A Guide for the

Development of

Purchasing

Cooperatives
Abstract This report gives an overview on the variety of purchasing cooperatives that are organized for the purpose of reducing costs and improving the quality of products and services available to members. There are often more benefits for rural communities from

membership in purchasing cooperatives for products and services that are less readily

available, in comparison to urban areas.

Some of the potential sources of cost reductions and marketing improvements are

examined for purchasing cooperatives owned and controlled by independent retailers

or farm supply cooperatives. The basic steps in organizing this type of purchasing

cooperative and developing its operations on a sustainable basis are reviewed.

Key words: Purchasing cooperatives, buying clubs, rebates, venders, negotiating.

A Guide for the Development of Purchasing Cooperatives

Bruce Reynolds

James Wadsworth

Agricultural Economists

Publications and information are also available on the Internet. The Cooperative

Programs Web site is at: http://www.rurdev.usda.gov/rbs/index.html.

Cooperative Information Report 64

April 2009

Cover photos courtesy (from top) Ace Hardware, Viroqua Food Cooperative,

and Sacramento Natural Foods Co-op.
i

Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Purchasing Cooperatives Create Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Developing a Purchasing Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Start-Up Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Retailer Purchasing Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Figure 1: Steps to organize a purchasing cooperative

for retailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Selecting a Brand/Product Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Generating Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Table 1: Example of a purchasing cooperative's purchases, rebate

terms, and rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Manufacturer/Vender Receptiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Credible Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Financing Start-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Appendix: Examples of Purchasing Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Purchasing Cooperatives Aggregate Data . . . . . . . . . . . . . . . . . . . . . . . . . .10
ii
A Guide for the Development

of Purchasing Cooperatives

Bruce Reynolds

James Wadsworth

Agricultural Economists

Introduction

Purchasing cooperatives1 have become an essential tool for many small businesses and consumer organizations. Cooperative purchasing helps members

reduce costs and obtain better quality products and

services. In many rural communities with relatively

small markets, businesses and consumers may have

higher cost access to some products and services than

their urban counterparts. In such cases there are even

greater benefits from group purchasing in rural than in

urban areas.

Numerous purchasing cooperatives have been

organized to supply the operating needs of small businesses. These small businesses are either independent

retailers or distributors. In rural areas there are many

independent retailers and distributors, including farm

supply cooperatives, who have an opportunity to benefit from banding together with others for joint purchasing.

Consumers are also actively engaged in collective

purchasing with the organization of food-buying

clubs. In fact, farm supply and consumer food cooperatives often start as buying clubs and, over time,

develop into retail store merchandizing businesses. In

turn, they, like other independent retailers, are banding together to establish large-scale purchasing and

warehousing cooperatives for their stores.

The purchasing cooperative model is also being

applied in several other sectors of the economy,

including household consumers wanting to lower

home heating bills or rural community hospitals or

school systems seeking to lower their expenses for

supplies, to name only a few examples. The purchasing of services, such as health care plans, is also an

objective of many recently organized cooperatives.

These mostly have been organized to provide better

health care plans for the employees of small businesses. They have recently been organized for farmers and

could be more widely applied by other types of independently employed individuals.

Sectors of the general economy that have experienced relatively large increases in costs, such as energy

and health care, have responded with substantial innovation and institutional development in collective purchasing. These sectors are rapidly building large networks of membership. For example, chambers of

commerce are working together to provide leadership

and communications to support the organization of

purchasing cooperatives of local or regional businesses

for negotiating contracts with power and natural gas

utilities. In the public sector, primarily in community,

municipal, or county school systems, large-scale purchasing cooperatives have been established.

Significant institutional developments may occur with

the organization of health care purchasing cooperatives.

Depending on the future direction of national

policy, opportunities may emerge for insurance purchasing cooperatives to reduce medical care costs by

pooling potential Government subsidies or tax credits

received by individual members.2

This report describes the basic structure and

operation of the purchasing cooperative model and its

specific application to independent retail store owners

or farm supply cooperative stores. A purchasing

model for retail stores is to a large extent applicable to 

1

1 In this report the terms Òpurchasing cooperativesÓ and

Òpurchasing associationsÓ are used interchangeably.

