Buy Newark

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Buy Newark: A Guide to Promoting Economic Inclusion through Local Purchasing.
Developing institutional policy priorities, building the capacity of local businesses, and cultivating relationships are the keys to implementing a successful Buy Newark effort.

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Buy Newark

  1. 1. Buy Newark:A Guide to Promoting Economic Inclusionthrough Local Purchasing
  2. 2. PolicyLink is a national research and action instituteadvancing economic and social equity byLifting Up What Works®.Find this report online at www.policylink.org.©2012 by PolicyLinkAll rights reserved.Design by: Leslie YangCover photos courtesy of (from left to right): The Star-Ledger; Brick City Development Corporation;iStockphoto.com; The Star-Ledger.Photos courtesy of (from left to right): p.2: The Star-Ledger; p.8: The Star-Ledger, p.12: Brick City DevelopmentCorporation; p.18: iStockphoto.com; p.32: iStockphoto.com; p.40: The Star-Ledger.
  3. 3. Buy Newark:A Guide to Promoting Economic Inclusionthrough Local Purchasing Solana Rice POLICYLINK
  4. 4. PolicyLinkTable of Contents4 From the PolicyLink Founder and CEO5 From the Brick City Development Corporation Executive Director6 Executive Summary9 Introduction13 Buy Newark: The Power of Local Purchasing19 Buy-Local Strategies, In-Depth33 Buy-Local Strategies in Action41 Bringing Local Purchasing to Scale: A Coordinated Buy Newark Initiative43 Conclusion44 Appendix46 Notes47 Acknowledgments Buy Newark 3
  5. 5. PolicyLink From the PolicyLink Founder and CEO During these uncertain times, many cities across Newark. Participants expressed the need to the country are exploring new strategies for address entrepreneurship and employment by ensuring a strong, inclusive economic recovery. supporting small and mid-sized business growth. Often, one source of untapped potential is right under their nose: a multitude of small Spurred by those conversations, and reflecting and mid-sized local businesses hungry for new a concern for greater equity in economic opportunities. Redirecting even small amounts development planning, this guide outlines of our collective buying power to qualified local steps for expanding local economies through enterprises could give local economies a whole coordinated citywide efforts. It offers numerous new outlook. Buy Newark: A Guide to Promoting descriptions of specific procurement strategies, Economic Inclusion through Local Purchasing and five in-depth case studies drawn from suggests that Newark, New Jersey, could be the around the country and the world. testing ground for such a new kind of initiative. It is hoped that this guide will serve as a tool Newark, a mid-sized, post-industrial city with a for creating a more prosperous, just, and population of 277,000, the majority of whom are fair economy in Newark and beyond. people of color, has been grappling with high unemployment yet is fertile ground for a coordinated local procurement effort. By encouraging local purchasing of goods and services, companies and institutions based in Newark can help to transform small businesses, foster employment, Angela Glover Blackwell and strengthen Newark neighborhoods. Founder and CEO PolicyLink Indeed, this report grew out of a series of convenings hosted by the Prudential Foundation to address issues of economic inclusion in4 Buy Newark
  6. 6. PolicyLinkFrom the Brick City DevelopmentCorporation Executive DirectorBrick City Development Corporation (BCDC) was BCDC offers a range of services for small businesses,formed under the leadership of Mayor Cory A. including access to capital and technical assistance.Booker to be the primary economic development As a recently designated Community Developmentcatalyst for Newark, New Jersey. We are organized Financial Institution (CDFI), we are excited toto retain, attract and grow businesses, enhance have the opportunity to find new mechanisms tosmall and minority business capacity, and spur real expand our lending capacity and support servicesestate development within the city. BCDC works to for small businesses. BCDC also provides Newarkactualize Mayor Booker’s vision of making Newark businesses with an opportunity to connect andAmerica’s leading city of urban transformation. network through events and workshops.Development is now on the rise: new businessesare sprouting, construction of two new hotels is Encouraging local purchasing can build on aunderway near the Prudential Center, and we have strong portfolio of BCDC services that could helphad significant office and industrial business attraction local businesses to operate more profitably inannouncements. Newark is on a strong trajectory; Newark. This guide is intended to support thoseand one groundbreaking at a time, we are working to firms, institutions, and agencies interested in localtake projects through the Pipeline to the Finish Line. purchasing and procurement. We appreciate the work of PolicyLink and the collection of ideasWith this renewed sense of possibility comes an presented herein. We will work on implementationopportunity to prove that a more inclusive economy strategies that will position Newark as a leaderis not only possible, but is also the cornerstone of a in sustainable economic development.more stable, prosperous, and vibrant city. BCDC isproud of its role as an economic development catalystin this new economy. We are committed to supportingthe growth and development of small businesses inNewark. BCDC has provided over $13 million in loans Lyneir Richardsonfor local businesses. Recognizing that small, minority‐ Executive Directorand women‐owned business enterprises (S/M/WBEs) Brick City Development Corporationare important in Newark’s economy, BCDC works tosupport many S/M/WBEs to open or expand in our city. Buy Newark 5
  7. 7. PolicyLink Executive Summary S mall, locally owned businesses are the bedrock of thriving economies. They employ millions of people, they invest in their neighborhoods and cities, What are the benefits? For the city, directing more money to locally owned businesses fosters job creation and boosts tax revenue, and they provide wealth-building opportunities for while keeping profits local where they can be entrepreneurs. A dollar spent at a locally owned reinvested in the community. This can attract business stays in the local economy longer than more businesses and residents to Newark. For a dollar spent with a company whose roots lie purchasers, doing business with local contractors elsewhere, and it has a greater ripple effect. can result in faster, less expensive, and more personalized service. It can garner goodwill This guide is designed for Newark, but it is useful in the community. And it can save money. for any purchaser or community seeking to improve local buying power. Newark has the building blocks to launch a strong buy-local initiative. Several of Newark’s Any purchaser can start a buy-local program— corporations and institutions already have local and this guide explains how. We also describe procurement policies, many local businesses stand how a coordinated citywide effort that marshals ready to expand, and organizations are in place to the buying power of major businesses, anchor provide small business assistance and support. institutions, and public agencies to increase local buying can be a critical component of Buying local is a potent economic development a city’s economic growth strategy. Newark, tool, but achieving results requires deliberate home to several large corporations, hospitals, action, supportive policies, and coordination and universities, is well positioned to realize the among stakeholders. Buy Newark: A Guide to significant benefits of a buy-local initiative. Promoting Economic Inclusion through Local Purchasing offers a roadmap for creating a program in a single company or institution and TERMS for building momentum for a citywide effort. The terms local procurement and local The guide presents strategies gleaned from best purchasing are used interchangeably in this practices around the country and beyond. guide to mean the directing of institutional, governmental, corporate, or business expenses The strategies described fall under three for goods, services, and contracting to locally broad categories, which form the foundation based businesses. Buying local is a somewhat for successful local procurement: broader term that can also include individual consumer purchases, but for this guide ‘buying 1. Institute Formal Local Preferences. These local’ generally refers to the adoption of local organizational policies establish buying local procurement and purchasing policies and/or a as a priority. They demonstrate commitment coordinated campaign to promote such policies. from the top levels of an organization, guide The term buy-local initiative will refer to a procurement practices, and make managers and citywide, coordinated policy agenda, while the staff accountable for success. term buy-local policy will refer to individual purchasers’ practices. 2. Build the Capacity of Local Businesses. A buy-local effort can work only if local firms6 Buy Newark
