Strength in Numbers – The Power of Nonprofit Group Purchasing
February 12, 2019
Procurement is not historically viewed as the exciting part of food service. This is particularly true in an institutional setting. Personally, I fell into the role as a unionized clerk in a hospital setting looking for an opportunity to learn and grow within my department (and the Monday to Friday was appealing as well). After seven years as the food buyer for a two-campus healthcare facility, I accepted a position with our group purchasing organization. While I was always invested in the types of products purchased to fulfill the needs of our set menu, it wasn’t until I became a contract specialist that I realized the power of this position.
There are many ways to respond to the procurement requirements for food in an institutional setting. I would like to highlight my favourite; a nonprofit group purchasing model. Although each facility buying food can take the time and energy to education themselves about the quality, availability and origin of the food they are buying, most do not have the resources to do this effectively. Enter the nonprofit GPO. By putting the needs of similar requirements into a pile, the power of the ask grows exponentially. For example, if 16 healthcare facilities, 2 student nutrition regional programs and 12 sites of retail foodservice in a healthcare setting put their needs in one pile, you are now approaching 15 million dollars’ worth of contract product.
Our role at MEALsource is to aggregate this pile by category, facilitate the Request for Proposal process through to actual contract, ensure that our facilities are compliant with the many trade agreements as well as the Broader Public Sector Procurement Directive and manage the ensuing contract as a liaison between the contracted vendor and the Member who has committed volume to this agreement. We have taken many steps over the years as we learn about the parts of our practice which seem to put large vendors at an unfair advantage. We have removed the listing of package sizes in our Request for Proposal, eliminated the standard fees charged to download and respond to our requests, and made room in our bidding responses for alternative proposals. This, we hope, leaves the field wide open, making our contracting process more accessible to new entrants. The main difference between a for profit and a nonprofit buying group is obviously savings that is passed directly to the Member. There are many other differences that I feel do not get discussed enough such as choice, access to direct relationships with vendors and tracking/reporting on product origin.
It is not our role to prescribe products to our Members. Each facility makes their own determinations about the quality level and price that they are looking for to meet their needs. A hospital specializing in cardiac care or renal failure would want a very different product mix from a hospital providing maternal health or psychiatric care. This is where committed volume makes the difference. If any facility, or all of them put together require more than 100 cases/units per year of a product, we will put it out for contract. For example, it is not unusual for our group to have 2-3 lasagnas on contract as each one meets the dietary, cooking system, or palatability requirements of a Member facility.
MEALsource encourages direct relationships with vendors. When there is a quality or supply concern, Members are encouraged to deal directly with the producer to resolve the issue. If there is still a concern, our team will step in and try to resolve the issues on their behalf. As we are a small group, we meet in person every other month to discuss contract updates, day-to-day issues and enjoy up to four vendor presentations of new product ideas to enhance menus. These presentation time slots are available to any vendor wishing to showcase their wares with no cost and no strings attached. This has been incredibly beneficial to local vendors looking to learn about our procurement world and expose our membership to theirs.
As a nonprofit group purchasing organization, we work at the pleasure of our membership. The pressure of profits, deadlines and shareholders is not a factor. Therefore, MEALsource Members enjoy customized reporting on costing year over year, Product of Ontario spend, individual contract commitments and anticipated rebate amounts. Over the years, the term rebate has come to represent evil in procurement, however it has a place in what we do. Offering a rebate through a contracted process allows the pricing offered to remain confidential. In our experience, this leads to better net pricing, which leads to better quality food. Many vendors would like to offer lower pricing to healthcare and student nutrition, but since those products are run through a large distributor, this soon leads to pressure to offer that same pricing to all customers. This is not sustainable for the vendor. However, if the vendor offers a standard price to all customers, and then privately contracts a rebate amount, net pricing comes in cheaper. This allows our Members to do more within their budgets. I should note that this is of the biggest advantage to both the vendor and the buying facility in a nonprofit situation where 100% of the rebate dollars are returned to the buyer.
Our procurement system is unusual, but it is not proprietary. We believe firmly that the way forward to create best value, include our local food system and best serve our most vulnerable citizens is through nonprofit group purchasing. We are happy to share the way we do business with anyone looking to do the same. Once you wade into the impact of a local farmer moving from aggregating 8-48 farms or see the delight on a patient’s face when they recognize the producer of an item on their dinner plate, you will see that institutional procurement is a powerful, exciting force for change.
If you are interested in investigating what nonprofit group purchasing can do for your organization, we would recommend that you send a list of your top 25 food items with approximate annual volumes for costing. This is called a Basket of Goods in our industry. As well, we are available to discuss our group and answer any questions at any time.
You can also click here to view the NRC’s webinar: Exploring Opportunities in Group Food Purchasing, featuring Wendy Smith as presenter.