2 Rick Curtis and Ned Neuschler, Insurance Market: What Health

Insurance Pools Can and CanÕt Do (Oakland, CA: California

HealthCare Foundation, Issue Brief, November 2005) pp. 1-12.
2

organizing any relatively small group of members,

whether they are consumers or small businesses.3

The growth of large, multi-product purchasing

cooperatives and network systems will not replace, but

may to some extent reduce, the need for organizing

local or smaller regional associations. The large systems offer potential members an easy way to benefit

from collective purchasing while avoiding the organizational cost in starting new cooperatives. Yet, as the

size and scope of these large associations expand, it

becomes more complicated to satisfy all the variations

in consumer interests and in serving niche markets.

Opportunities for new types of purchasing cooperatives in communities and regions with relatively small

populations will continue to emerge along with expansion of large-scale associations and networks.

Purchasing Cooperatives Create Savings

There are several sources of savings from the use

of a purchasing cooperative by farmers, small businesses, or community residents. Once purchasing associations are organized for a specific product or service,

they often discover that the same operating process

can be applied to other items that members frequently

purchase. Often they apply their collective purchasing

capability to entirely different economic sectors from

which they began, extending from, for instance, a

material goods sector to negotiating group insurance,

energy rates, or credit terms. 

An improved capacity to negotiate lower prices is

often recognized as the major advantage of collective

purchasing; however, establishing this potential

advantage as its sole purpose may inhibit an organization from developing other sources of efficiency and

shared savings with their suppliers. Mutual savings

can often be developed in the service component of

delivering products to consumers. For example, a purchasing cooperative can improve market information

for its suppliers, consolidate transactions to reduce

cost, reduce inventories, and coordinate shipping, to

name only a few sources of savings for all parties concerned.

A purchasing association may help manufacturers and venders reduce some of their operating costs.

Some of these costs can be eliminated when a purchasing cooperative consolidates the marketing activities

that were previously involved when dealing with

numerous independent retailers or distributors. For

example, purchasing associations may help manufacturers and venders reduce spending on advertising,

communications, sales staff, and commissions. In markets for energy or unbranded staple products, a consumer purchasing cooperative can offer a secure market outlet and consolidated information about market

demand that improves the long-range planning for the

manufacturer or vender.

Branded products offer the most opportunities

for seller and buyer to coordinate efforts. When members of a purchasing cooperative are independent

retailers/distributors, they can work with a manufacturer or vender to expand the market. When independent retailers/distributors are interested in streamlining their product lines or service offerings and believe

that certain manufacturers provide the quality their

customers want, effective marketing programs can be

developed. Such marketing initiatives are more readily

carried out by retailers who deal directly with ÒfinalÓ

consumers, in contrast to distributors who are higher

up the supply chain and deal with retailers or other

types of businesses. Nevertheless, by coordinating

their purchases with a cooperative, retailers or distributors can more readily carry out uniform marketing

campaigns. A purchasing cooperative has a member

network of independent retailers/distributors that

offers manufacturers or venders a low-cost means to

coordinate and implement a marketing plan.

In sum, individual businesses or consumers can

benefit from group purchasing in several dimensions

in addition to price, such as convenience, assurance of

supply availability, and quality attributes. Improving

non-price dimensions often involves a purchasing

cooperative and a supplier working together and sharing in the benefits that, in turn, form a basis to receive

more favorable terms of trade for members.

Developing a Purchasing Cooperative

Start-Up Strategies

Creating a new business of any kind usually

involves an extraordinary commitment of time and

energy during the start-up phase. Effective communications among independent parties with an interest in

group purchasing is an essential element in getting

started and moving through the organizational steps.

Cooperatives are democratically owned and controlled

businesses, and significant outreach for input and

feedback on organizational plans is needed to help

build a large, or at least sufficient, base of membership

to get started. 3 See Appendix for some brief examples of purchasing cooperatives

and some aggregate data on purchasing cooperatives.
3

Communities in some cases can connect many

individuals to organize purchasing through membership in churches or participation in schools. The

Internet has become an important tool in the development of group purchasing. In a community or neighborhood context, families frequently subscribe to a listserv for news and information that provides a means

of coordinating efforts to start a simple buying club or

moving further to incorporate a purchasing cooperative.

Food-buying clubs sometimes evolve into grocery store cooperatives. In such an evolution, food

cooperatives are generally classified as a different type

of cooperative from a purchasing association.4 Another

distinction is the difference between consumer-operated buying clubs and retail businesses that sell club

memberships to consumers in return for merchandize

discounts. The former are a type of collective purchasing that involves democratic ownership and control,

thereby meeting the criteria of cooperative incorporation statutes, while the latter do not.