  8. 8. PolicyLink are able to provide needed goods and services Recommendations for a and are sound and sophisticated enough to work with large purchasers. Corporations and Coordinated Buy Newark Initiative public agencies can do a lot to groom local firms for bigger contracts and to connect them with Develop a citywide plan for implementation emerging opportunities. and partnerships that will share, coordinate, and support individual firms’ procurement3. Cultivate Relationships with the Local strategies. The plan should coordinate diverse Business Community. Purchasing is often stakeholders to inventory ongoing practices, expose about relationships, and purchasing agents challenges, identify strategies for implementing need to actively build positive, productive private and public policies, and track the impact relationships with local firms. Purchasers of the collective effort. This process should ideally can also take creative steps to make their result in designating one or two organizations to processes—from structuring contracts to facilitate partnerships, maintain a robust business bidding to payments—small business-friendly. database, and organize campaign marketing andTo unleash the power of buy-local strategies in outreach. The plan should also lay the groundworkNewark, the following recommendations are for how to finance and sustain these activities.offered for both institutional and corporatepurchasers interested in starting a program in Support specific local procurement strategiestheir organizations and for people interested by providing assistance to individual firms andin coordinating a citywide initiative. agencies in developing buy-local strategies and goals that fit their needs and resources.Recommendations for Purchasers Develop supportive policies. Create policies,and Procurement Offices practices, and outreach in the private, public, and nonprofit sectors that make contracting with small businesses and local businesses easier. The City ofIdentify internal and external stakeholders Newark and other public agencies can play a keywho can commit to changing policies and role in integrating local hiring and purchasing inpractices. Bringing people together can future development involving public subsidy as wellbe critical in identifying challenges and as in identifying current contracting opportunities.coordinating solutions across an organization. Communicate success. Measuring andDefine “local.” Individual purchasers may differ communicating success is an important part ofin how they determine what it means to be a maintaining and growing a buy-local initiative.business located in the city of Newark. Some Lift up early adopters of the buy-local programcompanies have one location in Newark but are for promotion. Consider complementing aheadquartered elsewhere. Finding a definition purchasing initiative with a campaign thatthat is precise, but easy to measure, such as a includes retail and consumer goods. This is alocal business license or evidence of local tax great way for residents to also support localreceipts can facilitate ease of evaluation, but businesses that are not serving as direct suppliersmay detract from overall deep local impacts. to larger institutions or other businesses.Establish goals and reporting to measurepotential impact on organizational returnand the local economy. Buying local is not charityand in many cases can improve the bottom line forlarge firms and institutions. Tracking and reportingwill also indicate the effectiveness of your efforts. Buy Newark 7
  9. 9. PolicyLink8 Buy Newark
  10. 10. PolicyLinkIntroductionI n good economic times or bad, buy-local policies are a boost for purchasers, local businesses, andcommunities. Today, with resources stretched thin and just 2 in the 1996-97 school year.1 The effects of these policies reverberate in a community, stimulating job growth and more spending.by a protracted economic downturn, buying localcan leverage a city’s purchasing power to help Local vendors are more likely than distantrevitalize the local economy for the benefit of all. corporate suppliers to reinvest revenues in the community, by, for example, hiring residents orThis guide, intended for the civic, business, and contracting with other local companies. A studypolitical leaders of Newark, is useful in any in Chicago found that local businesses boughtcommunity interested in sustainable economic goods locally at twice the rate of national firms.2development. It explains the basics of how to Additionally, because local suppliers are oftenembark on a potentially transformative way of minority-owned, buy-local policies will help spreaddoing business. the economic benefits to communities hit first and hardest by unemployment and recession. Small businesses are the backbone of our As the chart on the next page depicts, Newark national and local economies. Between 1993 unemployment rates have hovered between and the fourth quarter of 2008 (the most recent 15 and 16 percent for the last three years; a data available), small businesses, with 500 or shift toward local purchasing could be a big fewer employees, created 13.3 million jobs, boost for small businesses that hire locally. that is 64 percent of all net jobs created during that period. As small businesses thrive and expand, they and their employees contribute to the local tax base. A Source: U.S. Small Business Administration. healthy tax base, in turn, supports improvements to blighted streets and commercial districts,Buy-local policies redirect institutional, corporate, more police, better schools—in short, the fulland business-to-business spending to community- array of services and amenities that attract newbased, locally owned companies. The spending can residents, bolster business activities broadly, spurbe for any good or service, from crews for a major further investment, and nourish a city’s rebirth.construction project to janitorial services to basic With its business, cultural, and geographic assets,office supplies such as ink cartridges or toilet paper. Newark is poised to take advantage of thisThe most notable example within recent years is innovative approach to economic revitalization.the shift that schools, universities, hospitals, andsome grocers and restaurants are making toward Buying local can improve the bottom line forlocal food purchasing. The 2008 National Farm Bill purchasers, too. This is not charity, but soundwas amended to allow those schools operating business. A study of northern California hospitalsChild Nutrition Programs to institute geographic found that the greater appeal of fresh, local foodpreferences for sourcing their food. According to can increase sales in hospital cafeterias. The samethe National Farm to School Network, the number study went on to suggest that hospitals servingof farm to school programs, which use local local food even have a competitive advantagefarms as food suppliers for school meal programs, over hospitals not serving local, fresh produce.3increased to 2,095 in 2009, up from 400 in 2004 Buy Newark 9
  11. 11. PolicyLink Unemployment Rate Newark, New Jersey* 20.0 16.1% 15.9% 15.0% 15.0 10.0 5.0 0.0 * Not Seasonally Adjusted Source: Bureau of Labor Statistics. Smaller local suppliers often deliver faster, communities as the starting point for crafting cheaper, and with more personalized service. And strategies that fit their unique environment. local vendors will often do whatever it takes to satisfy what is probably their largest customer. Newark has enormous strengths that can be The challenge to encouraging these efforts is marshaled for an effective buy-local effort. Some often building relationships among businesses of the city’s large corporations already do local and purchasers and overcoming administrative procurement, small businesses are pervasive, barriers such as contract size. The University of and a strong network of organizations can train Pennsylvania, which increased spending with and support local entrepreneurs to effectively community vendors from less than $1 million in compete and serve as vendors. With its rich history, 1986 to $90 million in 2007, is a case in point: It universities and colleges, corporate headquarters, negotiated cheaper rates on some contracts by and proximity to New York City, Newark can bargaining directly with local franchise owners reap huge dividends from a simple switch in rather than with faraway corporate executives. fundamental business practices. This type of coordinated effort has been successful in citywide Yet, important as they are, the financial benefits retail campaigns across the country focused on are only part of the story. Buy-local policies encouraging consumers to shop locally. The idea can enrich the lifeblood of Newark. By working of coordinated procurement across sectors is new together, public agencies, universities, corporations, and cutting edge. From interviews, research, and and small businesses can create avenues for observations, Newark appears to have all the civic communication and collaboration. Coupled makings of a city that is ripe for a coordinated with the economic gains, these avenues can citywide local purchasing and procurement effort lead to a reservoir of community goodwill for that includes public, private, and nonprofit sectors large institutions and small firms alike. Further, a committing to increasing their local spending. vibrant local business sector can give the city a distinct “brand,” fostering community cohesion, This report is organized into four sections strengthening identity, and inspiring pride. starting with broad strategies and delving into greater detail about how these strategies Buy-local policies come in many shapes and sizes. are implemented and what results they have San Jose, California, uses a bid preference to produced in real-world applications. help local businesses compete in the notoriously high-cost Silicon Valley. Washington, DC, has six Buy Newark: The Power of Local Purchasing preference categories for local, resident-owned, Newark has the potential to leverage tremendous and minority-owned businesses. A large purchaser, purchasing power for transformative economic a collaborative of purchasers, or an entire city development. This section considers those strengths can use the lessons learned in these and other and makes the case for a coordinated effort.10 Buy Newark
