companies that opt-in.
One of the benefits of cooperative contracting is in time savings.
In a recent real-world example, I leveraged a piggy-back cooperative agreement to engage a contractor on a project with a very aggressive schedule.
By leveraging an existing cooperative contract I performed minimal negotiations to secure highly competitive favorable rates and terms for a manufacturing Client under a strict time constraints.
Under similar circumstances without a cooperative agreement, securing the same or similar terms would have required at least 6 weeks of procurement time. Having the benefit of pre-negotiated rates and having a pre-qualified supplier saved tremendous time and effort without elevating risk.
Repetitive work breeds consistent delivery.
Ever since the industrial Revolution business leaders like Henry Ford taught as that repetitive work improves the speed of delivery. At its core, cooperative contracts benefit from the same principle.
By aggregating goods and services across multiple buyers to a limited number of sellers, the seller naturally becomes more consistent in their delivery. This means the quality of the service will improve over time.
Cooperative agreements reduce vendor margins by driving higher volumes of sales.
No matter how large your organization may be, when you aggregate your buying power with the buying power of another organizational everyone benefits.
Vendors are typically able and willing to reduce their margins in exchange for higher volumes of sales. This is most effective with respect to goods but the price of services can be improved too.
Higher volumes also eliminates the Vendor’s costs.
Another way that cooperative agreements improve costs is because higher volumes of goods (and some services) reduces the provider’s costs for providing those goods and services. Manufacturers are able to reduce the cost of raw materials when they can buy in bulk, the savings on raw materials translates into reduced cost to make the product.
Aggregated spend drives cost savings by promoting aggregated purchases of materials.
The more often a Vendor repeats a process, the more efficient they become at delivery.
Good manufacturers are constantly focused on how to create a more efficient workflow. This can be from a slight change in the way a product is handled or a reduction in scrap waste. No matter how they get there, manufacturing efficiency is the result of high volumes of production. This translates into additional savings in cost and time.
High volume production breeds efficiency reducing time and cost for everyone.
Cooperative agreements are not for everyone, but there are some distinct advantages that may benefit some organizations. Negotiating a cooperative agreement takes time and effort. Conditions have to be right for the Vendor and for the Buyers.
Nevertheless, when your buying power is limited, joining forces with another organization may represent a win for all parties.
What about you? Have you used cooperative agreements? Do you think cooperative agreements are a good idea? Have you had any negative experience with cooperative agreements? Tell me your stories.
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