Purchasing cooperatives have historically played a vital role in meeting numerous needs for goods and services, especially in underserved areas. These organizations are also instrumental in helping members maintain resilience during social or economic uncertainty.
WHAT IS A PURCHASING CO-OP?
In a purchasing cooperative, groups of businesses in the same industry form a collective unit to buy supplies and services. Individual retailers own the purchasing co-op — not outside investors — so they make decisions based on the co-op’s interests. Member organizations share purchasing contracts to acquire the goods and services needed to run their independent businesses.
Individual stores who are members of a co-op buy merchandise in bulk at the lowest possible price. Cooperative purchasing helps members reduce costs and offer competitive prices compared to retail chains. Members also enjoy a voice in the co-op’s operation. As owners, they receive a vote they can use to influence product selections, quality and the group’s leadership.
THE IMPORTANCE OF PURCHASING CO-OPS
As part of a purchasing co-op, independent businesses thrive in a world of big box stores. They serve their local communities by offering quality products at the best prices, as well as expert advice. By joining forces in a purchasing co-op, organizations achieve lower prices, greater efficiencies and increased market power.
A BRIEF HISTORY OF PURCHASING COOPERATIVES
The earliest example of group purchasing was Benjamin Franklin’s mutual insurance company, The Philadelphia Contributionship for the Insuring of Houses from Loss by Fire. Franklin and his friends formed the group as democratically run by its members, who shared equally in any gains or losses.
The next revolution in cooperative business models occurred almost a decade later in England. A group of artisans and vendors in Rochdale established a consumer-based cooperative and principles for how to operate. These formed the foundation of modern cooperative business values.
The idea soon expanded worldwide. Purchasing cooperatives gained even more popularity around the turn of the 20th century and throughout the Great Depression. In his New Deal legislation, President Roosevelt focused on co-ops as thriftier solutions, and they flourished as a result.
Today, purchasing cooperatives are vital cost-control measures in numerous industries, including:
- Government agencies
- Educational institutions
- Health and dental care
HOW DOES A PURCHASING CO-OP WORK?
Purchasing co-ops are voluntary, member-based and member-owned organizations. Members join by depositing equity in the group’s collective resources in exchange for their ownership share. Once they’ve joined, they have immediate access to the co-op’s benefits and the right to vote on its operations.
While these organizations are typically groups from related industries, cooperatives differ from group purchasing organizations (GPOs). Both leverage combined demand to secure more affordable pricing, but their purposes and methods are distinct.
In a GPO, members’ needs are individual and often spread across various suppliers, even in a single industry. The GPO helps by negotiating and contracting prices with multiple vendors as a facilitator — members still order directly from the contracted supplier. The GPO’s members have no say in how to run the business since much of the group’s revenue stems from vendor-paid fees at order execution.
Conversely, purchasing cooperative members receive exclusive discounts as a direct result of the ownership equity they contribute. Members share in all profits and losses, making the ability to vote a key benefit. These co-ops also tend to be more vertically focused based on the group’s unique needs.
Key Facts About Purchasing Co-ops
With cooperative purchasing, independent organizations combine their purchasing power for greater savings and efficiency. Here are a few key statistics about purchasing co-ops:
- There are more than 250 purchasing co-ops in the U.S.
- Ace Hardware, a cooperative of independent hardware stores, has a total revenue of $12.5 billion.
- CCA Global Partners is the largest privately held purchasing co-op with more than 3000 locations.
- Examples of purchasing co-ops include Ace Hardware, CCA Global Partners and National Cooperative Purchasing Alliance.
The Benefits of Cooperative Purchasing
Purchasing co-ops benefit members, suppliers, consumers and the surrounding economies in the following ways:
- Reduce administrative overhead, increasing efficiency and savings
- Achieve greater economies of scale when buying goods and services, saving valuable resources
- Decrease costs by purchasing goods in bulk through nationally leveraged pricing
- Maintain public trust through ethical, transparent procurement practices
- Enable access to a wide variety of quality products from reliable suppliers
- Enable independent businesses to compete with retail chains
Cooperative purchasing empowers business owners with a competitive edge in a shifting economy. Member organizations do more with less by pooling their buying power and negotiating better pricing.
A purchasing cooperative combines the knowledge and experience of all members so the co-op can implement more efficient processes. Each member offers their own skills and expertise to ensure the co-op employs the best practices possible.
Purchasing co-ops lower costs and free up valuable resources for its member organizations to reinvest in their businesses and communities.
Purchasing Co-op Associations
Several associations work to promote cooperatives, including purchasing co-ops, in the U.S. and internationally:
- National Cooperative Procurement Partners (NCPP)
- National Association of Educational Procurement
- Retailer Owned Food Distributors and Associates
- OMNIA Partners
- Cooperatives for a Better World
- International Co-operative Alliance
Build a More Inclusive Economy With NCBA CLUSA
For more than 100 years, NCBA CLUSA has provided education and advocacy to help cross-sector cooperatives thrive. Our team works to educate policymakers and the general public about cooperative priorities.
Since 1953, NCBA CLUSA has worked internationally to help communities improve their resources, knowledge and agency. Learn more about how we build resilient communities through cooperative enterprise. Have questions about our programs? Contact us online.