Depending on the size and scope of activities,

consumer buying clubs may not need to incorporate as

cooperatives. A simple club membership agreement

may provide adequate protection in the event of lawsuits brought by members against club officers. As size

or scope of operations increase, such as when members are themselves distributing food products to the

public, incorporation is often a prudent step from a

legal standpoint. While operating costs are relatively

low for most buying clubs, a longer term horizon for

negotiating additional and sustainable benefits often

depends on formally organizing and incorporating as

a cooperative.

Retailer/distributor purchasing cooperatives

often have joint communications through their membership in trade or industry associations. Often retailers/distributors belong to a specific industry with common purchasing needs, as is the case with various

agricultural industries. An industry association may

actively carry out the organizational costs of a purchasing cooperative as an added benefit for its duespaying members. This type of support is similar to the

coordination role played by chambers of commerce in

organizing energy purchasing cooperatives for local

businesses.

Retailer Purchasing Cooperative

The purchasing cooperative model has been

developed over several years by large associations of

independent retailers and distributors. Many of these

purchasing cooperatives have developed sophisticated

purchasing programs over time that involve many elements that are not necessary for most fledgling groups

to start operations. Organizing a purchasing cooperative of independent retailers that begins with a small

membership base can start out with the simple model

of a buying club (i.e., members can achieve discounts

by arranging bulk purchases with suppliers). As they

gain experience and expand their membership, more

sophisticated systems of rebates, invoicing, and coordinated planning with manufacturers and venders can

be developed.

The steps in organizing a purchasing cooperative

for retailers are described below and diagrammed in

Figure 1. This model includes the basic steps for any

type of collective buying organization but also encompasses some strategic actions that can help a purchasing cooperative develop further into a long-term sustainable business.

Selecting a Brand/Product Line

Purchasing cooperatives for independent retailers, whether they specialize in farm supplies, groceries, pharmacy, or hardware, often start out with a

single product or a narrow selection of products. A

steering committee should be formed that will be

responsible for planning the products and brands to

pursue in developing purchase agreements with suppliers. This steering committee must be made up of

individuals who will take the responsibility to ensure

that communications are strong among the interested

parties. They must also push forward with the project

to fully determine its potential. Interested retailers can

informally select or vote among themselves to form a

committee of about four or five members. (Box 1 of

Figure 1.)

For independent retailers carrying multiple

brands in their stores, it is useful to conduct a survey

of their sales by each branded product. Some retailers

may not want to share their specific information with

others who are considering membership in a potential

purchasing cooperative. However, confidentiality of

individual retailer information can be established by

having a third party conduct a survey and report

aggregated results to the potential members. (Box 2 of

Figure 1.)

A survey helps identify the best brands and

products to focus on as part of a start-up purchasing

4 Co-op Stores and Buying Clubs: Operations Manual. (Washington,

DC: Office of Economic Opportunity, OEO Guidance 6148-20),

1972.
4

program. At a later stage, when the group has designated an agent or manager to develop purchasing

agreements with suppliers, the survey information

provides a basis for estimating the dollar volume of

sales that the supplier could expect from dealing with

the cooperative. (Box 3 of Figure 1.)

With crucial data and information from potential

members, the steering committee then oversees the

development of a business plan, preferably using an

outside, objective party to write it (perhaps the same

third party that conducted the survey). The business

plan provides background information on the proposed purchasing association, detailed aggregate data

on the products to be included, a marketing plan for

scoping out venders and manufacturers, operational

limits and strategy, capital needs, and a capitalization

strategy. If some sensitivity analysis/feasibility work is

necessary for the project, then it could include that as

well. The business plan is shared with and discussed

among the prospective members, and a decision

whether to proceed toward capitalization and incorporation is made. (Boxes 4 and 5 of Figure 1.)

Once an organization has been capitalized and

legally incorporated, initial contacts with venders can

be made for the purpose of promoting the benefits to

the venders of this new business. A potential association may have to finance a Òdiscovery phase,Ó where

several manufacturers or venders of different products

are contacted but only a few may take an interest in

working with the cooperative. A cooperative purchasing agent conducts the discovery phase in consultation

with the board of directors. It is often advantageous to

have one or two directors, who are retail or cooperative store managers, to participate with their agent in

making Òthe pitchÓ to manufacturers about the business deals to be proposed.

In the process of contacting manufacturers or

venders, it is possible that some may agree to work

with a purchasing cooperative in some limited ways.

For instance they may offer some one-time deals for

reduced prices. Such opportunities offer some immediate savings but they are not satisfactory as a method of

long-term operation. However, some deals of this kind

can be a way to start developing a long-term and more

remunerative program.

