Scholarly Savings: Strategic Purchasing for Universities from IBISWorld

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Facing the imminent threat of budget cuts, universities can adopt smart procurement practices to shield funding for core operations. IBISWorld has identified specific products and services in the key areas of construction, campus services and furnishings and equipment, where expenses can be reduced without limiting funding for a university’s core activities.

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Last year, Cornell University saved $30.1 million by making better-informed purchasing decisions.

Governors are making serious cuts this year to balance state budgets – and one of the biggest items on the chopping block is higher education. So far, proposed budgets for states such as Illinois and Wisconsin have suggested reductions in university funding of up to 31.5%. As such, these universities will need to find ways to patch their fiscal wounds.

Before cutting courses or activities, though, universities should attempt to realize as much cost savings as possible through smart procurement processes. Last year, Cornell University saved $30.1 million by making better-informed purchasing decisions. Likewise, from 2013 to 2014, the University of California system saved $120.0 million by implementing a new procurement plan. 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 product or service they need to acquire. IBISWorld has identified specific products and services in the key areas of construction, campus services and furnishings and equipment, where expenses can be reduced without limiting funding for a university’s core activities.

Construction Services

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. For example, Texas State University has more than $800.0 million in construction developments in the works, while Iowa State University recently announced bid dates for more than $2.0 million in upcoming construction projects. 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. According to IBISWorld, the cost of landscape architecture and design services is expected to rise at an average rate of 3.9% each year from 2015 to 2018, so buyers should consider procuring these services sooner rather than later. To buyers’ benefit, prices of a related service, landscape construction and maintenance, are projected to rise at an annualized rate of only 0.8% during this period. Bundling these services will empower buyers to shield themselves from the full impact of rising prices for landscape architecture and design services.

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Gavin Smith
IBISWorld Inc.
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