Anchor Institutions and the Purchasing Co-op
How a community purchasing co-op can Bridge Key gaps for Cities & Anchor Institutions focused on Inclusive economic development
With the recent Amazon HQ2 bidding wars, it is clear cities need a more thoughtful approach to local economic development. As more nonprofits consider what a deliberate approach to re-making the economy might look like, we want to offer our community purchasing co-op model as a complement to the growing work of universities and hospitals trying to refocus on local, equitable economic development.
Last year over 100 small anchor institutions in Washington DC purchased $16.7 million of goods & services through the Community Purchasing Alliance Cooperative (CPA), with almost $10 million going to minority owned businesses.
A quick overview of CPA Co-op’s key metrics in 2018
What is an Anchor Institution?
An anchor institution is a large entity, such as a university or a hospital, that is established in a community by real estate and invested capital, but also by its relationships with local businesses, employees, and citizens. Many anchors, these days, are thinking more deeply about how their business decisions affect the local economy. The motivations for this shift in focus differ for each institution, as does how seriously they take this question. In some cases, the health of the local economy is seen merely as a philanthropic enterprise or perhaps a moment for good PR, but, increasingly, these anchors seem to be taking it as a core corporate challenge: “How do we spend our money and how does that affect the local economy? How does that affect small businesses? How does that affect disadvantaged businesses?”
There are a lot of barriers and challenges in actually getting more money from anchors funneled towards local businesses, disadvantaged businesses, and minority-owned businesses. One big one is the fundamental mismatch between the way anchor institutions go about purchasing, and the capacity of “local cluster” – small, disadvantaged and local -- businesses to plug into these supply chains. On the anchor side, strategic procurement has revolutionized the way anchor institutions purchase in the last 20-30 years. Before, every department or division managed its own budget and purchasing operation; now these goods & services are consolidated into a central procurement department that handles increasingly larger and larger spend-amounts.
What’s more, these anchors are often purchasing through Group Purchasing Organizations (GPOs) that further grow the scale of purchasing, and remove nearly all sourcing decisions from the anchor. The resulting scope of work is for such a large quantity of service and product that you can forget about local or even regional companies being able to bid on the work. There’s only a handful of companies in the country that are set up to take a lot of this business, and they orient their business for exactly this market-segment, which introduces even more barriers to small, local businesses while also making anchor institutions dependent on only a few large-scale service providers.
This is where it gets interesting for CPA. We don’t necessarily ground ourselves in the language of anchor-based economic development, but we work with a lot of smaller anchor institutions like congregations, schools, housing centers and other community organizations. Individually, their overall budgets aren’t huge and their discretionary spend budgets are even smaller. So, no one organization has the ability to do an overhaul in the way they do purchasing and fundamentally change the economics of a particular city or even neighborhood, but collectively these anchors spend quite a lot of money. Perhaps more importantly though is that the way these anchors purchase and their particular needs ares much more aligned with the types of businesses we’re trying to prioritize:
First, building trust with one administrator, or COO/CFO, can put you in proximity to the anchor’s most important purchasing decisions. Because administrative leaders at these smaller anchors are often stretched thin across many areas of responsibilities, there’s a real opportunity to deliver meaningful value to their procurement operations and introduce sourcing options that they just wouldn’t have come across on their own.
Second, the scope of work required for these smaller anchors can fit the experience and capacity of small, local and disadvantaged businesses without really changing the anchor’s procurement process. Typical contract awards are for $100-200,000, and usually represent the entire needs of these smaller anchors. A small business that has some B2B experience is already competitive for the vast majority of CPA RFPs. They might not win many in the beginning, but they are in the mix.
Third, over time, enough smaller opportunities can string together to provide stepping-stones for organic, realistic, and manageable business growth. For example we are currently conducting an RFP for Janitorial services that’s for a collective two million dollars, but it gets broken up across ten different bid awards, so that multiple small businesses get access to opportunities that help them grown.
By joining anchor institutions together in the co-op model, and shifting spend across all these anchors, these institutions might be able to do even more than one large anchor on its own, even if it is a billion-dollar enterprise.