Generating Savings 

The major benefits of purchasing associations are

generated either through price discounts or from a system of rebates. Discounts are often the initial purpose

of a newly organized buying group, but more substantial and lasting opportunities for savings are established by having a system of rebates from manufacturers.

Invoicing and payment of rebates can operate in

different ways. For example, members can receive

invoices from participating venders and make payments according to the terms negotiated by their purchasing association. This method discloses the value of

rebates. Many venders will not work with a purchasing association when there is a risk that the negotiated

rebate amount might be revealed to their other customers. Confidentiality agreements with members

about rebates, enforced by financial penalties, are

essential in this method of operation.

Alternative methods of invoicing and rebating

offer more assurance of confidentiality by having the

purchasing association pay venders and collect rebates

for each member's account. The member has its various rebates from different product purchases combined into one sum, so that information about rebates

for particular products is not revealed. A lump sum

rebate can be operated with members receiving invoices from venders and forwarding them to the purchasing association for payment to venders and rebate collection.

Another option would be for the system to be

designed to have venders send invoices to the purchasing association for member purchases. Although

lump-sum payments of rebates to members will not

disclose the various rates of discount, a purchasing

association could report this information to members.

In that case, strict confidentiality agreements would

need to be enforced.

To illustrate such alternate methods of invoicing

and rebating, Table 1 provides a hypothetical example.

Columns [1] and [4] show the amount of wholesale

products that three members are purchasing from two

venders. The cooperative had negotiated rebate terms

as shown in columns [2] and [5]. If the vender bills the

member, the member would pay the vender column

[1] less column [3]; so member 1 would pay vender 1

$24,750 for product 1. With this method, the member

would know the rebate terms and would have signed

a confidentiality agreement. On the other hand, if the

cooperative handles the invoicing, the cooperative

would collect $30,000 from member 1 for product 1

and pay vender 1 the $24,750. The cooperative would

then hold the $5,250 rebate for member 1 to combine it

with other rebates the member earns. The cooperative

would return the combined rebates shown in column

[7] to the members, less any operational fees, as

explained next.
5

Figure 1—Steps to organize a purchasing cooperative for retailers

1. Periodic communications between independent or

cooperative retailers to form a responsible steering

committee.

4. Steering committee oversees

development of a business plan,

including an invoicing system.

3. Consensus ranking of venders to

contact for developing purchasing

agreements.

5. Determine member capitalization and

prepare organization prospectus for

interested parties to make their membership

commitment. Once completed, hire legal

firm to file incorporation documents.

2. Third party conducts survey of products,

brands, and supplies used by participants.
Purchasing cooperatives usually operate with

very low costs, which contribute to their capacity to

generate savings for members. In fact, many have costs

less than 1 percent of rebates returned to members.

Depending on how their invoicing and rebate systems

are designed, most purchasing associations can operate without credit.

When they can function without operating a

warehousing business, they have few physical assets.

Furthermore, coordinated purchasing does not require

a large office staff; possibly two or three people. In

addition, given an office of that size, many associations are able to use space from one of their member's

retail business locations.

Manufacturer/Vender Receptiveness

Manufacturers and venders operating in industries where they have a predominant market share are

less likely to be receptive to purchasing associations

than those in more competitive markets. In the

extreme case of a monopolist, the producer would be

selling to the same retailers whether or not they combined their purchasing in a cooperative. Even in a

competitive industry, experienced purchasing agents

report that a predominant market leader is often much

less receptive to working with a cooperative than are

the competing producers who are number two or three

in market share and are devoted to increasing their

market.

The opportunity to achieve savings with purchasing is less influenced by an association's volume of

purchases than by the impact such volume has on a

manufacturer/distributor's share of the market. In

other words, if, prior to formation of a cooperative,

members were predominantly buying from the same

manufacturer, it makes little difference, other than in

consolidating transactions, that these same purchases

would be handled by a single purchasing entity. To

address this potential weakness, when meeting with

venders, an association must present itself as a significant base of new customers. It is important for a cooperative manager to have market data, a good idea of

how much the association members purchase from

each vender, and how much of a gain is available to a

vender that will establish a trading relationship. A survey of members' retail sales by products and brands

(as previously described in the development steps)

provides essential information for explaining the

potential increase in dollar volume for the manufacturer or vender who will work with the cooperative.

