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Cooperative
Purchasing Can
Drive Down Costs

Alice K. Small
By Alice K. Small
Director of the Division of Purchase and Property
New Jersey Department of the Treasury

Artist rendering of man and woman pushing blocks of stone to build a pyramid

The faltering national economy has put added pressure on everyone’s budget—from families to major corporations. State and local governments are feeling the pinch as well. Those of us who do the purchasing for government agencies in New Jersey have always looked for the best ways to get the lowest possible prices for the many goods and services we must procure. In times like these, there is even more pressure to squeeze every dollar.

Needless to say, we strive to scrutinize every purchase, try to use Best Practice standards, and watch how our pennies are spent. The search for lower costs, greater efficiency and improved product quality never ends. It is what is demanded of us always, but especially now, when the country is in the midst of a recession that reaches to all levels of government.

At the Division of Purchase and Property (DPP), we believe there are a number of ways that state and local governments can work together to realize significant savings in purchasing. These programs and initiatives were in development prior to the country’s recent economic woes, but they are even timelier today than ever before.

One such program is an enhanced New Jersey Cooperative Purchasing Program. The state and local agencies in the cooperative program have tremendous combined buying power. By bidding a contract as a cooperative agreement, the state gains leverage through volume-driven cost reductions. The goal is to use the flexibility that we do have within our statutes to improve procurement.

Our ability to do cooperative purchasing was enhanced through a 2006 statute that allows DPP to enter into national cooperative contracts when deemed advantageous to the state.

 Before entering into any cooperative contract, DPP evaluates the proposed contract very thoroughly, and the prospects for savings, taking into consideration the impact such a contract would have on the local business environment as compared to what can be gained from using a Total Cost of Ownership model, including the benefits of a broad-based standard set of specifications.

Many local governments are already seeing benefits as a result of joining in cooperative purchasing with the state. Local purchasing agents report they are very pleased with the purchase of computers through the Western States Contracting Alliance Computer Contract. New Jersey is one of 44 states to have joined this contract.

 DPP is also a member of the National Association of State Procurement Officers, which sponsors a number of national and regional cooperative contracting opportunities. The sheer number of states involved in such initiatives means that vendors realize they must be very aggressive in pricing in order to win the bids. Currently we are identifying which of the services and/or commodities might best fit our needs in order to take advantage of the leverage opportunities.
Joining with neighboring states and bidding like items is expected to result in both the overall lowest unit price, and the lowest total cost of ownership across the entire supply chain, considering the cost of freight and soft costs. Participation in such regional cooperatives will open up more contract opportunities for local governments.

Other planned improvements include an online electronic catalog known as eCatalog. Through eCatalog, items can be ordered online through the state’s purchasing system. A requisition would be generated, approvals obtained and purchase orders issued online. In the future, we hope to roll out the eCatalog system to our cooperative purchasing partners within the local governments.

Another initiative, eBid, will permit vendors to submit bids online rather than hard copy. This move will not only save money for bidders but will streamline the bid process and ensure that all required forms have been supplied, thereby decreasing automatic rejection of bids, increasing competition and lowering costs for the state and by extension, our cooperative purchasing partners. The eBid project has a trial launch scheduled for Spring 2009 with full implementation expected by the fall of 2009.

Additionally, as permitted by statute, the state is now negotiating more of its vendor contracts. The state is also taking a more aggressive approach to negotiating contract extensions.

 DPP is also looking at other strategies to combine similar contracts in order to drive up volume and drive down costs. One example is combining existing waste-hauling contracts. We believe this will result in lower hauling costs for the state that could be extended to local governments.

In addition, DPP will be opening up the purchasing specifications for vehicles in order to encourage vendor competition. Again, the goal is to have fewer contracts for vehicles by the end of 2009. Vehicles are now bought through the manufacturer’s “fleet program.” Manufacturers start producing fleet vehicles on a certain date and only have a limited window of time to accept orders. Ideally, the state would like to be ready by the date the manufacturer starts production so that ordering can begin from that date through a four to six month period. We are also planning to provide a wider window of ordering time in future contracts.

 Protecting the environment is also important to New Jersey. DPP is actively expanding its own “green” offerings and is looking into the possibility of a collaborative relationship with Rutgers University, which has a very aggressive Green Purchasing Program. Rutgers has a full product testing lab and evaluation process. DPP and Rutgers have started to share ideas and steps are planned to advance joint green and sustainability contracting initiatives.

Information about the Division of Purchase of Property and the Purchase Bureau’s contracts is available on the web at www.nj.gov/treasury/purchase. You may explore the agency’s contracts, price lists, and a host of information critical to procurement in New Jersey.

I invite your ideas and observations on how to build upon our partnership in purchasing. While we leverage our buying power, we should also leverage our collective experiences and wisdom to develop and implement procurement strategies that continually improve efficiency and streamline costs.

This article was originally published in New Jersey Municipalities magazine. Vol. 86, No. 3, March 2009

 

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