Purchasing or shared services cooperatives are cooperatives whose members are businesses that join to improve their performance and competitiveness. Like all cooperatives, the purchasing or shared service cooperative exists to meet its members' needs, and they are able to provide almost any service for their members. Belonging to a purchasing or shared services cooperative allows small businesses to compete with “big box” competitors.
Members of these cooperatives have found that they can adapt quickly to changing economic conditions rather than become victims of them – they can lower their operating costs by pooling purchasing power for goods and services. Through these cooperatives, businesses and public entities have found they can reduce costs, respond better to competition, and improve overall performance.
Members also receive these economic benefits while maintaining the independence of their business. A cooperative is one way for individual store owners — the backbone of Main Street — to prosper and effectively meet the challenge of chain stores.
Services
Purchasing cooperatives provide many services to meet the needs of their members. For example:
- negotiating prices with vendors
- purchasing of supplies or inputs for the business
- offering private labeling or branding of products
- purchasing items for resale
- providing joint advertising and marketing
- securing common billing services
- providing joint delivery services for products
- providing common reservation or scheduling services
- contracting for services on behalf of members
- providing or contracting for insurance, health care, or other benefits
- warehousing products for members
- offering training and educational activities
- providing consulting and business planning services
- providing management services for members
In offering services, purchasing cooperatives either provide the services directly or contract to have another vendor provide the services directly to the members. Products for the members are warehoused by the cooperative or shipped directly from the vendor to the members. The cooperative may take title to goods it purchases and resells or it may instead act as an agent for its members with sales directly from suppliers to the members. However the cooperative chooses to provide its services, the aim is always to provide the best quality at the lowest possible cost.
Operations
Purchasing/shared services cooperatives are typically organized as corporations whose members invest capital in the corporation. The members democratically elect a board of directors to make policy for the cooperative. The board hires a manager or chief executive officer to run the business. This executive is responsible for hiring additional staff to handle the day-to-day operations of the business.
While the cooperative is organized to provide services to its members at the lowest possible cost, it must still be a viable business. Thus, the cooperative's operating budgets are developed so expected income exceeds operating costs. Part of the earnings generated can be retained by the cooperative as ownership capital. The rest is refunded to members based on their use of the cooperative. These are called patronage refunds or patronage dividends.
Cooperative benefits come not only from initial savings through group purchasing power, but also from sharing the earnings of the cooperative based on the patronage or use of the co-op. Wholesale clubs may give discounts, but profits and power are not returned to the members.
Examples
- Best Western is the world’s largest hotel chain, owned by the independent operators of more than 4,000 hotels in 80 countries.
- ACE, True Value, and Do it Best are all purchasing co-ops, which collectively are owned by more than 13,000 independent hardware stores.
- Thanexus is a New Jersey-based cooperative of funeral home operators, which provides its members with human resource, communications, and financial services.
- The Western Area City County Cooperative (WACCO) is made up of nearly three dozen municipalities that have pooled their buying power for everything from road salt to administrative trainings.
Resources
- BizUnite assists start-up businesses by using the cooperative model to help them attain the necessary size and structure to have recognized purchasing and market power in their industry.
- The National Cooperative Business Association (NCBA) provides many services to its member purchasing cooperatives including networking opportunities, education on cooperative organization, referrals for legal and accounting issues, publications, government relations activities, and referrals for technical assistance. NCBA also sponsors an annual conference LINK! and a quarterly conference call for executives of established purchasing cooperatives.