  12. 12. PolicyLinkBuy-Local Strategies, In-DepthThis section describes in detail strategies forinstituting local preferences, building thecapacity of local businesses, and cultivatingrelationships with the local business community.Buy-Local Strategies In ActionFive case studies of governments andinstitutions show how buy-local policies andpractices change the bottom line for largepurchasers, improve the capacity of smallbusinesses, and support local economies.Bringing Local Purchasing to Scale: ACoordinated Buy Newark InitiativeA citywide coordinated initiative isunprecedented, but outlined here are basicguidelines for ensuring an inclusive effort. Buy Newark 11
  13. 13. PolicyLink Developing institutional policy priorities, building the capacity of local businesses, and cultivating relationships are the keys to implementing a successful Buy Newark effort.12 Buy Newark
  14. 14. PolicyLinkBuy Newark: The Power of Local PurchasingA buy-local initiative has great potential in Newark. That’s the conclusion drawn from in-depthinterviews with 14 procurement officials at 10 major and the University of Medicine and Dentistry of New Jersey-Newark. Additionally, Newark has half a dozen hospitals and clinics, several culturalinstitutions and companies in the city and extensive institutions, locally headquartered corporations, anresearch of buy-local programs around the nation and international airport, and a busy port.4 These majorthe world. This section describes the building blocks purchasers can provide critical momentum for analready in place for a buy-local effort and briefly ambitious, coordinated local procurement effort.explains how to overcome the major challenges.Designed to address concerns in Newark, thesestrategies are applicable in many communities. Fertile Business Environment Companies that call Newark their home have grownThe Building Blocks for and contributed significantly to job creation. NewarkBuying Local is in Essex County, New Jersey, where, according to the National Establishment Time Series (NETS) database, 99 percent of businesses based in theFirst, let’s look at the opportunities present in Newark. county between 1999 and 2009 were small businesses (employing between one and 99 people each). As theStrong Buying Power following chart shows, on average during this time period, 75 percent of job growth can be attributed to small businesses (as represented by the job growthNewark is home to six institutions of higher education numbers in the small business columns) based in Essexincluding Essex County College, the New Jersey County employing 59 percent of employees. WhileInstitute of Technology, Rutgers University-Newark, Business and Job Growth in Essex County, 1999-2009 Averages70% Businesses 60.4%60% Total Jobs50% Job Growth 38.1%40% 31.5%30% 27.1% 26% 25.3% 24%20% 15.8% 16.1% 11.5% 11.6% 8.4%10% 3.4% 0.8% 0.2%0% 1 employee 2-9 employees 10-99 employees 100-499 employees 500+ employees Source: National Establishments Time Series. Buy Newark 13
  15. 15. PolicyLink not all small businesses will meet the demands of guidelines on how to participate in procurement, major purchasers, these growth patterns indicate and maintaining a database of local businesses. the potential critical mass of small to mid-sized businesses necessary for an effective buy-local effort. State level mandates to diversify contracting can help Newark also has many organizations working with government agencies and public institutions keep small businesses on capacity building and networking. contracting relatively local. In 2004, the state of New These agencies can provide crucial preparation for Jersey commissioned an analysis of disparities in local entrepreneurs to work effectively with procurement among state agencies and found that large purchasers. despite the fact that minority- and women-owned enterprises represented 48 percent of the small businesses in New Jersey, they were awarded less than Commitments to Buy from Local 2 percent of state contracts. In response, New Jersey and Minority-Owned Firms Governor Jon Corzine signed Executive Order 34 in 2006, requiring 109 state agencies, departments, Many purchasing officers at public institutions universities, and colleges to regularly track and report and corporations in Newark recognize the value on the share of state contracts awarded to minority- of local spending and contracting. Some, in fact, and women-owned enterprises. The Executive Order formerly headed small businesses. Seven of the 10 also established the Division of Minority and Women organizations and companies PolicyLink interviewed Business Development which conducted a study maintained some commitment to buying local. showing that 8.5 percent of prime contracts went to This ranged from a verbal agreement to buy minority- and women-owned enterprises in FY 2008.5 local goods and services whenever possible to an institutionalized program. While some companies have centralized purchasing, others reported that Challenges to Starting buying practices vary throughout the organization. With the opportunities and the potential dividends Many of Newark’s large purchasers have supplier so rich, why isn’t local buying standard practice? diversity programs, with formal commitments Procurement officials describe several hurdles: to contract with minority- and women-owned businesses. Public Service Electric and Gas Company • Obtaining organizational support. (PSE&G) is the oldest and largest publicly owned utility Recognizing the importance of buying local, in New Jersey; its holding company, Public Service some procurement officials try to do it when Enterprise Group (PSEG), maintains its corporate possible, but without formal policies or an headquarters in Newark and has started a Supplier institutional culture that claims this as a Diversity Process to increase business with certified value, the efforts are episodic at best. disadvantaged business enterprises. Online registration • Identifying the players. Companies often and staff assigned to answer questions from business lack a reliable database of local businesses owners simplify the process. Because Newark small or information on how to reach them. businesses are more likely than major corporations to be minority-owned, such commitments could • Finding the right match. Companies often translate into more local buying. But this is not a cite a lack of viable businesses with the capacity given, so a preference for disadvantaged businesses to handle large contracts or fill specific needs. must be complemented with an explicit buy-Newark For example, agents at Horizon Blue Cross component, in the case of supplier diversity efforts. Blue Shield of New Jersey said they have little flexibility in finding vendors to handle lab care The payoff can be significant. New Jersey Institute of and prescriptions. Similarly, officials with NJIT Technology (NJIT), for example, spends 26 percent said they had searched for a local laboratory of its purchasing at minority- and women-owned supply company with little success. Challenges firms. Telecommunications giant Verizon spends like these, however, should not stop large $1.7 billion with such vendors, or roughly 8 percent purchasers from turning to local businesses of its annual spending. Rutgers University actively for general needs, such as office supplies. supports supplier diversity by hosting frequent • Defining local. What, exactly, does “local” networking and informational events, publishing mean? What are the legal implications of14 Buy Newark
