How Local Purchasing Spurred Growth in West Philly

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Objective: Anchors can help local firms compete by unbundling large contracts or requiring prime contractors to use local subcontractors. They can also encourage local firms to partner with each other or with larger vendors and can provide business advice and mentorship. This case study shows how The University of Pennsylvania did just that: it identified local and diverse vendors and helped prepare them to do business with the University.

Main Topic: Anchor Institution
Sub Topic: Local Procurement
Sub-Sub Topic: Minority Purchasing

Geography: Philadelphia, PA
Major Participants: University of Pennsylvania, Pennsylvania Minority Business Development Agency (PA-MBDA), local businesses

Background: In the mid-1990s, the University of Pennsylvania suffered because West Philadelphia was unsafe and economically blighted. Over the decade, President Judith Rodin led the University to improve the long-term social and economic health of West Philadelphia and enhance the university’s competitiveness.

How it happened: The University met with the PA-MBDA to identify local vendors with which to work. The vendors also meet with Penn purchasing managers to learn about the University’s upcoming needs.

Specific Example: Penn was especially aggressive in its efforts with Telrose Corp., a local and minority-owned office supply company. Telrose, then a three-person delivery company, was a subcontractor to Office Depot. Penn persuaded Office Depot to prepare Telrose to become the prime contractor, with Office Depot as its supplier. Over 10 years, Telrose will increase its share of the contract from $300,000 to $50 million. Penn then worked with nearby Drexel University help them shift $1.8 million of its purchasing to Telrose. Telrose has grown to 22 employees, 70% of whom live in West Philadelphia.

Results for Philadelphia Economy: In 2010, the University of Pennsylvania spent approximately $114.9 million – roughly 16% of its total spending and double the amount it spent in 1999 – with local and diverse businesses. These efforts have increased the tax revenue from local businesses and residents.

According to President Judith Rodin, “Today Penn celebrates its ongoing transformation into a world-class urban research university that is nourished by the neighborhood it helped to develop and revitalize.”

The local purchasing has also created shared value: there is renewed retail activity and greater availability of goods and services in West Philadelphia; real estate values have begun to recover; there is greater local investment by the private sector; and K-12 school choices have improved alongside better public safety and social services.

Key Lessons: The University learned that one successful tactic is to explicitly write contracts requiring Tier 1 companies to support Tier 2 companies. These partnerships help build the capacity of local small businesses.

Furthermore, it became clear that senior leadership had to set the tone for local and minority purchasing to be part of the University’s long-term vision. To gain broad-based support, the contracts made through the program had to be either cost-effective or cost-neutral.

Remaining Challenges: First, because West Philadelphia is predominantly a residential community, it can be difficult to find retailers with which to do business. Small mom and pop shops often do not have the capacity needed to handle the types and volume of products in the University needs. Second, even well-funded anchor institutions face pressure to contain costs—resulting in the need to purchase from bigger, often global companies that produce goods at on a larger scale with lower prices.
 

Last Updated on February 4th, 2012

TAGS: business | anchors | shared value | philadelphia | upenn | supplier | procurement | retail