Many types of branded consumer goods not only

compete with similar or substitute products, but are

also competing for a larger share of the consumer's

discretionary budget. Manufacturers or venders want

to deal with retailers who help them be more competitive by contributing to their marketing programs. A

purchasing cooperative can help coordinate an effective marketing program among its independent retailer members. The quality of a relationship that can be

developed between a manufacturer and the cooperative's membership is a key element in a successful program to expand a market.

In sum, the selling points for venders in working

with a purchasing cooperative are: (1) potential to

increase market share, (2) confidentiality of discounts

or rebates, and (3) coordination of product promotion

among independent retailers.

Credible Commitment

The success of any cooperative depends on member commitment. The potential benefits to venders of

working with a purchasing cooperative hinge on the 

6

Table 1—Example of a purchasing cooperative’s purchase, rebate terms and rebates

[1] Product [2] [3] Rebate [4] Product [5] [6] Rebate [7]

1 wholesale Product 1 for Product 2 wholesale Product 2 for Product Combined

purchases rebate 1 from purchases rebate 2 from rebate

negotiated Vender 1 negotiated Vender 2

terms terms

______________________________________________________________________________________________________

Member 1 $30,000 $175/$1,000 $5,250 $15,000 $50/$1000 $750 $6,000

Member 2 $70,000 $185/$1,000 $12,950 $30,000 $55/$1000 $1,650 $14,600

Member 3 $12,000 $125/$1,000 $1,500 $8,000 $45/$1000 $360 $1,860

*Purchasing cooperative negotiates rebate amounts on behalf of its members. If the cooperative does the invoicing and handles rebates, the

member would only see the combined rebate amount of all purchases from all venders, which would provide rebate term confidentiality.

If the vender invoices the member directly, or the cooperative discloses the negotiated rebate to the member, confidentiality agreements

must be put in place and enforced by financial penalties.
7

confidence they have in its sustainability and its

prospects for growth. As with any cooperative, establishing a credible commitment to the business community of customers or partners is to a large extent based

on the membership. Each member needs assurance

that other members are also committed to support the

long-term growth of the new business entity. Having a

credible commitment also comes into play when trying

to hire experienced purchasing managers to be the

cooperative's agent. Talented managers will see potential to grow the business if members establish a commitment to its long-term growth.

Payment of either a membership fee or share of

membership stock is a start for members to signal their

commitment to one another in going forward. A steering or planning committee should develop a value for

becoming a member that is large enough to affirm

commitment, but not so high as to discourage potential members from signing up.

Start-up efforts will likely involve many unexpected twists and turns that test member commitment.

When a new purchasing cooperative can work directly

with a manufacturer, distributors who expect to lose

sales may offer short-term bargains to non-member

retailers and that may financially stress the membership. They may also offer separate deals to selected

members to test their commitment to a purchasing

cooperative. Furthermore, some members may ÒshopÓ

the benefits of the association to alternative venders in

an effort to obtain better deals for their own stores.

To prevent such adverse actions, purchasing

associations are advised to have membership agreements that include grounds for expulsion for: (1) not

maintaining a substantial majority share of purchases

through the cooperative's distribution channels, and

(2) divulging any confidential information about the

association's operations and terms of trade. Loyal

members will not regard such rules as impinging on

their freedom or flexibility, but rather as policies that

protect their investment from the opportunistic behavior of others.

Financing Start-Up

The amount needed to finance a purchasing association can only be approximated with the estimation

of expenses for the start-up of operations. The membership fee or value of member stock, multiplied by

the number of members, provides the start-up capitalization of a cooperative.

Although an expected large sign-up of members

could justify a lower membership fee or price for a

share of voting stock, a threshold cost of membership

should be high enough to signal commitment, as discussed in the previous section. Furthermore, the organizational prospectus should provide incentives for

those who make a commitment to be founders of the

business. Fees or stock prices for membership should

be reported in the prospectus as increasing over time

so as to discourage those who delay joining to avoid

the uncertainty of starting a business.

Typical start-up expense items include legal

expenses; office equipment such as computers, telephones and fax machines, Web page development,

record-keeping software, and promotional brochures.

These costs are common to any start-up. Since office

space requirements are relatively small, it is often possible to operate from one of the locations of a member

business-owner or cooperative. Such arrangements

during a start-up phase make it possible to avoid an

office lease.

A different category of start-up costs involves a

search for manufacturers/venders who will want to

work with the association. Travel is a major expense in

this category for associations that want to move

beyond receiving discounts for bulk purchasing and

establish a sustainable rebate system. Travel expense

depends on the extent of search and discovery that

will be required to develop purchasing agreements

with venders and manufacturers.

