Steps to Starting a SuccessfulPurchasing Cooperative

Part 4

Startup of a Purchasing Co-op

• Welcome!

• The webinar will be recorded and available at www.ncba.coop

• We welcome your questions! Submit them anytime by typing them into the chat box in the control box on your screen.

Ian GrayPresident & CEO

Don CollyardPrincipal

Greg DinsdalePresident & CEO

Lisa StolarskiDirector

Steps to Starting a SuccessfulPurchasing Cooperative

Part 4: Startup of a Purchasing Co-op

Part 4: Startup

• Major Steps

• Technology Strategy

• Expertise & Resources

Major Steps

• Obtain commitment of Founding Members– Put up the “cash” through investment

– Be aware of security laws

– Commit to help recruit other members

– Commit to participate in preferred supplier negotiations

Major Steps

• Incorporation process– Governance Model

– Bylaws

– Founding Directors

– Banking, Auditors

– Security Laws

• Hiring of General Manager– Define strategic priorities & milestones, etc.

Major Steps• Co-op’s branding

– Website, domain name (.coop)

– Marketing materials

• Recruitment

– Membership

– Credit criteria / policies including AR insurance

– Geographical exclusivity or other restrictions

Major Steps

• Target suppliers and purchase categories

– Initial targets

– Create Preferred Vendor Selection Committee

– Meet with suppliers, receive proposals

– Committee selects supplier(s)

– Identify type of endorsement (Listed vs. Preferred vs. Preferred Exclusive)

Major Steps• Decide finance & technology infrastructure

• Best solutions depend upon:

– The billing / payment model selected

– Whether Event or Group Buying is the priority

– Few or many members

– Few or many suppliers

– Budget for technology expenditures

IT decisions at startup determine the future!

Technology Requirements• Accounting system

• Rebate tracking systems

– Member purchase & rebate reporting

– Supplier sales and rebate obligation reporting

• Event or Group Buys

• Electronic invoicing (EDI) with suppliers

• Member services

• National accounts / Marketing website

• On-line catalog / Member ordering

Accounting Systems

• Requirements tend to be simple but unique

• No off-the-shelf accounting software meets all requirements

• Choices:

– Supplement accounting system with “outside” reports

– Middle strategy of partial integration

– Custom strategy of accounting package written to meet specific requirements

Rebate Tracking• A critical component

• Rebates need to be:

– Timely

– Accurate

• Members receive audit reports of rebates by invoice

• Co-op tracks rebates from suppliers…by invoice, preferably by item.

Rebate Tracking

• Central Bill / Central Pay Model with EDI

– Timely: know where you stand every day

– Creative: bigger rebates on special items

– Accurate: can be audited at line-item level

– Creates confidence

– Co-op is in complete control

Rebate Tracking System

• Direct Bill / Central Pay by the Co-op

– Similar benefits to Central Bill

– Usually at invoice totals only

– Time lag of two to six weeks

– Accurate and auditable

– Co-op loses some of the control

Electronic invoicing results in additional benefits

Rebate Tracking System

• Direct Bill / Direct Pay by the Members– Relies upon supplier reports

– Least timely

– Less accurate

– Unable to provide any form of audit for members

– Co-op is viewed as being “out-of-the-loop”

Major problem: Reconciling supplier reports to member invoices

Software for Event or Group Buy

• Consolidates the purchases of specific products for better results

• Suppliers will compete aggressively for a “ready to fill” large volume order

• Demonstrates to members that the Co-op can save them money

Itemized purchasing data is extremely beneficial!

• Leads to focused, volume buying

• Price convergence at the lowest price

• Optimal purchase timing

• Knowing as much or more than the suppliers when you negotiate with them

Software for Event or Group Buy

Supplier EDI (Electronic Invoicing)

• EDI captures details of purchases

• EDI Program should allow suppliers to send by their preferred method (X12, ASCII, XML, Web-form)

• Email must be avoided – unsecure and no confirmed delivery

• Co-op should outsource this function to the experts

Member Services

Types of interactions with members:– Transactional documents (invoices, statements,

payments)

– News and event promotions

– Confidential information (program details, member lists, rebate reports)

– Support calls to address issues

Member Services: Transactional

• Transactions must be delivered “securely” with a confirmation

• Technology must accommodate everyone

• Service is complex. Imperative to “get it right!”

Member Services:News & Promotions

• Members need to feel part of the Co-op

• Website provides complete and secure information

• Social media strategy involves members

Member Services: Confidential Info

• Secure area of website for:– Member lists

– Preferred supplier lists

– Basic program details (Terms Sheets)

– Bylaws, policies

• Rebate program details never published in written form

Member Services: Support Calls

• CRM / Support Call Tracking Software

• Requires current Member contact information

• “Link” a support call to both member and supplier

• Prospect tracking for member recruitment

• Beware of upkeep for multiple databases!!!

National Accounts & Marketing Support

• National Account Programs can grow sales

• Key is a common pricing and billing system regardless of which member is providing the product

• Challenging because computer systems differ among members

National Accounts & Marketing Support

Purchasing Co-ops use technology to support member marketing:

• Websites to help drive customers to their members

• Product and image databases to enable members to publish their own on-line catalogs

• Electronic “Sale Flyers” for their members

Online Ordering from Suppliers

• Initially seen as a big opportunity – Biggest issue is lack of consistent numbering

between members’ systems and suppliers’ systems

– Changing ordering habits is very difficult

• Benefits are hard to measure – May reduce labor costs at member level

– Definitely adds cost at Co-op level

Resources

• National Cooperative Business Association• www.co-opsusa.coop• www.ncba.coop• List of cooperative development centers• Consultants• www.buyinggroupservices.com• Etc.

Ian GrayPresident & CEO

Don CollyardPrincipal

Greg DinsdalePresident & CEO

Lisa StolarskiDirector

Q&A: Steps to Starting a SuccessfulPurchasing Cooperative

Part 4: Startup of a Purchasing Co-op

Steps to Starting a SuccessfulPurchasing Cooperative

Prepared by

Ian Gray, President & CEOBuying Group Services, Inc.

Don Collyard, PrincipalMain Street Cooperative Group

Meredith Rafferty, Co-op DevelopmentNorthwest Cooperative Development Center

Lisa Stolarski, Executive DirectorCo-ops USA, NCBA

Diane Gasaway, Executive DirectorNorthwest Cooperative Development Center

Spring 2012

Part 4

Startup of a Purchasing Co-op