Implications

Procurement Matters: The Economic Impact Of Local Suppliers

While this study might be used simply to praise Wist and similarly situated local suppliers of other lines of goods or in other communities, Civic Economics believes that it provides a strong economic rationale for reevaluating procurement policies and screening bidders with an eye toward enhancing the local or regional economy at no additional cost to the purchaser.

Procurement Policy

Conventional procurement policy focuses on price and service considerations alone, and the data provided for this analysis indicates that Wist is highly competitive, if not superior, on both fronts. However, these findings suggest that firms and institutions with long-term investments in a given community might benefit from giving additional consideration to the enhanced economic impact of truly local firms.

Private Sector

In the private sector, large businesses and institutions are substantial purchasers of office products as well as countless other lines of goods. In all cases, price and service are paramount considerations. In addition, however, those same establishments generally recognize that their long-term health is closely tied to the health of the community in which they operate. This is true of for-profit firms such as banks, manufacturers, retailers, and service providers as well as non-profit institutions such as hospitals and educational institutions.

These private sector customers are in a prime position to benefit from the economic benefit of procuring goods from locally owned firms. Without legal and bureaucratic hurdles to overcome, policy change for the good of the community is easily achieved. Moreover, such a change can be expected to produce goodwill in the community.

Local Revenue Recirculation Comparison

Local Revenue Recirculation Comparison
SOURCE: Civic Economics; Wist Office Products financial survey, October 2007; Office Max Annual Reports 2005, 2006; Staples Annual Report 2006

Public Sector

Even more than in the private sector, public sector institutions are in a prime position to capture benefits from the enhanced economic activity associated with local suppliers. Additional dollars recirculating in the local economy generate taxable transactions, employ local citizens, and promote the economic vitality of the community. This is true for the State and its institutions, and for counties, municipalities, and other political subdivisions.

For example, assume a single government entity in the State of Arizona purchases $5 Million worth of widgets each year. If that contract were made through Office Max Contract, only $580,000 would remain in the state of Arizona at the end of the year. If the same contract were made through Wist or a similarly situated local supplier, an additional $1 Million would find its way to the people of Arizona. Finally, by contrast, were that contract made through Staples, only nominal amounts would remain in state.

Civic Economics understands that there may be bureaucratic and legal hurdles to overcome in promoting local procurement preferences. Given the vast sums at stake, however, a policy change is clearly justified by the economic benefits that will accrue to the people of Arizona. In the meantime, it is likely that purchasing agents of the state and its subdivisions can, without any policy change whatsoever, begin recognizing the highly competitive local suppliers that exist in numerous lines of goods. Truly open bidding is the simplest first step toward reform and the economic activity it can generate.

Degrees of Locality: True Locals, Paper Locals, and Others

In studying the office products market for this analysis, Civic Economics came to understand that there are, indeed, degrees of locality. Wist Office Products is a solid example of the true local supplier. The company maintains all operations in the Phoenix area, including warehouse, distribution, and administration. All Wist employees reside in the region. All Wist property resides locally. All Wist owners reside in the region. And all Wist charitable contributions are made in the region. At the conclusion of a given transaction, nearly 35% of associated revenue remains in the local economy.

Office Max Contract and its national chain competitors, though, highlight another degree of locality. While Office Max maintains a warehouse and small staff in the region, Staples maintains only a small sales force in the area. Of the revenues that pass through the local distribution center of Office Max, 11.6% will remain in the local economy after a given transaction concludes. The same contract through Staples yields only the most nominal local economic activity associated with some portion of one day for a delivery driver and vehicle.

However, recent years have seen an increase in the paper local supplier. These firms will have a local owner and a local address and may even qualify under one or more disadvantaged business programs for public procurement. The false local, though, maintains no warehouse or distribution operation and only the most minimal administrative organization. In reality, these firms are merely agents for national suppliers. Transactions originated through these firms are administered and satisfied by the larger, non-local supplier with only a commission or other fee paid to the local shell. Fortunately, procurement officials will be able to identify these false local suppliers with even a most cursory review.

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