The hiring of a purchasing association manager is

the major start-up cost component. A purchasing association must decide between having a lower capitalization that would require the delegation of a member to

start the process of group purchasing, or a higher capitalization to hire a manager. Hiring a manager right

away should result in a faster turnaround in generating discounts or rebate savings. However, member

retailers may have flexibility to use staff from their

own stores in a part-time assignment to start group

purchasing before hiring a full-time manager.

Summary 

Independent retailers and farm supply cooperatives run a risk in the future of becoming uncompetitive with rivals who are franchisees of large chain

stores or are non-voting members of purchasing businesses. A strategic response to these conditions is to

develop a purchasing cooperative where members

have ownership and control.

A purchasing cooperative, whether organized as

a cooperative or limited liability company (LLC), is

unlike the traditional federated regional cooperative. It
is only a coordinating entity and has very little overhead cost. The gains will not be immediate but positive returns are within reach after a few years of dedicated commitment. Would-be members must

understand that benefits may take a couple of years to

be developed.

Moving forward with a purchasing association

takes members who understand that with some marketing services, the manufacturer or vender is their

customer. In turn, with other terms of the business

relationship, the manufacturer or vender will deal

with them as a favored customer. Purchasing associations can develop successful programs if they convince

a vender or manufacturer that they will be successful

marketers of its branded products. The start-up phase,

prior to purchasing operations, involves making a

pitch to the venders to get them on board with a purchasing plan. To finance this development phase,

membership will require the purchase of membership

stock or fees.

Effective communications among the steering

committee and prospective members are required to

get a purchasing cooperative started. Potential members must take the initiative seriously and be forthcoming with data and information (at least to a confidential third party), so that a strong business plan can

be developed.

Opportunities from a purchasing cooperative

may develop differently than expected. Some venders

may offer some short-term discounts on a few items

and be unwilling to operate with a long-term rebate

program. However, while some of these deals may

help with short-term financing, the association must

work with their venders to develop long-term business

relationships and rebate programs. A purchasing

cooperative with the credible commitment of its members is in the best position to successfully negotiate

long-term business deals with venders.

Appendix

Examples of Purchasing Cooperatives

This section includes nine brief examples of purchasing cooperatives across a spectrum of industries.

Some of the information was gleaned from the company Web sites. Web site addresses are provided as references for more information where applicable.

Mississippi Valley Ag, LLC (MVA)

(http://www.missvalleyag.com). MVA started in 2000

with three members and, as of 2007, had 23 members

for purchasing crop protectants. It is an alliance of

independent retailers covering markets in Kentucky,

Indiana, Illinois, Tennessee, Southwestern Missouri,

and Arkansas. It discloses to members its

discounts/rebate deals. MVA charges members threefourths of 1 percent during an operating year, but at

the end of the year its adjusted charge is about 0.30

percent. MVA does not extend trade credit to members. MVA holds four membership meetings per year,

and a four-person board of directors is elected that is

more frequently involved in consultations with the

manager.

Mid-South Marketing Partners, Inc. USDA

Rural Development's staff worked with five independent farm supply cooperatives from Arkansas,

Mississippi and Louisiana to organize a purchasing

cooperative that came to fruition in the spring of 2007.

Mid-South Marketing Partners began with a membership of 12 farm supply cooperatives that by mid-2008

had grown to 17 members. Its product focus is fencing,

wire, minerals, and pasture seed. The cooperative

operates with a part-time manager, and its main office

is housed in one of its member's retail locations in

Little Rock, Arkansas.

Independent Pharmacy Cooperative (IPC)

(https://www.ipcrx.com/public/Home.aspx). Since

1984, IPC has evolved into the NationÕs largest group

purchasing organization for independent pharmacies.

IPC represents 3,200 primary and 2,500 affiliate pharmacy members whose purchases exceed $8 billion.

Located in Sun Prairie, Wisconsin, and staffed by just

75 employees, IPC prides itself on providing the most

progressive and effective programs and services to put

profit back in the independent pharmacy.

IPC offers more than a membership. IPC members are also owners of the cooperative and share in

the cooperativeÕs annual operating profits. They

directly influence the decisionmaking process by electing member peers to serve on the Board of Directors.

These elected member representatives understand the

changing dynamics of the marketplace. Members have

access to the consolidated financial statements and

audit report of independent certified public accounts

for the cooperative annually.

