What Are Co-ops?
Purchasing Cooperatives or “Co-op’s”, at the simplest level, are a group of people or organizations with similar needs that band together to collectively procure goods and/or services for their group.
In the K-12 setting, co-ops are generally created through interlocal or intergovernmental agreements (IGAs) or state agencies between several school districts. These districts joined together to take advantage of economies of scale, which can increase the members’ purchasing power and create savings in their supply chain.
What Are Co-ops?
Purchasing Cooperatives or “Co-op’s”, at the simplest level, are a group of people or organizations with similar needs that band together to collectively procure goods and/or services for their group.
In the K-12 setting, co-ops are generally created through interlocal or intergovernmental agreements (IGAs) or state agencies between several school districts. These districts joined together to take advantage of economies of scale, which can increase the members’ purchasing power and create savings in their supply chain.
Reduced Administrative Burden
Instead of responding to multiple bid requests for the same product, vendors can respond to one bid for multiple customers.
Helps Guide Production and Delivery Schedules
Because of the volume commitment by the cooperative, production planning becomes easier and routine deliveries can be committed to and scheduled out in advance.
Drives Local Economic Growth
When the producers, manufacturers or distributors based in/near the communities they serve, co-ops can help keep local products, jobs and dollars in their region and multiply the benefit of every dollar spent.
Provides Consistent Revenue Stream
Distributors and manufacturers alike rely on forecasts and projections to ensure good cash flow, proper staffing levels, and to ensure they receive raw products in sufficient supply to produce the proper amounts of finished goods for delivery to the end user.
Provides Sales Volume
Warehouse space at a distribution center is very competitive for a manufacturer’s product to become a “stock item” that is readily available to customers. Co-ops provide manufacturers with the commitment of routine volume so they can approach their distributor and make the case for stocking their products. Distributors, in turn, like to turn over their inventory of goods quickly; having commitments from co-ops to purchase the items is well-suited to their business model.
Provides Economies of Scale
While traditional profit per case may deviate because of the volume, manufacturers are able to realize economies of scale cost savings by purchasing their raw products at a lower price and through increased levels of production for a standard product.
Types of Co-ops
The USDA classifies co-ops by the type of purchasing agreements they use to facilitate procurement as outlined in Memo SP-05-2017, CACFP 03-2017, SFSP 02-2017. The three classifications are:
- Child Nutrition Program (CNP) operator-only/CNP State Agency Cooperatives
- Agents
- Third-Party entities
Let’s learn a little bit more about each of these co-ops and some of the pros and cons each model has to offer school food associations (SFAs).
Types of Co-ops
The USDA classifies co-ops by the type of purchasing agreements they use to facilitate procurement as outlined in Memo SP-05-2017, CACFP 03-2017, SFSP 02-2017. The three classifications are:
- Child Nutrition Program (CNP) operator-only/CNP State Agency Cooperatives
- Agents
- Third-Party entities
Let’s learn a little bit more about each of these co-ops and some of the pros and cons each model has to offer school food associations (SFAs).
CNP Operator-Only / State Agency Co-ops
As the name indicates, all members of this type of co-op are program operators of USDA meal programs. They may also include child nutrition program state agency groups. SFAs form an agreement together to increase their buying power and procure goods and services together. Most do not charge a fee to districts for membership, but some may apply a fixed fee to cover the overhead and labor costs associated with administration of the agreement.
- Pros: Singular focus on school products; districts have more ability to determine what products are bid/awarded than with third party co-ops
- Cons: Often volunteer-run by members of the co-op in addition to their regular job duties; increased administrative burden.
Agent Co-ops
Hiring a company or person to serve as the procurement agent and act on the SFA’s behalf is another allowable method for forming a co-op.
In acting upon the SFA’s behalf, the agent must ensure in writing that they have the district’s best interests at the forefront of the procurement process and will follow all federal procurement regulations to ensure items are competitively procured. If the services of the agent exceed the micro-purchase threshold ($10,000), the co-op must issue a solicitation to competitively procure their services.
- Pros: Reduces administrative burden on districts; saves time for district staff; ability to have a person/organization who focuses solely on procurement and is a procurement expert.
- Cons: Higher risk of turnover of the procurement agent (because the services of your agent must be competitively bid); More expensive than some models as the agent must be paid; Some agents may have general federal procurement knowledge but lack school food operational knowledge.
Third Party Co-ops
Third Party Co-ops can be grouped together into two buckets:
- Group Purchasing Organizations (GPO’s), Buying Groups and Third-Party vendors.
- These groups may include non-USDA program operators such as universities, some private schools or public works.
- Typically involves paying a membership fee to receive access to pricing agreements.
- State Procurement Agency Agreements; Intergovernmental Agreements (IGA)
- May include public, private and non-profit organizations.
- These can be nonprofit or private for-profit organizations that serve schools (public/private), colleges/universities, healthcare facilities, food banks, etc.