  16. 16. PolicyLink buy-local policies, especially for government preferences that ensure local businesses get priority. and public institutions? How can a purchaser A formal local preference is an essential ingredient determine whether more local spending of a buy-local effort, but it is not the whole recipe. It produces the desired results? These questions must be combined with other strategies that help local weigh on the minds of procurement officials. businesses overcome longstanding disadvantages.These challenges can be overcome—and large Category 2: Build the Capacity ofpurchasers committed to buying local have overcome Local Businessesthem. Below, we briefly discuss how to approachthe challenges, then turn to an in-depth look atbuy-local strategies beginning on page 19. Making the procurement process accessible to local businesses can have transformative effects only if local businesses are able to succeed as vendors.Successful and Sustainable Local They must be able to provide relevant goods andPurchasing is Possible services, and they must be sound and sophisticated enough to work with large clients. This category addresses how companies and public agencies canThere is no one-size-fits-all approach to a buy- prepare small local businesses for larger contractslocal program. Different strategies work best for and connect them to emerging opportunities.different situations, institutions, and suppliers.To craft a program that’s appropriate for yourorganization and your community, it is useful to Category 3: Cultivate Relationshipsconsider three broad categories of strategies that with the Local Business Communityform the foundation of effective local procurement. Purchasing is often about relationships. To launchCategory 1: Institute Formal a successful buy-local program, purchasing agentsLocal Preferences need to know how to find local businesses and build relationships with them, even though this can be time consuming. Maintaining a regularly updatedFormal local preferences are official policies that database of viable businesses can be extremelyestablish buying local as a priority. Basically, these helpful for purchasers as they start this process.policies represent a pledge by a purchaser that “ifall things are relatively even, we’re going to choose But there’s much more that large buyers can dothe local business.” A formal local preference not to forge positive, productive relationships. Whileonly shows buy-in and commitment from the it may seem obvious that local businesses wouldhighest levels of the organization, but it can also want access to larger contracts, stepping intoguide internal procurement policies and make the vendor role presents challenges. Take cashmanagers and staff accountable for success. flow, for example. Small businesses often find it difficult, if not impossible, to live with the extendedProcurement officers balance competing pressures payment schedule of large institutions or to coverand needs when establishing buy-local policies, large up-front costs until the purchaser will cut alike lowering costs and evaluating the quality of check. Purchasing departments can take creativecustomer service. A local preference policy should steps to help, from restructuring large contractsinclude clear assessment criteria to ensure that all to make them more small business-friendly topurchasers understand how to balance and rate developing supplier mentoring programs to buildingprevious policies, like choosing the lowest bid relationships and explaining expectations.in relationship to local purchasing mandates.Formal local preferences can be instituted in several Getting Startedways; some purchasing departments require that theirsuppliers partner with local business in some way—as There are many strategies for getting a stronga distributor, a subcontractor or other partner. Some buy-local program up and running. Butpublic sector agencies —local, state, and federal first, a purchaser must lay the groundworkgovernments—have mandates or automatic bid for success. Here are three key steps: Buy Newark 15
  17. 17. PolicyLink 1. Identify Stakeholders Many purchasers use some combination of the criteria listed in the table on page 17 to define local. For those just getting started, the simplest For a buy-local policy to succeed, institutional culture and most inclusive definition is those businesses must embrace it. That takes commitment from the with at least one physical location in the city, or organization’s top leaders as well as its purchasing those that have a local business license and pay agents. “You can’t leave one department to shoulder local property taxes. However, either definition the whole burden,” says Barbara Lea-Kruger, director will likely include businesses that are not locally of communications and project management owned, so over time purchasers will need to de- at the University of Pennsylvania (Penn). velop additional criteria to target spending locally. A citywide buy-local effort that encompasses Early on, it is important to include voices from all many institutions would encourage purchasers parts of the organization that have a hand or a stake and suppliers to have one shared definition of in purchasing, including end users and administrative local, one shared database of qualifying firms, and legal offices. People in these groups often and possibly, one group certification procedure. have valuable insight into the institutional barriers See the Bringing Local Purchasing to Scale to local purchasing and the policies needed to section on page 41 for additional information. overcome them. Organizations that have launched successful buy-local efforts also emphasize the importance of bringing in community stakeholders 3. Keep Track at the outset, including local business leaders and community groups working with local firms. Purchasers must track the results and here are first steps: University of Pennsylvania’s Buy West Philadelphia campaign got off to a rocky start in 1986 in large Establish a baseline. Calculate current local part because the university neglected to build sourcing and establish a baseline for measuring relationships with the community, officials say. Many future efforts. Ownership and employment local businesses, initially excited about the prospect information may not be available for all current of contracting with Penn, became disillusioned vendors, but most vendor lists can at least when they realized that they sold products and be sorted by zip code and by chain versus services that the university did not typically buy. independent ownership. To simplify, some Penn launched a broader universitywide economic institutions focus on certain categories of inclusion initiative in 2004 that encompassed purchases like goods, contracting, or services. construction, hiring, and purchasing. Two-thirds of the committee that oversees this initiative represent local businesses, city councilmembers, Set targets. How much should local spending clergy, trade unions, and other community groups. be increased? A purchaser may select distinct The university also took great care to clarify and goals for different categories, since some are manage the expectations of everyone involved. easier to shift to local vendors than others. Goals should be ambitious but realistic, especially in the first year. As experience builds, local spending 2. Define “Local” goals can be increased for maximum impact. After convening a core group of committed people, Record your progress. Once you have your the first order of business is defining what it means baseline and goals, you’ll want to track how you’re to be a ‘local’ vendor. Local purchasing preferences doing. How many local companies now serve as can encompass any boundary, from a handful of vendors? How much money are you spending? zip codes to a whole city or county to an entire This should be part of regular recordkeeping. state. It is worth noting that the impact of local purchasing will be significantly diffused the broader With institutional commitments, community buy- the defined area. Since Newark is the largest city in, a solid idea of what you mean by local, and and economic hub of Essex County, using the county with data and a monitoring system, you’re ready boundary may be fine as a definition of local, but to go. We will next turn to specific buy-local smaller cities should consider these implications. strategies to consider as you craft a program that works for your institution and your community.16 Buy Newark
  18. 18. PolicyLinkDefining “Local”Business has... Advantages Disadvantages… at least one physical location in Simple, easy to determine. Will include manythe city. nonlocally owned businesses that contribute little to the city’s economy.… headquarters or main office in More services, such as Requires checkingthe city. accounting, are likely to be for compliance. Most directed to local businesses. economic activity may Major corporate stakeholders be outsourced. more likely to be in the region.… a local business license and pays Simple, easy to determine. Will include manylocal property taxes, business taxes, nonlocally owned businesses thatand/or sales taxes. contribute little to the city’s economy.… more than a certain percentage of A more direct measure of the Requires more effortowners, employees, and/or suppliers/ effects of the business on the to track and check for local economy in terms of compliance (especially ifservice providers who are city jobs and re-circulated profits. you include suppliers).residents. May change frequently.… more than a certain percentage Indicates connection to A low score means aof revenue from local transactions. local customer base/ business is bringing business community. money into the city from outside—which is good if it stays there.… more than a certain percentage of Can be an indicator that Difficult to measure.assets (physical and financial) economic activity is kept local Variable in how well it rather than outsourced. indicates local benefit.located locally.… a higher local multiplier than The best, most direct measure Very time consuming toits competitors. (See page 19 for of how much spending will measure and requires help the local economy. extensive trust fromdetails on calculating multipliers.) and participation by businesses. Buy Newark 17
