By: Luis Gile -- Global Category Leader - Design, Construction, & Capital Projects - IBM
30 May, 2018
Cooperative contracts are quite common in government procurement, but seem to have had less traction in the private sector.
I’m aware of very few cooperative contracts being used in private industry, but in those rare exceptions, I find that they offer a great deal of benefits for companies that opt-in.
One of the benefits of cooperative contracting is in time savings.
In a recent real-world example, I leveraged a piggy-back cooperative agreement to engage a contractor on a project with a very aggressive schedule.
By leveraging an existing cooperative contract, I performed minimal negotiations to secure highly competitive rates and terms for a manufacturing client under strict time constraints.
Under similar circumstances without a cooperative agreement, securing the same or similar terms would have required at least six weeks of procurement time. Having the benefit of pre-negotiated rates and having a pre-qualified supplier saved tremendous time and effort without elevating risk.
Repetitive work breeds consistent delivery.
Ever since the industrial revolution, business leaders like Henry Ford taught that repetitive work improves the speed of delivery. At its core, cooperative contracts benefit from the same principle.
By aggregating goods and services across multiple buyers to a limited number of sellers, the seller naturally becomes more consistent in delivery. This means the quality of the service could improve over time.
Cooperative agreements reduce vendor margins by driving higher volumes of sales.
No matter how large your organization may be, everyone benefits when you aggregate your buying power with the buying power of another organization.
Vendors are typically able and willing to reduce their margins in exchange for higher volumes of sales. This is most effective with respect to goods but the price of services can be improved too.
Higher volumes also eliminate the vendor’s costs. For example, manufacturers are able to reduce the cost of raw materials when they can buy in bulk as the savings on raw materials translates into reduced cost to make the product.
Aggregated spend drives cost savings by promoting aggregated purchases of materials.
The more often a vendor repeats a process, the more efficient they become at delivery.
Good manufacturers are constantly focused on how to create a more efficient workflow. This can be from a slight change in the way a product is handled or a reduction in scrap waste. No matter how they get there, manufacturing efficiency is the result of high volumes of production. This translates into additional savings in cost and time.
High-volume production breeds efficiency as it reduces time and cost for everyone.
Cooperative agreements are not for everyone, but there are some distinct advantages that may benefit some organizations. Negotiating a cooperative agreement takes time and effort. Conditions have to be right for the vendor as well as for the buyers.
Nevertheless, when your buying power is limited, joining forces with another organization may represent a win for all parties.
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The opinions expressed in this article are the author's own and do not reflect the view of Beroe Inc.