Program design strategies

Best practices for growing your supply chain

Strategies

  • Support inclusive business structures
  • Promote investments in infrastructure
  • Provide in-kind support, including space, expertise, and access to information

Support inclusive business structures

In addition to addressing gaps in the supply chain, expanding market competition, and creating economic opportunities for residents in underserved communities of color, an additional benefit to incubating new businesses is that the business structure itself can be designed to maximize impact in the community. Integrating employee and cooperative ownership and profit-sharing mechanisms helps ensure that a broader set of stakeholders will work to keep the business local and that more residents will benefit from the institutional investment. A further benefit, beyond greater employee participation and wealth building mechanisms, are that employee-owned businesses have been to shown to have higher productivity rates.1Virginie Pérotin, “What Do We Really Know about Worker Co-operatives?” Co-operatives UK (2016), 3, www.uk.coop/sites/default/files/uploads/attachments/worker_co-op_report.pdf; For additional resources on worker-owned cooperatives, see: community-wealth.org/content/worker-cooperatives.

This strategy fosters business design geared to meeting the needs of specific populations experiencing unemployment, be it individuals from specific zip codes, formerly incarcerated individuals, or other groups of individuals facing barriers to employment. Businesses with the mission of reaching individuals with barriers to employment are often called social enterprises. Since the goal of localizing procurement is to drive assets to these very communities, ensuring local social enterprises are included in the enterprise design increases the impact of procurement efforts.

Integrating employee and cooperative ownership and profit-sharing mechanisms helps ensure that a broader set of stakeholders will work to keep the business local and that more residents will benefit from the institutional investment.

The Evergreen Cooperatives (Evergreen), based in Cleveland, Ohio, feature employee ownership and social enterprise linked to health system procurement. Established in 2009, Evergreen includes a nonprofit incubator for worker-owned cooperatives, with the mission to “promote, coordinate and expand economic opportunity for low-income individuals, through a growing network of green, community-based enterprises.”2Evergreen Cooperatives, “Mission & Vision,” Cleveland, Ohio, 2016, accessed August 8, 2016, www.evgoh.com/mission-vision/. Developed with support from the Cleveland Foundation, Evergreen focuses on incubating businesses that will meet existing anchor institution supply chain needs.

Evergreen currently includes three businesses: a commercial laundry, an environmental construction and retrofit firm, and an urban greenhouse. These three cooperative businesses were designed to meet supply chain needs of area anchors, including Cleveland Clinic and UH. In addition to initial investments to help seed a revolving loan fund for the start-up businesses, the hospitals have constructively identified supply chain opportunities and contracts for the businesses, assuming they can compete on price and quality. To date, the cooperatives employ more than 110 residents from the surrounding low-income, majority African-American neighborhoods, and have generated an estimated $6.3 million in annual revenue.3For more information about the Evergreen Cooperatives, see: REDF, “Evergreen Cooperatives,” Impact to Last: Lessons from the Front Lines of Social Enterprise, San Francisco, CA: REDY, 2015, redf.org/wordpress/wp-content/uploads/2015/12/Evergreen-Case-Study-FINAL.pdf; The University Hospitals Case Study in this toolkit, as well as a more in-depth case study included in the More Resources section of this toolkit.

Fifth Season Cooperative—based in Viroqua, Wisconsin—represents a rural example of a business with an inclusive structure that was incubated with support from a health system anchor. Fifth Season is a multi-stakeholder cooperative, with six classes of member-owners, including: producers, producer groups, distributors, processors, institutional buyers, and workers of the cooperative. One of the original buyer-members is Gundersen Health System, based in nearby La Crosse, Wisconsin.

Gunderson demonstrated critical leadership in Fifth Season’s start-up phase by recruiting additional institutional support from nearby universities and school systems. In addition, Gundersen has served on Fifth Season’s board since the cooperative’s inception, contributing ongoing expertise to the project. This board participation helps strengthen relationships between Gundersen and local producers, allowing improved communication around supply chain opportunities and challenges. These connections are important because the focus of the cooperative is not simply on distributing food, but also on growing a more robust food system by building the capacity of local producers.4For more information about Fifth Season Cooperative, refer to a more in-depth case study included in the online appendix of this toolkit.

Promote investments in infrastructure and business ecosystem for local and diverse vendors

Other sectors—distribution, transportation, contract management, and staffing—all play an essential role in the supply chain. Viewing a supply chain from this perspective creates additional opportunities for supporting local and diverse businesses. Maximizing opportunities for local and diverse businesses to contribute to the supply chain may require investments in supply chain infrastructure that help facilitate localizing procurement, which will help ensure the business ecosystem is one that nurtures local and diverse vendors.

Maximizing opportunities for local and diverse businesses to contribute to the supply chain may require investments in supply chain infrastructure that help facilitate localizing procurement, which will help ensure the business ecosystem is one that nurtures local and diverse vendors.

