Strategic Purchasing for Universities
- By Kayley Freshman Caffrey
- July 1st, 2015
Governors are making serious cuts this year to balance state budgets — and one of the biggest items on the chopping block is higher education. Before cutting courses or activities, though, universities should attempt to realize as much cost savings as possible through smart procurement processes.
First, a university must evaluate the cost of construction. Despite budget cuts, construction projects have flourished at universities as these institutions attempt to keep their facilities up to date and attractive to visitors and prospective students. Universities typically excel at negotiating fair contracts for overall facilities construction, but may overlook smaller components of the construction process where they could secure better prices.
For instance, most new buildings require plumbing construction services. Buyers may already be leveraging the wide availability of service providers to attain lower service rates, but there are additional ways to limit costs for these services. In particular, buyers can attempt to bundle related services to reduce their cost for each included service. HVAC system construction and maintenance and electrical engineering services are often provided by suppliers that offer plumbing construction services, so buyers requiring these additional services can take advantage of bundling. 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 redo parts of their landscape to improve the look of their campus. Before starting such a project, schools can use landscape architecture and design services to craft an attractive arrangement that adheres to governing codes. In doing so, they can avoid the expense of redoing the landscape if their initial design does not comply with applicable regulations. Bundling these services will empower buyers to shield themselves from the full impact of rising prices for landscape architecture and design services.
Furnishings and Equipment
Hospitals, laboratories and other medical facilities are among the top candidates for new building construction. According to the Association of American Medical Colleges, billions of dollars are currently being spent on new medical buildings at universities throughout the country. Universities creating these additions will want to 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 U.S. 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-to-moderate specialization levels of these markets to evaluate a range of vendors and find the one that provides the best 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 are even less specialized than laboratory equipment, greatly benefiting buyers by expanding their choice of suppliers. This being the case, universities will want to research the range of available supplier options instead of purchasing from the nearest or most convenient source. The low specialization levels across these products suggest that buyers should be able to leverage the availability of multiple suppliers to secure more favorable pricing and delivery terms.
While universities will take a hit from recent budget cuts, schools have a number of ways by which they can respond. Instead of abandoning construction projects or reducing funding for much-needed academic and extra-curricular programs, universities can look to reduce their expenses by adopting strategic buying practices. Schools should engage in smart procurement processes by staying up to date on the markets for all required products and services and taking advantage of favorable market trends.
This article originally appeared in the July 2015 issue of College Planning & Management.
Kayley Freshman Caffrey is a business research analyst for IBISWorld (www.IBISWorld.com), a publisher of business intelligence, specializing in industry research and procurement research. Excerpted from "Scholarly Savings: Strategic Purchasing for Universities" (http://media.ibisworld.com/2015/03/24/scholarly-savings-strategic-purchasing-universities)