By: ProcurementIQ Analyst, Kayley Freshman-Caffrey
State governments are making serious cuts this year to balance budgets, and one of the biggest items on the chopping block is higher education. For example, Kentucky has mandated a 4.5% cut to state college and university funding this year. Meanwhile, budget stalemates in Illinois and Pennsylvania have cut off almost all funding to public colleges and universities, effectively slashing a third or more of these schools’ annual income, at least temporarily. As more states trim spending, universities will need to find ways to patch their fiscal wounds.
Before cutting courses or activities, though, universities should attempt to realize as much savings as possible through smart procurement processes. Last year, Cornell University saved $30.1 million by making better-informed purchasing decisions, while the University of Minnesota’s Strategic Sourcing Program initiatives saved $9.5 million. In the 2013-14 fiscal year, the University of California system saved an impressive $128 million by implementing a new procurement plan, and it expects to achieve $200 million in savings annually at the completion of fiscal year 2016-17. Other schools can follow in the footsteps of these forward-thinking institutions to reduce the costs of their purchases and maximize the efficiency of their buying processes. To achieve this goal, universities can pursue a number of strategies, including tracking prices, timing purchases, bundling orders and capitalizing on favorable market characteristics such as low product specialization. The specific strategy a school should use depends on the purchasing environment for each required product or service. ProcurementIQ has identified specific products and services in the key areas of construction, campus services and furnishings and equipment for which universities can reduce costs without limiting funding for core activities.
Despite budget cuts, many universities have still found room for construction projects to keep their facilities up to date and attractive to visitors and prospective students. For example, Texas State University has more than $750 million in construction developments in the works, while Michigan’s Oakland University recently announced $122 million in new construction and Colorado State University unveiled a projected $238.5 million stadium and facilities project. Universities typically excel at negotiating fair contracts for overall facilities construction, but they may overlook smaller components of the construction process wherein they could secure better prices.
For instance, most new buildings require plumbing construction services. Buyers may already be leveraging the wide availability of these service providers to attain lower service rates, but there are additional ways to limit costs. In particular, buyers can attempt to bundle related services to reduce the cost of each included service. Suppliers that construct plumbing systems often provide HVAC system construction and maintenance and electrical engineering services as well, so buyers requiring these additional services can bundle them together. Bundling not only lowers costs, but also simplifies the procurement process by enabling the buyer to deal with a single supplier.
Along with constructing new buildings and properly fitting them with the required utilities, universities may also want to redevelop parts of their landscape to improve the look of their campus or ensure that it is compliant with government regulations. Schools can use landscape architecture and design services to craft an attractive arrangement that adheres to governing codes in order to avoid having to redevelop land that falls short of standards further down the road. The cost of landscape architecture and design services is expected to rise at an average rate of 3.9% each year from 2016 to 2019, so buyers should consider procuring these services sooner rather than later. To buyers’ benefit, prices for landscape maintenance are projected to rise at a slower annualized rate of 1.5% during this period. Bundling these services will empower buyers to shield themselves from the full impact of rising prices.
Construction projects affect more than just the aesthetics of a campus. Universities must also consider how a construction project will affect the quality of the services they provide to their students, faculty and guests. For example, parking services are vital at most college campuses. New buildings require parking lots to accommodate the influx of people visiting them. Universities can manage their own parking structures or hire a parking lot and garage management services company to handle the task. Rates for these services are forecast to rise steadily in the coming years, so buyers are advised to be wary of hiring an outside firm if they can provide the service at a lower cost in-house. However, if a buyer also desires parking lot maintenance and repair from their vendor, they may be able to bundle the services together to lower their costs and realize greater efficiency by unifying the management of their parking lot services.
Security is another important consideration for universities. Schools should ensure that any new structures are outfitted with proper security measures in order to protect students against crime and violence on campus. These measures may include security lighting, security system installation, security guard services, temporary security staffing and surveillance cameras. Universities can expect prices in these markets to rise due to surging demand in the coming years. Universities should mitigate this expected loss of negotiating power whenever possible by bundling services and products commonly offered by the same supplier, such as temporary security staffing and security guard services.
Furnishings & Equipment
Hospitals, laboratories and other medical facilities are among the top candidates for new building construction on college campuses. According to the Association of American Medical Colleges, billions of dollars are currently being spent on new medical buildings at universities throughout the country. More medical training facilities are needed to accommodate growing health insurance coverage and the resultant demand for medical services stemming from the Affordable Care Act. Universities creating these additions should ensure that their new facilities are properly furnished. Demand for laboratory products such as laboratory furniture, laboratory glassware supplies and laboratory fume hoods is rising due to a combination of increased total health expenditure in the United States and rising research and development expenditure. Higher demand indicates that prices in these markets will grow in the near future. To secure the best possible deal, universities should leverage the low specialization level within these markets to evaluate a range of vendors and find the one that provides quality products at the best prices.
Nonmedical university buildings, such as administrative and academic buildings, will also need equipment. The type of equipment required will vary from building to building, but most buildings will require standard office furniture. Office products such as general office supplies, office desks and office seating also have a very low level of specialization, greatly benefiting buyers by expanding their choice of suppliers. Low specialization across these products suggests that buyers should be able to leverage the availability of multiple suppliers offering comparable products to secure more favorable pricing and contract terms.
While some universities will take a hit from recent budget cuts, there are a number of ways in which they can respond. Instead of abandoning construction projects or reducing funding for academic and extra-curricular programs, universities can look to curb their expenses by adopting strategic buying practices, such as bundling and staying up-to-date on the markets for the products and services they require.