  19. 19. PolicyLink A comprehensive buy-local effort supports local businesses in meeting the standards and qualifications of institutional and corporate purchasers.18 Buy Newark
  20. 20. PolicyLinkBuy-Local Strategies, In-DepthT his section provides more detail on the strategies mentioned earlier, describing howthey work, disadvantages and advantages, and of their revenue remains in the community. The New Economics Foundation, a think and do tank based in the United Kingdom, uses the imageexamples of how they have been used. Companies, of a leaky bucket to describe the multiplier effect.agencies, and organizations can choose from The water pouring into the bucket represents cashthese strategies to develop effective policies to from philanthropic institutions, spending fromstrengthen connections with local suppliers and non-residents, commercial revenue, and federalthe community. The section is organized according dollars. The water leaking out represents cashto the same categories introduced earlier: that flows to remote corporate headquarters or far-flung contractors.6 Newark’s bucket will be(1) Institute formal local preferences easier to fill if some of those holes are patched by picking suppliers with high local multipliers.(2) Build the capacity of local businesses How it works: A local multiplier can be calculated(3) Cultivate relationships with the local on a per supplier basis or a per contract basis. business community On a supplier basis, this calculation involves gathering information about how many of aFor a menu of strategies at a glance, see the business’s owners, employees, subcontractors,Appendix. and suppliers are local. To get a better sense of the ripple effects, a representative group of those local owners, employees, and suppliers would also(1) Institute Formal Local be interviewed about their spending practices.Preferences Usually, a purchaser starts with a broad assessment of its own multiplier, by surveying the localBy changing procurement policy, any purchaser—a spending practices of a representative selectioncompany, a university, a public agency or a whole of its current vendors (including all of the largestcity or state—can give local businesses a real chance contracts) to identify areas for improvement.to compete for contracts. Local preferences can takemany forms, from automatic price breaks for local On a contract basis, the purchaser asks similarfirms to annual numerical targets. Let’s look closer. questions: How and where would a potential vendor spend the money from that contract? And how can such an assessment be incorporated intoCalculate local multipliers for bidders the bid or RFP process? Michael Shuman, author of Going Local and director of research and publicThe best way to keep procurement money policy at the Business Alliance for Local Livingcirculating locally is to choose vendors or Economies, suggests asking for the percentage ofsuppliers based on their local multiplier. A the contract that will be spent locally, calculating themultiplier is essentially the ripple effect of a multiplier and then the tax revenues, and adjustingpurchase—how many additional services and the bid by that amount; this gives an advantageamenities and additional transactions can one to those bids with a greater local multiplier.purchase initiate and circulate within the localeconomy. This essentially tells you how much Buy Newark 19
  21. 21. PolicyLink Who uses it: This approach has been used 42 percent on local businesses, and 4 percent primarily in the United Kingdom, but any on investment purchased locally. The nonlocal purchaser willing to do the research can use this contractor spent nothing on local staff and 17 tool. A tool called the LM3 (Local Multiplier 3), percent on local businesses. City officials then devised by the New Economics Foundation,7 has surveyed the local contractor’s local staff and the been used by local governments in the United two local subcontractors to determine their local Kingdom to devise economic development re-investment rates, and used those as the basis for strategies, by individual businesses and nonprofits calculating the third round of local recirculation. to identify their own local multipliers and improve them by selecting different suppliers, The results were eye opening. Although the and by citizens’ groups in various campaigns. nonlocal parking lot contract was significantly larger than the local sea wall contract—£120,000 Advantages: This is the only strategy that gives compared with £72,000—the parking lot a concrete, relative measure of a business’s impact generated less money for the local economy: on the local economy. If used consistently, it can £147,168, compared with the sea wall’s £154,587. provide the greatest clarity about impact for the For every £1 spent, the sea wall contractor least expenditure. It also provides ways to compare generated £2.15 in the local economy, while the locally owned businesses with each other and parking lot contractor generated only £1.23.8 with nonlocal businesses. Finally, it is less likely to encounter legal challenges. Theoretically, business A good example of why local multipliers can be can reinvest money locally, though it is almost more effective than policies based solely on location always the locally owned ones that actually do so. comes from another municipal government in the United Kingdom, Knowsley, which found, Asking questions about local multipliers during the to its surprise, that a nominally local company bid process also clearly communicates priorities to had a lower multiplier rating than a competing potential suppliers. While European Union rules nonlocal company. It turned out the “local” prevent a local multiplier from being used to add company was a regional headquarters for a formal points in awarding a bid, simply asking the national company with national suppliers, while questions has spurred contractors to contribute the “nonlocal” company was located just outside much more to the local economy, says consultant of Knowsley and employed many local residents.9 Barry Mitchell. “Even though it didn’t give any points, it made people think.” Everyone realized that Make “being local” a value— a high multiplier would give an unofficial advantage in a tie. “We have a substantive amount of buy- and reward it. in from major private sector suppliers. They are saying ‘We want to spend more with you locally.’” All procurement officers balance different values when awarding a contract, such as cost, Disadvantages: Calculating even an approximate quality, service, convenience, and streamlining local multiplier requires a lot of data, much of it the supply chain. As part of their buy-local sensitive and proprietary. This is time consuming policies, some firms instruct their staff to to compile. Also, bidders may be tempted to include business location in that calculus. misrepresent spending patterns, should they become a factor in assigning contracts. Purchasers How it works: This strategy can take many have to fact-check and monitor compliance. forms: One of the best is including local supplier goals as a metric in evaluating the performance Examples: City officials in North Norfolk, UK of purchasing officers. Companies can also used the LM3 tool to calculate the local impact emphasize buying local at staff meetings and for two contracts with similar labor and supply trainings or add questions about local ownership demands: a parking lot built by a nonlocal to interview protocols and data tracking. contractor and a sea wall built by a local contractor. Who uses it: Anyone can, ideally as an Officials interviewed contractors in person at additional component of a larger strategy. their offices. Of the total contract value, the local contractor spent 34 percent on local staff,20 Buy Newark
