To that end, the $1.1 billion Community First Credit Union of Florida is involved in an effort with the Florida Credit Union League's FCUL Service Group to test out a model that has vendors competing for credit unions' business through an online auction. Powered by Ventelligence, which is owned by the league's subsidiary, it provides solutions and tools for organizing, assessing risk, tracking, and monitoring third-party agreements.
Coined "collaborative buying," credit unions have joined forces with Ventelligence to create a bidding war for certain products and services. Ventelligence staff works with the credit union representatives to gather technical specifications, initial bids, and a preferred supplier list. Additional research is conducted to invite qualified suppliers to the bidding process.
Community First CU of Florida needed to buy some software licenses for desktop computers. A price quote was sent to the vendor that it usually does business with. The credit union's specs for the licenses were sent out to other vendors and each were invited to offer its best bid within a certain time frame. In the end, the credit union was able to get a bid that was 20% less than the price it had originally negotiated with the first vendor, said John Hirabayashi, president of Community First CU of Florida.
"In general, the industry may have been more easy going with vendors. I think we're getting more aggressive about getting good bids," Hirabayashi said. "With respect to any vendor relationship, if you're going to purchase a product or service-especially these days-you have to get competitive pricing."
The Jacksonville, Fla.-based credit union has participated in four online auctions through Ventelligence since October 2008. To date, total savings were $26,837, or about 11% off the original negotiated prices, Hirabayashi said. An auction held in December 2008 among three credit unions with five competing companies resulted in savings ranging from 7.6% to 28.1% on 98 personal computers, 18 laptops, 40 software licenses and three years of support services, according to the league.
With the goal of creating and finding services to help credit unions remain competitive in the financial marketplace, FCUL Service Group started researching contract merchant and e-merchandising, new trends in the vendor purchasing space, said Anita Stoumbelis, senior vice president of the league's subsidiary. The division partnered with Iasta (Italian for "auction"), a software company that provides contract merchant and e-merchandising solutions to Fortune 500 companies such as Foot Locker and the Publix grocery chain.
To link in to their systems, however, a company would need to have 100 users on Iasta software, which isn't practical for most credit unions, Stoumbelis said. FCUL Service Group went the resale software system route with Iasta creating a model designed for cooperatives. The league's division provided the company with customer templates and hired Lori Vary, a former director of e-marketing at Foot Locker, to help get the Ventelligence brand up and running. Vary is now the director of programs at FCUL Service Group.
"Unfortunately, many credit unions are in situations where the [vendor] contracts are managing them," Vary said. "Dates are elapsing without their knowledge and contracts are continuing on. With triggers set for ending dates, credit unions can make educated decisions on whether to continue with their vendor."
Vary said they have various strategies to get vendors, which must prequalify before participating in the bidding process, to come down on their prices. Ventelligence sets a minimum and maximum price threshold. Even before the bids are placed, credit unions get to review all of the requests for proposals. After vendors are invited to participate, they go through training to ensure they are comfortable on bidding day. A blind preliminary bid sets the stage for the actual exchange set in 15-minute increments to offer the best pricing. Vary said unlike eBay, there is no final bid. If someone bids within the last two minutes of the time frame, an additional two minutes is added to give others a chance to offer a counter bid.
In addition to the two online auctions held in late 2008, Ventelligence hosted others in February, March and June. Eight credit unions and six vendors have signed up for another one scheduled for August. Armored car services are among the items up for bidding for that auction. While mostly Florida credit unions have participated, three Alabama-based credit unions will participate in the August session. Stoumbelis said the plan is to expand the service beyond Florida. Ventelligence users pay an annual licensing fee and a rate to participate in the e-purchasing auctions. Nonusers pay a higher rate.
Hirabayashi said that with the NCUA scrutinizing third-party relationships even more, Ventelligence's risk-assessment tools help with the due diligence process and the credit union's internal audit. He likes the ability to rank vendors based on how complex their risk assessments might be.
"You may have 50 vendors. Some do lawn care or clean the building. You do risk assessment on those vendors, but it's not real risky," Hirabayashi said. "But if it's your core data processor and you discover they may have gone out of business or had some financial problems, it could have an impact on your risk assessment."
Even if a credit union is in the middle of a vendor contract, Hirabayashi said the company can be put on notice that bids will go out to others to get the best pricing. Some may come back with discounts if a credit union opts to extend its contract now rather than wait until it's time to renew.
In order for the auctions to work, Hirabayashi has found that the product or service has to be fairly standard and recognizable. Items like software licenses, desktop PCs and ATMs are good examples. Vary said there is a perception that these items along with coin machines are the most common. However, ATM maintenance services can also be bid on, she pointed out.
Quantity is just as important, Hirabayashi added. More items may reap more savings. While the credit union has not experienced any glitches, credit unions should understand that it takes time to go in and risk rate vendors and conduct due diligence.
"For most people who don't have a rigorous process in place, this is a different way to do business. In the past, credit unions have been more informal. This formalizes the process. But there is a high payoff because we all want to be in compliance."