Even if a needed item is not sourced locally, the local economy can still benefit. For example, shipping may provide a business opportunity for a local, diverse vendor. Encouraging or requiring large vendors to utilize local transportation companies and distributors can help channel volume to these businesses, and allow them to grow sustainably. Johns Hopkins Hospital and Health System (Johns Hopkins) in Baltimore, Maryland is one system that is pursuing this approach. Ken Grant, the vice president of supply chain for the health system and vice president of general services for the hospital, explained that Johns Hopkins switched vendors so that their prime paper vendor would utilize a local distribution company. This not only moves procurement dollars to local, diverse vendors, but also helps to grow the capacity of the local infrastructure, which can facilitate further local procurement.

This infrastructure approach is especially important for local food purchasing, as many barriers can exist for producers in the processing and delivery of produce. Focusing on building capacity of aggregators and distributors can help bring local food production to scale. This strategy is employed by Gundersen with their support of Fifth Season Cooperative, as described above. Fifth Season’s food hub aggregates produce from its members for local distributors, enabling smaller producers to serve local anchor institutions. In this example, the institutional purchasers are able to meet their goals for local purchasing without significant distribution inefficiencies.

Provide in-kind support, including space, expertise, and access to information

Investments in capacity building in local and diverse businesses need not be purely monetary. Health systems have many other assets they can leverage to help scale local businesses. Hospital facilities can be offered up for vendor outreach events and trainings, or even as warehouse space. Staff time and expertise, and information on upcoming opportunities can also be shared as resources. Access to these resources helps local businesses prepare for upcoming bid opportunities, and supply chain partners, such as small business development centers and supplier diversity councils, design programming more strategically.

Investments in capacity building in local and diverse businesses need not be purely monetary—health systems have many other assets they can leverage to help scale local businesses.

Critical assets hospitals have at their disposal include subject matter experts with specific knowledge about healthcare contracting, supply chain needs, risk assessment and legal issues, and accounting. Dedicating staff time from these departments towards vendor outreach and education is an important strategy for building relationships with local and diverse businesses. This strategy can be particularly important in construction, in which complicated requirements around bonding, retainage, and insurance often create barriers for local and diverse firms. This is a strategy employed by MD Anderson. Representatives from these departments, along with external experts, participate in the yearly capacity training for local and diverse vendors.5Marian Nimon, interview by David Zuckerman and Katie Parker, February 11, 2016. Although the information is beneficial for doing business with MD Anderson, it has utility beyond this, setting vendors up to work with other institutional buyers as well.

One other step a hospital can take is to share information about supply chain needs and communicate with the business community about contracting opportunities. This step facilitates many of the other strategies already discussed. For instance, part of the success of Evergreen is that they are able to meet specific anchor institution supply chain needs and strategic goals. Sustainability is important to both UH and Cleveland Clinic, and as such, the cooperatives were designed to reduce their environmental impacts and carbon footprints. This outcome occurred because these institutions communicated this priority early in the design phase of these start-up businesses, helping position them more competitively over the long term.

Communicating about upcoming contracts allows local vendors to adequately plan for procurement opportunities and put together more competitive bids. Maintaining a public bidding website and circulating contracting opportunities through strategic partners—supplier diversity councils, small business development centers, and cooperative incubators—ensures that this information reaches potential vendors.

Critical Strategies

Core elements of building local capacity

  • Leverage the expertise and purchasing power of existing vendors
  • Promote business incubation and expansion
  • Provide technical assistance and training

Partner Strategies

Finding the right supply chain partners

  • Leverage large vendor contracts to encourage inclusive, local hiring
  • Collaborate with other anchors around shared demand

References   [ + ]

1. Virginie Pérotin, “What Do We Really Know about Worker Co-operatives?” Co-operatives UK (2016), 3, www.uk.coop/sites/default/files/uploads/attachments/worker_co-op_report.pdf; For additional resources on worker-owned cooperatives, see: community-wealth.org/content/worker-cooperatives.
2. Evergreen Cooperatives, “Mission & Vision,” Cleveland, Ohio, 2016, accessed August 8, 2016, www.evgoh.com/mission-vision/.
3. For more information about the Evergreen Cooperatives, see: REDF, “Evergreen Cooperatives,” Impact to Last: Lessons from the Front Lines of Social Enterprise, San Francisco, CA: REDY, 2015, redf.org/wordpress/wp-content/uploads/2015/12/Evergreen-Case-Study-FINAL.pdf; The University Hospitals Case Study in this toolkit, as well as a more in-depth case study included in the More Resources section of this toolkit.
4. For more information about Fifth Season Cooperative, refer to a more in-depth case study included in the online appendix of this toolkit.
5. Marian Nimon, interview by David Zuckerman and Katie Parker, February 11, 2016.