Save More, Stress Less: How Cooperative Procurement Works

Cooperative purchasing is vital for organizations seeking cost efficiency, better terms, and optimized processes. The strength of collective power means that businesses, public institutions, and nonprofits can open up opportunities that would be unavailable when acting alone, such as accessing bulk-purchasing discounts, securing favorable contract terms, reducing administrative burdens, and expanding their network of reliable suppliers.

The National Institute of Governmental Purchasing (NIGP)* defines cooperative procurement as optimizing business processes for organizations through shared resources and vendor negotiations for more favorable terms, which reduces purchasing costs. For example, a K-12 Broadband Procurement study** in New Jersey found that schools switching from decentralized purchases to a regional cooperative system experienced a 33% price reduction and six times faster broadband speeds.

Collective purchasing is the backbone of cooperative purchasing organizations (CPOs) and group purchasing organizations (GPOs). Both models encourage collaboration to create maximum value, but the structural approaches and objectives differ, as we explain later in this article.

With the growing demand for co-op (cooperative) purchasing, new solutions are changing how organizations conduct such collaborations. One such solution for group and cooperative buying is the Virto B2B Group Buying Marketplace. It allows organizations to effortlessly transcend the intricacies of collaborative procurement with efficiency and value at each step.

This guide is intended as a how-to for those who are either just discovering the idea of CPOs or pursuing ways to enhance their current work.

A CPO is a member-driven entity that aggregates several organizations' buying power to obtain better procurement discounts and more convenient access to pre-negotiated contracts. CPOs are different from individual procurement, where individual organizations negotiate independently because CPOs derive an existing agreement negotiated by a lead agency (which has already vetted and solicited suppliers) as their primary contract. With this approach, many administrative burdens can be reduced, and procurement regulation compliance can be ensured.

The history of co-op purchasing highlights its critical role in addressing anticipated economic challenges. The earliest example is Benjamin Franklin's founding of the Philadelphia Contributionship in 1752, in which members pooled resources to insure other members' properties. This idea shows how to create collaborative business models that favor shared ownership and democratic decision-making.

In England in the mid-19th century, the Rochdale Society of Equitable Pioneers established basic principles of modern cooperatives—transparency, shared governance, and equitable benefit distribution. The Rochdale Principles, on which the buying models of the cooperative purchasing organizations are based, have mainly shaped today’s buying models.

The National Cooperative Business Association (NCBA) reports that there are about 250 purchasing cooperatives in the United States. These cooperatives play a significant role in aggregating the purchasing power of businesses in disparate industries to achieve cost savings and other benefits.

Member Ownership and Governance: Collectively, members oversee priorities, contracts, and supplier agreements with transparency and equity in mind. For example, cooperative purchasing benefits schools and universities by offering competitive rates for technology and supplies.

Cost Efficiency: Demand aggregation helps get bulk discounts and better terms, which is particularly valuable in sectors with limited budget resources. Local governments rely on CPOs to access contracts for shared resources like maintenance equipment and IT systems.

Flexibility and Resilience: CPOs act as a stable framework for sharing resources and cost control during periods of economic or social uncertainty. For instance, hospitals can use CPOs to procure medical supplies to save costs while maintaining compliance with industry standards.

The process typically involves four key roles:

1. Lead Agency

The lead agency is responsible for identifying a procurement need, soliciting responses from suppliers, evaluating proposals, awarding contracts, and maintaining contract administration. This agency ensures the contract complies with procurement laws and provides competitive pricing.

2. Supplier

Suppliers respond to the solicitation by offering competitive terms. Once selected, they enter into a direct contract with the lead agency, meeting the requirements specified in the solicitation.

3. Cooperative Organization

The cooperative organization supports solicitation and markets the resulting contract to potential member agencies. It acts as a bridge between the lead agency, suppliers, and collaborative members.

4. Cooperative Members

These agencies, businesses, or entities register with the cooperative to use the pre-negotiated contracts, often called “piggybacking.”

1. Joint Solicitation

Joint solicitation occurs when two or more organizations collaboratively pool their purchasing requirements into a single solicitation effort. This forward-looking approach allows participating entities to aggregate demand, negotiate collectively, and share the benefits of the resulting contract.

• The organizations define their everyday needs and agree to issue a single solicitation.
• The contract is awarded based on the collective evaluation of supplier responses. 
• Each participating entity is bound by the terms of the final contract, ensuring clarity and commitment. 

• Suppliers know the exact volume and service level requirements, enabling them to offer more competitive pricing.
• The collective effort improves the negotiating position of all participants, often leading to better service terms. 

• Requires significant upfront collaboration and coordination among participating entities.
• It may limit flexibility if specific organizational needs deviate from the agreed requirements.

Example: A group of school districts collaborating to procure technology solutions through a joint solicitation ensures they secure the best pricing while meeting standardized educational requirements.

Piggybacking allows an organization to utilize a contract established by another entity, even if it did not participate in the original solicitation process. This retrospective approach is particularly beneficial for smaller entities needing more resources or capacity to conduct large-scale solicitations.

• A lead agency negotiates and awards a contract to a supplier.
• Other entities, called piggyback participants, adopt the same contract terms and conditions for their procurement needs.
• Piggyback participants typically register with the buying cooperative to gain access to the contract.

• Reduces administrative effort for smaller organizations by leveraging existing agreements.
• Provides access to pre-negotiated pricing and terms without the need for individual solicitation processes.

• Pricing may not be as competitive as joint solicitation because the awarded supplier does not have precise visibility into the total purchasing volume.
• Entities joining later may miss the initial collaborative benefits, such as influencing contract terms.

Example:  A small municipality requiring maintenance equipment could piggyback on a contract established initially by a larger city, allowing it to secure competitive pricing without undergoing a formal bidding process.