IPC distinguishes itself among buying groups by

instituting the principle of returning 100 percent of

earned rebates back to the member pharmacies. IPC

members can easily review rebate success by viewing

annual and monthly rebate statements in member

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login section of the cooperative Web site. In 2005, IPC

member stores earned over $90 million in rebate disbursements.

Through progressive business modeling, IPC

provides participating pharmacies vital venues to

maximize their storesÕ profitability. With a 75,000-

square-foot, technologically sophisticated distribution

facility, IPC has distinguished itself as a leader in the

alternative source distribution market, reaching over

$500 million in annual sales.

Independent pharmacies nationwide access IPCÕs

purchasing programs in order to thrive in todayÕs

competitive marketplace. IPC distribution purchasing

opportunities include: Rx Advantage Program, OTC

Advantage Program, General Merchandise Program,

and Monthly Seasonal/Promotional Program. (Source:

IPC Web site).

Western Areas City and County Cooperative

(WACCO) (http://www.waccogov.org). WACCO is a

government cooperative consisting of 27 city and 10

county governments in West Central Minnesota. It was

formed in 1993 to share equipment as well as to cut

costs through cooperative purchasing and regional

training.

WACCO is headquartered in Fergus Falls,

Minnesota, and serves the needs of the 7 counties and

18 cities that are its members. WACCO is designed to

reduce the cost and improve the services of local governments in western Minnesota. This innovative collaborative effort achieves its goals by jointly purchasing supplies and services for its members at reduced

prices, facilitating the sharing or leasing of equipment

between member governments, being a clearinghouse

of information on regulatory and other matters, providing a forum for networking by local government

employees within a given department (law enforcement, public works, emergency medical services, etc.),

and by providing local training opportunities for government employees. It is estimated that WACCO

saved its members over $500,000 on training costs

alone during calendar year 1997. Key lessons learned

from this case study were that local government collaboration can pay significant dividends, managements decision to include line staff in the early stages

of the cooperativeÕs development and her outstanding

communications efforts were critical to its success, and

that the evolution from a start-up, highly entrepreneurial cooperative to one that is more mature can be

challenging.

(Source: ÒWestern Area Cities and Counties

Cooperative Case Study,Ó by Beth Honadle, Gary

Goreham, Frayne Olson, Anne Reynolds, David

Trechter, and Linda Jacobson, March 1998, Web site:

http://www.uwcc.wisc.edu/info/fra/west.html.)

IMARK Group (http://www.imarkgroup.com).

IMARK Group, Inc. is a member-owned marketing

group made up of 172 independently owned electrical

distributors throughout the United States. Member

companies serve their local customers at over 1,000

branch locations. With over $8 billion in combined

sales, IMARK Group members represent the second

largest electrical distribution entity in the United

States.

IMARK members are market leading companies

serving the needs of electrical contractors, industrial

and institutional maintenance and repair operations

(MRO) customers, electric utilities, and other customer

types throughout the country. At the heart of IMARKÕs

success is its relationship with over 100 of the electrical

industryÕs leading manufacturers and service

providers. IMARK members work closely with these

companies to satisfy end customers while members

and suppliers maximize profitability, increase market

share, and strengthen business relationships.

IMARK Group, Inc. is headquartered in Oxon

Hill, Maryland, and was founded on February 1, 1996,

as the result of a merger between The Independent

Electrical Distributors Group (TIED) and Western

Independent Electrical Distributors (WIED).

One of the largest independent marketing cooperatives in the United States, IMARK Group is an associate member of the National Association of Electrical

Distributors and the National Cooperative Business

Association.

True Value

(http://truevaluecompany.com/home). True Value

Company, headquartered in Chicago, is one of the

world's largest retailer-owned hardware cooperatives

with approximately 5,800 independent retail locations

worldwide. The company is focused on serving its

retailers by providing them with the right products,

knowledge, and expertise they need to successfully

serve their customers and grow profitably.

The genesis of True Value is rooted in the histories of three entrepreneurial companies. The origins of

the wholesale hardware business can be traced to 1910,

when a group of hardware dealers met in Pittsburgh to

establish American Hardware and Supply Company.

Decades later, American Hardware would be named

ServiStar. In the late 1920s, three brothers huddled

around a kitchen table in Minnesota to sketch their
dream. By 1928, the first Coast to Coast store was

opened. In 1948, John Cotter established Cotter &

Company, a hardware co-op with 25 retail members.

Having started his career at a neighborhood hardware

store at age 12, he would build on strong industry

roots. With the purchase of Hibbard, Spencer and

Bartlett in 1963, Cotter not only acquired the company,

but also the True Value trademark. The number of

member stores expanded.