  22. 22. PolicyLinkAdvantages: Gives purchasing officers flexibility price and experience of larger contractors within hiring contractors and suppliers and clarifies that the creativity and service of smaller, more locallocal purchasing is a core job function, not a frill. businesses. In fact, these arrangements can end up saving money for the institution.Disadvantages: Without specific guidelines andother strategies to level the playing field for local The local businesses involved not only get thebusinesses, it can be easy for purchasing officers to immediate benefits from this agreement, but theyoverlook the value of local contracting in favor of can also use their new relationships or advantagesmore familiar and easily achieved metrics like cost. such as volume pricing to land other big contracts. This further boosts the local economy withoutExamples: The University of Pennsylvania higher costs to the buy-local institution.has made meeting local procurement targets partof the annual performance evaluations. There’s a Disadvantages: Can be time consuminglot at stake, because those evaluations determine to negotiate and monitor; requirescompensation for the following year. Meeting retaining large nonlocal contracts. Therethe ambitious local buying goals is considered is no one-size-fits-all model.part of purchasers’ basic job function, frompurchasing agents to the director of e-business. Examples: The University of PennsylvaniaThe university has come to believe that linking wanted to work with a local office supplyjob performance to local targets has been a store, Telrose, which did not have the capacitykey part of improving local spending. In 1986, or pricing to handle the contract on its own.Penn’s local spending was less than $1 million; The university negotiated a three-way dealin fiscal year 2007, it was $90 million.10 between Office Depot (a nationwide chain) and Telrose. In exchange for cost reductions, Penn offered an unusually long contract, benefitingRequire that large suppliers work with both the local and national suppliers.small local businesses At first, Telrose acted more or less like aAs part of contract negotiations with large subcontractor, handling primarily delivery andnational suppliers, some purchasing departments service. But over time the company moved up torequire them to partner with a local business in the primary contractor position, handling orderingsome fashion. This is a good way to get around a and billing, while Office Depot supplied materialsshortage of local vendors with sufficient capacity. only. The university ended up with a price-friendlier contract than it would have negotiated withHow it works: The custom agreements are the national supplier, a face-to-face relationshipwritten into the contract. National brands may with a nearby vendor, and a $5 million contractagree to work through a local dealer, share their with a local minority-owned company.wholesale discounts with a local partner, orcarry out some other collaborative effort. Large On a smaller scale, Columbia University buyscontractors, whether local or not, may agree to toner from a local company through an arrangementmeet certain targets for local subcontractors. with its office supplies contractor. When university purchasers buy other office supplies, they can easilyWho uses it: This requires a fair amount select additional local products at the same time.of capacity to negotiate individualizedcontracts, so mostly private institutions and Give automatic bid and RFPcorporations use national/local partnerships. preferences to local businessesAdvantages: This approach turns what might be Many local governments in the United Statesan obstacle to buying local into an opportunity: have instituted automatic percentage preferencesIt leverages the fact that much of an institution’s for local businesses in their bids and/or RFPs.spending is going to stay with its established These are essentially less nuanced versions of thelarger contractors, at least for the near future. local multiplier idea, based on the assumptionInstitutions have had success in combining the that, on average, businesses that are locally Buy Newark 21
  23. 23. PolicyLink based and/or locally owned to some extent They are consistent and support all local businesses, have a greater net benefit to the local economy. mitigating the “who-you-know” factor. An official These policies are straightforward, explicit cost preference acknowledges that the economic commitments to the local business community: benefit to the local economy of buying local may We are willing to pay more to support you. offset lower costs that come from the economies of scale and offshore labor of corporate suppliers. How it works: In standard bidding, the qualified bidder with the lowest bid wins. For a request Disadvantages: Giving a fixed advantage to for proposal (RFP), points are assigned for local businesses does not account for differences meeting certain criteria (including cost). To give a in how much local businesses return to the local competitive advantage to local suppliers, automatic economy or how much a particular business needs bid and RFP preferences change the rules for the help, so this may be a less than efficient use of contracts below a certain size, often $100,000. subsidy. Since these preferences contain no targets or changes to the system, by themselves they are Commonly, the purchaser either reduces the unlikely to dramatically increase the participation total of the bid from a local supplier by a fixed of local vendors without significant marketing. percentage, just for the purposes of awarding the contract, or adds RFP points for being local. They are typically not applied to contracts over The bid is typically lowered by somewhere certain thresholds,12 and some practitioners believe between 1 percent and 10 percent.11 that even smaller contracts will face legal challenges eventually. Variations include tie-breaker-only provisions. Kern and Fresno counties, in California, take a cost- Many purchasing officials and their membership neutral approach: If the lowest bid is nonlocal, organizations oppose preferences on the theory the purchasing agent must notify any local bidder that they discourage competition from vendors that who was within 5 percent of the lowest bid and are not granted this leg up in bidding.13 Conversely, give that bidder 48 hours to submit a new bid preferences may also reinforce the idea that local that is less than or equal to the lowest bid. businesses are, by definition, not competitive. Vendors may have to be certified as local beforehand Examples: San Jose, California instituted a to receive the preference, or may have to qualify for bid preference to help local businesses survive the preference with each bid or proposal. Definitions and prosper in high-cost Santa Clara County. The of local can vary widely and make a big difference in preference lowers the total amount of the bid the effectiveness of these preferences. For example, in by 2.5 percent for locally based businesses, plus San Jose, a business must merely have a local branch an additional 2.5 percent for businesses that are or store to qualify; in Los Angeles, the headquarters also small. Firms have to apply for the preference must be local and it must be a small business. with every contract. The policy defines all of Santa Clara County as local and excludes construction Local-supplier preferences within bids and RFPs contracts due to state laws. Since the preference are often combined with preferences for small, was instituted in 2004, local business spend minority-owned, or women-owned firms to give has remained steady and the number of local larger advantages to firms that have generally businesses in the county has increased modestly. been at the greatest disadvantage: local and small and minority- or women-owned. Washington, DC, has for many years given a detailed set of advantages to local and minority- Who uses it: Primarily local governments and other owned businesses. Businesses may get certified in any public agencies such as school districts. This is partly of six preference categories: Local Business Enterprise, because governments benefit more immediately Small Business Enterprise (local or metropolitan and directly from increased local economic activity area), Disadvantaged Business Enterprise (doesn’t through increased taxes, so they can better justify have to be local), Development Enterprise Zone, the potentially higher costs of some contracts. Resident Owned Business, and Longtime Resident Business. Collectively these are called “Certified Advantages: Formal preferences like these are Business Enterprises” or CBEs. Each category adds automatic, so once in place they kick in routinely. a maximum of 12 points to an RFP or reduces a22 Buy Newark
