Grasping the Grail of Cooperative Program Differentiation

Twenty years ago, when national cooperatives[1] were just starting to form and piggybacking contracts and participating addenda were being added to the procurement professional’s toolbox, there was a compelling value proposition that promised these cooperatives’ customers (“members”) great savings of time, effort and the greatest reductions in overall cost. Whether real or perceived, savings across these measures drove the steady growth of early national programs for nearly two decades. Today, roughly twenty percent or $350 billion, of state and local government spending happens through contracts promoted by cooperatives[2] at the local, regional and national level.

With a market channel generating that kind of spend volume, it’s no wonder that we’ve witnessed tremendous growth in the number of cooperatives. The sheer number of cooperative programs, all representing the same value proposition, suggests that the value is there. The entry of private group purchasing organizations (GPOs) and private equity interest in this space in the past three years is further evidence of the success and entrenchment of cooperative programs in the public sector.

For those who championed the cause of cooperative purchasing for two or more decades and advocated for its relevance and value at a national level, there is much to celebrate. And just as we recognize this period as a milestone moment of recognition for GPOs as viable enterprises supporting government procurement, we look to the future and question whether current GPO practices are sufficient to attract new agencies and sustain the engagement of existing customers.

Twenty years equates to generations of people, market and technological development. Today’s public procurement transactional environment demands a higher return on promises of efficiencies and savings. Why? Consider what we have learned over twenty years of experience with national cooperative business models, the expanded capacity provided by ever-evolving technology solutions and new providers across all dimensions of organizational operations, and our individual, non-professional experiences as online consumers. We have collective, first-hand knowledge of how effective well-connected business systems can be and, by contrast, those that are not so well-integrated. We know what is possible and realistic, and our expectations have changed accordingly.

Can cooperative contracting due diligence be efficient?

From a procurement perspective, gaining efficiency and/or cost savings justifies considering cooperative purchasing as one possible contracting solution. The challenge is distinguishing the best cooperative contract option from among the many. The more difficult and time-consuming it is to conduct due diligence and discern the best undermines that promise of efficiency and casts doubt on the merit of regularly looking to cooperative programs as a contracting alternative.

The larger cooperative programs have been tuned in to the differentiation challenge for years, prompting more progressive programs in the early-mid 2010s to post all contract formation documentation along with the final contract on their websites. This positive first step helps procurement quickly establish whether a contract is eligible for their use and may satisfy their basic needs. Of course, as with all things normalized, this once program-differentiating service is now a given, an expected base level of service required of a program to be included as an option for consideration.

The Path to Growing Customers, Engagement and Contract Volume.

GPOs in the public sector share a marketing problem familiar to many of the suppliers represented in their programs. Specifically, the products they offer are in many way commodities in the marketplace. Consider that there is nearly as many MRO and office supplies contracts as there are cooperative programs. Not to diminish the offerings of any supplier or manufacturer, but any one contract in a category looks much like another. How can a GPO break through the leveling effect of commoditization?

First, to reestablish their presence as a non-commodity, coops need to acknowledge that their customers’ expectations and the market environment have evolved beyond the context that gave coops their great value and relevance in the first decade of the twenty-first century. Cooperative contracts are no longer unique or scarce. Internet search engines and sourcing technologies have eased supplier identification and contracting efforts. E-commerce sites, ERP- and member-based communities provide substantial price and performance transparency. Sourcing and comparative price information may still be a pain point at times, but anymore that is when contracting for more distinct or complex organizational needs (which generally are not well-suited to cooperative solutions anyway).

Second, cooperatives must become better aligned with their customers, and refine their identities and service levels to bring agencies greater value beyond the foundational value-add offerings of contract portal and market-facilitating activities.

A New Role and Identity for Coops

The traditional view of cooperative programs is defined largely by the contracts they offer; how they are created, their ease of access and how they are supported. But as noted earlier, GPOs need to grow beyond their commoditized functions and products to attract a larger customer base or even just ensure that they can continue to effectively engage and support their existing customers in the future.

To begin that transformation, here are two recommendations:

  • Adopt and deliver a convenience-for-customers orientation
  • Provide contract-based e-commerce functionality

Adopt a Convenience-for-Customers orientation

While every organization strives to be customer-centric, we all know that some businesses are more effective than others at delivering on that intention. To tweak the phrase “customer-centric”  and spark alternative ideas about what that means, consider what it means to create a “convenience-for-customers” culture. How easy are we to do business with? How easy is it for our customers to realize the greatest value from our products?

Cooperatives’ competitive arena is no longer based solely on the contracts they offer. Today, competitive advantage is determined by how effectively programs serve the underlying needs of their customers. Yes, their agency customers need compliant contract options, but what is it that drives them to look to cooperatives? First and foremost, convenience.

