Survival Tip Learned From Farmers : Midwest Businesses Form Cooperatives

Some small Midwestern businesses struggling to survive hard times in the agricultural economy have picked up a survival tip from their farm brethren--go cooperative.

Small companies, from druggists to professional fishermen, have found they can cut costs and improve their ability to compete by going that route.

“Cooperative members can meet any competitor’s price,” said John Pike, director of Independent Pharmacists’ Cooperative, a four-state cooperative based in Madison, Wis.

For years, farmers have used cooperatives to reduce their costs by pooling and buying supplies more cheaply.

Considerable Savings

Small businesses, too, have found the savings can be considerable. A group of 20 Wisconsin hospitals saved $360,000 in insurance costs by joining forces, according to the associate director of the group.

The IPC has built an $87-million business in just three years, Pike said. IPC acts as middleman in providing supplies for 377 pharmacies in Minnesota, Wisconsin, Michigan and North Dakota, helping them cut costs.

“We work through a single wholesaler,” Pike said. “We told them they have to sell to us at their cost plus a certain percentage. We told them to pass on to us any discounts they receive. We audit their books to make sure they do.”

The group was unable to find suppliers at first, Pike said, so organizers searched for other members. One year later the group was four times larger.

“We located a wholesaler who had no market share in our area,” Pike said. “Overnight, he gained 47 accounts.”

‘Shared Service’

The Rural Wisconsin Hospital Cooperative based in Sauk City, Wis., operates as a “shared service” to 20 hospitals in that state, said associate director Pat Roth.

The cooperative contracts with specialists who work in member hospitals, helps purchase major equipment, and holds educational meetings so managers can learn from each other’s experiences.

The hospital cooperative saved its members $360,000 in insurance costs in one year by forming an employee health insurance pool, Roth said.

Rod Nilsestuen, executive director of the Wisconsin Federation of Cooperatives, said the region’s first interactive cable TV system is a cooperative. WFC also packages cooperative employee stock ownership programs in an effort to keep rural industry alive.

One of WFC’s major projects is to build a service organization for local credit unions, Nilsestuen added.

“We have tremendous credit union resources here in Wisconsin,” said Nilsestuen. Madison is the home of CUNA Mutual, a national association of credit unions, and the World Council of Credit Unions, he added.

Through such networks, local credit unions are tied into international computer systems, Nilsestuen said.

“The smallest local credit union is able to compete . . . in terms of rates, because they can deposit and have the money working within an hour,” he said.