  24. 24. PolicyLinkbid by up to 12 percent of the total bid making of certified businesses. The department opensthe cost more competitive with higher bids. the contract to non-certified bidders only if it cannot find at least three qualified, interestedAccording to a 2002 evaluation, every dollar certified businesses. This gives local companiesspent on a CBE preference contract generated a tremendous incentive to become certified.an additional 55 cents of spending on goods andservices in the District. Every two jobs createddirectly by a contract generated one additional Institute a direct preference orindirect job. From October 1, 1999 to September requirement for state procurement30, 2001, these contracts generated $66.5 millionin direct and indirect tax revenues, including In limited instances, legislation can include$19.4 million for the District government.14 preferences or even requirements for purchasing within the state.Solicit bids/RFPs only, primarily, or first, How it works: Some legislative directives arefrom local businesses absolute, while others merely state a “preference” for local/in-state contracts. Many preferencesIf local businesses are underrepresented in bidding, specify lowering the total bid for those biddersa competitive advantage for local bidders will not that are within the state and increasing the bidsmake much difference. Therefore, some institutions of out-of-state bidders. The directives are usuallyset separate goals about soliciting bids locally. applied to narrow categories such as public art, printing, food, or locally manufactured materials.How it works: A purchasing department maysometimes solicit bids only from local vendors, Who uses it: State governments.effectively ensuring that one will win the contract.Alternatively, purchasers may turn to lists of local Advantages: A preference for indigenous artbusinesses or set a goal that at least one local or a key industry can bolster state identity andbusiness be included in the pool of competitors pride and keep industry and jobs in state.for each contract. Disadvantages: Easier to use at a state level whereWho uses it: Usually public agencies, though there is more vendor variety. This is legally tricky andany purchaser that uses a formal bidding or RFP faces frequent challenges. It can drive up costs.process can do this. Examples: Thirty-five state governments haveAdvantages: Increases the chances of, and in enacted bid preferences.15 The state of New Jerseysome cases, guarantees that a local vendor will be passed a bid preference that gives in-state bidderschosen, without compromising standards. Achieving an advantage in bid evaluation over out-of-statethis goal can be an inspiration for outreach and firms. The state has also enacted a statute requiringmentoring to increase local participation in bidding. that each state department make a good faith effort to direct at least 25 percent of the dollar value ofDisadvantages: Reaching out to local bidders their contracting to small businesses (less than 100only to have them lose out does nothing for employees) registered with the state of New Jersey.16the local economy. If no competitive localbusinesses provide the commodity or service in The state of Arkansas requires public art to bequestion, this approach will have little impact commissioned from in-state artists. The state ofunless combined with other strategies. Alabama requires all “motor fuels, oils, greases and lubricants bought by or for the State DepartmentExamples: For contracts under $100,000, the of Transportation for use in the construction,Washington, DC procurement department turns maintenance, and repair of the county roads andfirst to its DC Supply Schedule, which includes bridges” to come from suppliers in the county whereonly certified businesses (mostly local) that have they will be used. The state of Michigan requirescommitted to a pre-determined price on certain all state printing contracts to happen in state.items. Next, the department turns to the full list Buy Newark 23
  25. 25. PolicyLink It’s a bigger vision than ‘If we have a need and they have a product and if we can pull it off, great.’ It’s ‘We have a need to have small businesses grow, how can we do that?’” —Anthony Sorrentino, Vice President, University of Pennsylvania (2) Build the Capacity of Who uses it: Organizations with the capacity to train and coach local businesses. Local Businesses Advantages: Allows purchasers to get The solvency and sustainability of local businesses beyond the frustration of “there aren’t any are critical to a successful buy-local effort. businesses that can do what we need” and Local businesses need to provide relevant, support the development of businesses that high-quality goods and services, and they will deliver. This helps supply meet demand. need to be prepared and willing to work with large, often bureaucratic clients. This category Disadvantages: This is a long-term investment details ways to support the development and in the future that will not produce an increase in capacity of small locally owned businesses. local spending in the next quarter or two. There are often turf issues when many organizations provide similar services, and attempts to add to, influence, or Provide targeted technical assistance to coordinate those offerings can be politically tricky. local and disadvantaged businesses Examples: The University of Pennsylvania Decades of disinvestment and discrimination (Penn) refers businesses that do not yet qualify have left many small businesses in Newark and as a Penn vendor to the Penn Wharton School of cities throughout the country at a disadvantage Business Minority Business Enterprise Center. There, capacity-wise compared to major suppliers. A businesses can receive technical assistance on the comprehensive buy-local effort must help local areas they need to improve. Also, Penn is one of businesses meet the standards and qualifications the 15 members of the Philadelphia Area Collegiate of institutional and corporate purchasers. Cooperative (PACC), a cooperative purchasing organization established in 2000. PACC works with How it works: In every region, many nonprofits, the University Purchasing Initiative of Philadelphia’s university departments, and city agencies provide Office of Economic Opportunity (formerly the small-business support services, from business Minority Business Development Council) to both plan coaching to incubator space to bookkeeping support businesses and provide independent classes to micro loans to networking events. assessment of a business’s current capacity. Companies or institutions committed to buying local can create in-house versions of some of Columbia University partners with local nonprofits these services, especially if they complement that refer potential vendors to the university and that an existing supplier mentoring program. Or support vendors new to working with the university. purchasers can partner with outside programs to meet the needs of local vendors and buyers alike. Organizations and agencies can also support Refer local vendors to other purchasers community- or university-based entrepreneurship programs by referring local vendors (or would- A business that does not qualify to be one be vendors), providing funding, or serving as a institution’s vendor may be a perfectly good fit clearinghouse to better coordinate the offerings. for another. Every purchaser has its rules and limitations. One may require the capability to use24 Buy Newark
  26. 26. PolicyLinkan e-procurement system while another may not. A information about viable local businesses canmajor corporation may be able to raise its bonding significantly raise the odds that a local firm will getthreshold while a city government may not. a shot at a given contract. Having a one-stop shop that is user-friendly, easily searchable, and versatile isHow it works: Large purchasers commit important to meeting the needs of purchasers whoto a buy-local strategy and work together to will have many different criteria for purchasing.understand each other’s needs and suppliercriteria. This allows all of them to refer How it works: Once a purchaser has figuredpromising local vendors to one another. out what “local” means, the database developer uses information from local minority businessWho uses it: Anyone who has formed councils, chambers of commerce, small businessrelationships with other purchasers interested in support organizations, local business networks,local procurement can make informed referrals. and other community groups to identify local businesses that sell the goods and services thatAdvantages: Personalized referrals help improve the purchaser buys. If a certification system is inpurchasing efficiency throughout a consortium place, the database focuses on certified businesses.and provide a ladder of opportunity for businesses Purchasers may also allow local businesses to self-not yet able to meet the most sophisticated certify and register in an online system. In any case,vendor requirements. Referrals also promote the key is to keep the information up to date.goodwill between institutions and local businesses,which increases the chances for deals in the Once the database exists, it can be the first go-tofuture as the business develops its capacity. list for purchasing agents.Disadvantages: It takes time to develop the Who uses it: Anyone can. However, it takesnetworks and relationships to make worthwhile an organization with substantial overhead andreferrals. staffing to create and maintain the database.Example: When otherwise sound vendors cannot Advantages: A thorough database lets you knowwork with the University of Pennsylvania because what is available. It allows a purchaser to set morethey are not technologically sophisticated enough realistic targets for buying local, to focus effortsto participate in Penn’s entirely online purchasing by sector, and to identify new prospects. It sparesenvironment, the university often refers them to a purchasing agents from having to do exhaustivesmaller school in PACC, such as Drexel or LaSalle, and repetitive research, and it gets around thewhich do not have e-procurement requirements. first level of objection: “But I don’t know who the local vendors are.” When something is needed quickly, the local vendors are only a click away.(3) Cultivate Relationships with Disadvantages: A lot of effort and constant outreach go into setting up and maintaining a goodthe Local Business Community database. A shared public database can reduce the workload on any one purchaser’s shoulders, asPurchasing is about relationships. To successfully can collaboration with local business networks.increase local spending, purchasing agentsneed to know how to find local businesses Developing a database, especially one that allowsand build relationships with them. This can be local businesses to self-register, may inadvertentlytime consuming. The following strategies make raise the hopes and expectations of businessesit easier and more appealing to buy local. that do not offer what the purchaser needs or those that are not ready to enter large contracts.Create an easy-to-use and regularly Examples: When Columbia Universityupdated database of local businesses wanted to expand its buy-local efforts, Manager D. Sean Johnson started by buying a privateWhile a database does not create relationships, database of businesses that he could searchproviding purchasers with easily accessible Buy Newark 25