“Convenience” for procurement is an expediency, not a luxury. That point is reinforced with every economic downturn. Which is why programs that can provide customers greater support throughout the contracting lifecycle have so much opportunity to gain a market advantage among their peers. The easier a cooperative makes it for their agency customers to satisfy their underlying and business operating needs, the more valuable a resource that coop will be to the agency.

To provide an example and identify a specific area of opportunity where cooperatives can deliver greater value and convenience, let us consider the current cooperative contract due diligence paradigm.

Currently, an agency can go to a cooperative’s website to identify a right-fit contract. If one or more is found, they can serially download the contract(s), supporting documents, and participating addendum. That is generally the limit of what a cooperative program offers to their customers from a product perspective. That is helpful to a contract decision-making process, but only to a point. Wouldn’t it be more helpful if there was a capacity to compare contracts and their products and pricing on the program’s website?

Provide contract-based e-commerce functionality

Providing e-commerce functionality is a highly attractive, differentiating offering that would bring added value to government suppliers and to agencies. If a coop provides each customer a transactional environment for the specific contracts the agency has approved, the program could be seen as an important agency resource by all staff, not only those in procurement, with every purchasing episode.

Most large companies have e-commerce capabilities, but for their smaller counterparts who do not, a cooperative marketplace would be the online connection to a government customer they may not otherwise be able to offer. This opens up government business opportunities to a larger and more diverse supplier base, which benefits both the supplier and buyer communities.

Similarly, many large- and medium-sized agencies have the benefit of ERP systems to support their financial operations and, in varying degrees, procurement and warehousing functions. Even so, many ERPs have only a basic transactional environment for buying goods and services. Supplier catalogs, if accessible through the ERP’s purchasing module, can only be reviewed one at a time. Product comparisons have to be done manually, copying and pasting the relevant information from each catalog or external website into a document. Once assessed, the selected product’s information must be transposed back into the ERP’s requisition portal. In contrast to buying “the first product that suits my need” or buying directly from an online retailer or the nearest big box store, this high level of effort deters consistent, responsible purchasing decision making.

For these reasons and others, agencies desire solutions that provide a more consumer-like marketplace experience, both to better serve their internal customers and to improve overall spend management.

Beyond contract directories

Cooperatives that already provide contracts in a directory environment have taken the first step toward a marketplace concept. The former U.S. Communities-sponsored website, SourceConnect, expanded their program’s contract directory to include contracts from other cooperatives and agencies to create a portal making contract identification and document access easier. Though it did not provide users automated contract analysis comparison, “shopping” functionalities, or ERP integration, SourceConnect was a great resource to the many agencies that regularly took advantage of it. Imagine the power of a SourceConnect with modern AI-powered marketplace functionalities that could stand alone or integrate with an ERP. Early-implementing GPOs providing agencies a resource like this would leap-frog ahead of their competitors.

Today, we can count on one hand the programs that have recognized the potential and implementing an e-commerce platform for their contracts. The value proposition for a cooperative-centric marketplace is relevant to all agencies of all sizes, whether or not they have a marketplace of their own. For agencies who have a marketplace, the contracts available from a coop’s marketplace are already e-commerce enabled and can quickly go live in the agency store. Agencies without their own e-commerce portal would now have one, giving them an Amazon-like buying experience for all the approved contracts from that program.

Cooperatives already emphasize the value and savings that can be gained from their contracts. Through a marketplace of contracted suppliers’ catalogs, they can deliver on that promise without qualification.

Time to differentiate and grow.

One of the great arguments for including cooperative contracting as part of a procurement strategy is that time saved can be focused on more complex procurements, contract management, supplier relationships, business analysis, and program and people management. Though the public sector market has evolved over the past 20 years, cooperatives have largely not kept pace with the technologies that would save more time and tax dollars for their customers; technologies that would grow the value of cooperative program-public agency relationships and clearly differentiate leading programs from their peers.

With convenience-for-customer as their guiding principle and customer-enabling marketplace technologies, cooperatives can emerge from commodity status, elevate their brand and reestablish their preeminence as leading value generators for public agencies.

The transformation can begin today.

Ready to start? Don’t believe it?  Let’s talk.

 

Brent Maas
Vice President of Marketing
bmaas@equallevel.com

 


[1] For a foundational understanding of cooperative purchasing and programs, a few articles to reference:  “What is a Public Sector Purchasing Cooperative?”, “Cooperative Procurement: Great Value (Great Confusion)” and “Use of Cooperative Contracts for Public Procurement”.

[2] NIGP: The institute for Public Procurement. Public Procurement Benchmark: 2017 Survey Report. 2017. nigp.org; Onvia Market Research. 2018 State & Local Government Contracting Forecast. 2017.

 

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