Purchasing cooperatives have become an essential tool for many businesses and organizations. Purchasing cooperatives help members improve their competitiveness, and leverage their combined purchasing volumes into savings and efficiencies. In this four-part educational series, co-op developers will learn the strategies and the development process for starting a purchasing cooperative. Attendees will learn how to: - Recognize the benefits of purchasing cooperatives - Define the types of cooperative purchasing - Define key factors in the feasibility of purchasing cooperatives - Understand major steps in starting a purchasing cooperative Part I: Introduction to Purchasing Cooperatives - Why form a purchasing cooperative? - What is a purchasing cooperative? - Benefits of being a member-owner - Traits of successful purchasing co-ops - Typical member commitments

1. Part 1

2. • 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 on
your screen.

3. Ian Gray Howard Brodsky Lisa Stolarski Don Collyard
President & CEO Co-Founder, Chairman & Co-CEO Director Principal
Part 1

4. • The competitive problem
• Role of a purchasing cooperative
• Benefits of belonging
• Successful traits
• Typical member commitments

5. Large Corporate Chains often:
• Sell products below an Independent’s cost
• Receive new products months earlier
• Replenish stocks despite supply shortages
• Open new stores while Independents are
exiting the sector

6. Independent businesses do all the
right things…
…But they still can’t compete with
the large corporations over the
long-term.

7. National and international competitors
have a more efficient supply chain.
Their larger gross profit margins
fuel rapid growth and
greater market share power.

8. In some sectors, the “Independents” are thriving!
Examples:
• Hardware Stores
• Carpet Stores
• Natural Food Retailers
• Gypsum Supply Dealers
The Independents have formed
a Purchasing Co-op to help them compete.

9. Similar independent businesses
collectively achieve efficiencies and
receive better net pricing and terms
on the products they buy.

10. Successful purchasing co-ops achieve the
efficiencies and share the gains

11. • Collaborative approaches
• Best practices
• Central billing and credit mgmt.
• Preferred supplier negotiations

12. • Improved overall net pricing
• Lower invoice pricing
• Rebates
• Improved, extended terms
• Efficient processing

13. Purchasing co-ops can also improve:
• Marketing, to drive more sales to the
members
• Management services, to bring greater
capabilities to each Independent (HR,
Finance, IT Systems, etc.)

14. • Everyone’s expertise is leveraged
• Provides a forum of business peers
• Builds strategic supplier relationships

15. A successful Purchasing Co-op
creates a winning situation for the
suppliers AND the member-owners of
the purchasing cooperative.

16. • Negotiate a “Group Deal”
• Lower billing costs and credit risk.
• Rebates protect street price of products
while rewarding co-op members for
support.
• Performance-based rebates ensure
payment only if sales target is exceeded.

17. Key benefit to suppliers is increased sales

18. Two Suppliers: Supplier A Supplier B
Sales $6,000,000 $4,000,000
Gross Margin % 20% 21%
GM Dollars $1,200,000 $ 840,000
What would happen if all the sales went to
Supplier A or Supplier B?

19. Two Suppliers: Supplier A Supplier B
Sales $10,000,000 $10,000,000
Gross Margin % 20% 20%
GM Dollars $2,000,000 $2,000,000
Less Original GM $ $1,200,000 $ 840,000
Rebate Potential $ 800,000 $1,160,000
(8.00%) (11.6%)

20. • Ensures the Purchasing Co-op is for the
member-owners, by the member-owners
• Returns are dependent on participation
and not on how many shares are owned.
• Equal representation: One vote per one
member-owner

21. • Leverage purchasing power of many member-owners
across the country
• Receive their pricing advantage as rebates
• Receive active support from their member-owners
• Foster the open exchange of ideas

22. • Fulfill purchases with preferred suppliers
• Enhance current supply chain
• Have financially secure members
• Treat preferred suppliers as partners
• Share benefits with all
• Have strong professional management

23. • Initiation Fee
• Participation Fee
• Purchases from preferred suppliers
• Participates on committees
• Ensures their business remains healthy
• Meets payment & reporting requirements
• Maintains confidentiality

25. • Defining and Differentiating
- Cooperative Purchasing
-Purchasing Cooperatives
• Purchasing Co-op Models
– Direct Bill
– Central Bill and Pay
– Central Pay
• Legal Structure, Bylaws and Governance

26. Ian Gray Howard Brodsky Lisa Stolarski Don Collyard
President & CEO Co-Founder, Chairman & Co-CEO Director Principal
Part 1

27. Part 1
Prepared by
Ian Gray, President & CEO Meredith Rafferty, Co-op Development
Buying Group Services, Inc. Northwest Cooperative Development Center
Lisa Stolarski, Executive Director
Don Collyard, Principal
Co-ops USA, NCBA
Main Street Cooperative Group
Spring 2012
Diane Gasaway, Executive Director
Northwest Cooperative Development Center