  27. 27. PolicyLink by zip code. He found all the businesses in the Disadvantages: Collecting data on purchases Upper Manhattan Empowerment Zone, and then can be difficult. Many of the smallest local vendors augmented that list by reaching out to the NY/ don’t have the capacity to accept any sort of credit NJ Minority Supplier Development Council, the card, including a procurement card, which puts Small Business Administration, and other similar them at a disadvantage compared with bigger networks. He contacted all the minority-owned companies and chains in the neighborhood. This can businesses on his list (the university felt it had be addressed through a companion strategy: Help solid relationships with majority-owned local local vendors get merchant credit card accounts. businesses) to get preliminary information. Example: Columbia University, which has While this took a lot of work, it produced a decentralized purchasing, instituted a procurement database that allowed Columbia to identify sectors card system to give “end users” better access where the university could quickly shift its spending to local vendors. However, the university quickly more locally. In fact, the database proved so useful discovered that many local vendors did not accept that local business development nonprofits asked credit cards. So the university partnered with a to share it. To Johnson, however, it remained a local bank, which agreed to give participating work in progress. “Never get stuck with what businesses the same reduced rates and fees that you have,” he says. “Always build the list.” Columbia gets if they set up merchant accounts. This gave local firms a significant cost break and The Department of Small and Local Business opened up more vendor possibilities for Columbia. Development in Washington, DC, takes a different approach. As discussed in the section on instituting formal local preferences, it relies on an extensive Redesign contracts to capture the certification process for local, resident-owed, strengths and capabilities of local disadvantaged, and small businesses, so it keeps suppliers a database of certified businesses. This database is accessible online, and the City’s purchasing Instead of wondering how to find a local vendor department goes to it first for purchasing decisions. that can meet the current specifications of a A staff of five oversees certification and compliance contract, purchasers can take a fresh look at the for the database of more than 1,200 businesses. contract itself, with an eye toward buying local. What goals does the contract seek to achieve? Use procurement cards for How can the terms be adjusted to be more inviting smaller purchases to local businesses, without sacrificing the needs of the purchaser? We tend to think that contract specifications are set in stone, but they’re not. Many small local businesses are not set up for With flexibility and creativity, purchasers can revise delayed payments through purchase orders or contracts to play to the strengths of local firms. checks. Procurement cards—essentially business credit cards—get around this problem in settings where many people have the authority to If clear criteria such as nutritional quality, make purchases below a certain threshold. freshness, and frequency of delivery are included in contracts, it is often the smaller How it works: Procurement cards are given to or local suppliers that have the advantage.17 those with purchasing authority. How it works: This will work differently every Who uses it: Institutions with decentralized time, as the point is to match local business purchasing. strengths with re-envisioned contracts. For example, a university might change catering Advantages: Procurement cards encourage requirements to encourage seasonal variations the use of small local vendors because purchases in offerings or ethnic foods, or it might raise can be made in person without printing checks, standards for freshness or customizability. Any and the vendors can get paid immediately. of these shifts would give local purveyors an advantage. In the same vein, a purchaser might26 Buy Newark
  28. 28. PolicyLinkrequire a locally available service representative contract, because the tastier, healthier ice creamor prioritize the reduction of downtime and bolstered patient recovery and lowered expendituresrepair costs by buying equipment from a on liquid supplements for elderly patients.business that can make local rush service calls. Change the procurement process toWho uses it: Governments in Europe subject tostrict free trade, lowest-bidder regulations have make local and minority- and women-pioneered this way of thinking as a way to increase owned enterprises more competitivelocal spending when official local preferences arenot available or desirable. But anyone can try this. Local businesses are often smaller and may beColumbia University, for example, has identified unable to fulfill the demands of a traditionalniches in certain sectors, for example, temporary purchasing contract immediately. To make contractsstaffing, where local businesses are competitive. In more accessible to businesses like these, somefact, they are better able to deliver, even though purchasing departments adapt their practicesthey are not competitive for the sector writ large. to address common obstacles these businesses face, without sacrificing price or quality. TheAdvantages: Spurs a creative rethinking of a goal is usually to groom businesses that will bepurchaser’s goals and how to achieve them. able to grow into the standard expectations.The purchaser may end up with higher qualitycommodities and services and even some that How it works: Some of the most commonare carefully tailored to address multiple needs at changes are:once. The Cornwall Food Programme, below,is a wonderful example. • Smaller or graduated contracts. With new local vendors, contracts may be brokenThis approach does not require legislative changes into smaller parts or assigned for justor provoke legal or philosophical challenges about one department, building, or product toquotas, yet it is likely to generate contracts make them more manageable for smallerwith local businesses. companies. These vendors can take on more as they grow and gain experience.Disadvantages: Because it requires individualattention to each contract, relationships to know • Longer contracts. Some national-localwhat’s available locally, and creativity to blend partnerships receive longer than usualthe two, this approach cannot be codified into contracts, allowing them to lower costsa set of rules that become automatic. It requires and take time to establish themselves.a high level of understanding, commitment, • Faster payment. Small businesses oftenand attention from all decision makers. struggle with cash flow, and traditionally institution payment schedules are very slow,Example: Cornwall Food Programme (CFP), a leaving vendors with gaps they cannotconsortium of National Health Service hospitals in sustain. Some purchasing departments haveCornwall, England, a disadvantaged area, wanted committed to a 30-day payment cycle toto improve the food served by its members and lower this barrier to participation. The UKprovide more economic benefit to their region. The government guide, Small Business Friendlyconsortium started by switching ice cream suppliers. Concordat, which many local governments in the United Kingdom have adopted, stipulatesA local dairy offered a superior product but could that governments will require that their generalnot compete on cost with the national brand that contractors do the same for subcontractors.19CFP had been buying. So CFP changed its ice creamcontract to require a higher nutritional value. The Who uses it: Anyone can.local ice cream had 50 percent more protein, whichcan matter a lot for patients with poor appetite. Advantages: Faster payment schedules open the door to more vendors without costing the purchaserNational contractors did not even bother to bid,18 anything much beyond an initial transition period.and the local dairy won the contract. The hospitals Smaller contracts allow for fine-tuned matching ofeven saved money, despite the higher cost of the Buy Newark 27

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