After the merger of Coast to Coast with ServiStar

in 1996, the co-opÕs commitment to its members was

further strengthened. In 1997, Cotter and Company

and ServiStar Coast to Coast formed one of the industryÕs largest dealer-owned buying groups Ñ TruServ

Corporation.

Today, as True Value Company, the co-op has

forged an exciting future with the launch of a new

store format. Store by store, members are supported

and empowered to hold a solid position in the hardware industry and the communities they serve.

True Value's presence is worldwide. The cooperative serves 54 countries with more than 5,000 stores,

12 regional distribution centers, and 3,000 associates.

HESCO (http://www.hesco-fl.com). HESCO is an

operating supplies procurement and provision cooperative conducting business principally in the

Southeastern United States. The administrative office

and warehouse facility is strategically located in the

heart of central Florida in Waverly.

As a supply cooperative serving prominent

Florida citrus producers, packers, and processors,

HESCO identifies critical operating supply requirements of its members, negotiates favorable purchasing

arrangements, and then orders, receives, stores, and

redistributes those supplies as needed. Other buyers in

need of packaging and operating supplies also have

access to these products. HESCO has a wholly owned

subsidiary, HEPSCO, that also responds to the specific

supply needs for fuels, lubricants, tires, batteries, and

other accessories for citrus and agricultural business

fleet operators.

CCA Global Partners (http://www.ccaglobalpartners.com). CCA Global Partners is a multi-organizational entity that provides a comprehensive range of

services for 14 large businesses and purchasing cooperatives. It provides support for large-scale purchasing

by its affiliates but also coordinates the acquisition of

insurance, access to credit, marketing programs, and

other services.

Originally operating as Carpet Co-op of America,

a purchasing association, the organization changed its

name to CCA Global Partners in 2001 with the goal of

being a business-servicing entity for large purchasing

cooperatives. Its affiliates include many of the largest

purchasing cooperatives, such as Carpet One and The

Bike Cooperative.

Blue Hawk Cooperative

(http://www.bluehawk.coop). Blue Hawk is a purchasing coopeative for Heating, Ventilation, AirConditioning and Refrigeration (HVACR) wholesalers.

Owned by 214 wholesale companies, with 939 locations and aggregate annual purchases of $5.5 billion, it

has grown rapidly since being organized in 2005.

Purchasing Cooperatives Aggregate Data

The data in Appendix Table 1 provide proportions, by

sector, of purchasing cooperatives in the United States.

These data are being collected by the University of

Wisconsin as part of an ongoing study begun in 2006:

Research of the Economic Impact of Cooperatives.

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Appendix Table 1—Purchasing Cooperatives by Sector in the United States

Sector Number Percent

Commercial sales and marketing 137 19

Social and public services 478 66

Financial services 29 4

Utilities 80 11

Total 724 100
USDA Rural Development

Rural Business–Cooperative Programs

Stop 3250

Washington, D.C. 20250-3250

USDA Rural Development provides research, management, and

educational assistance to cooperatives to strengthen the

economic position of farmers and other rural residents. It works

directly with cooperative leaders and Federal and State agencies

to improve organization, leadership, and operation of

cooperatives and to give guidance to further development.

The cooperative segment of USDA Rural Development (1) helps

farmers and other rural residents develop cooperatives to obtain

supplies and services at lower cost and to get better prices for

products they sell; (2) advises rural residents on developing

existing resources through cooperative action to enhance rural

living; (3) helps cooperatives improve services and operating

efficiency; (4) informs members, directors, employees, and the

public on how cooperatives work and benefit their members and

their communities; and (5) encourages international cooperative

programs. Rural Development also publishes research and

educational materials and issues Rural Cooperatives magazine.

The U.S. Department of Agriculture (USDA) prohibits

discrimination in all its programs and activities on the basis of

race, color, national origin, age, disability, and where applicable,

sex, marital status, familial status, parental status, religion,

sexual orientation, genetic information, political beliefs,

reprisal, or because all or a part of an individual's income is

derived from any public assistance program. (Not all prohibited

bases apply to all programs.) Persons with disabilities who

require alternative means for communication of program

information (braille, large print, audiotape, etc.) should contact

USDA's TARGET Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination write to USDA, Director,

Office of Civil Rights, 1400 Independence Avenue, S.W.,

Washington, D.C. 20250-9410 or call (800) 795-3272 (voice) or

(202) 720-6382 (TDD). USDA is an equal opportunity provider

and employer.