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Month 2012 1
March 2015
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Scholarly Savings: Strategic
Purchasing for Universities
By Kayley Freshman-Caffrey
Facing the imminent threat of budget cuts, universities can adopt smart
procurement practices to shield funding for core operations
Tracking prices,
timing purchases
and bundling
orders can
help reduce
universities’ costs
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 betterinformed 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-
Proposed Budget Cuts to Higher
Education (2015-2016 Fiscal Year)
Arizona
$99.0 million
Illinois
Louisiana
Wisconsin*
$387.0 million
$211.0 million
$300.0 million
* Two-year budget
SOURCE: WWW.IBISWORLD.COM
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
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. 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
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March 2015 2
Scholarly Savings: Strategic Purchasing for Universities
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
Landscape Architecture & Design Services Benchmark Price
120
$ per hour
110
100
90
80
Year 05
07
09
11
13
15
17
SOURCE: WWW.IBISWORLD.COM
applicable regulations. 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.
Campus Services
Construction projects affect more
than the aesthetics of the campus.
Universities will also want to consider
how the construction project will
affect the quality of the services they
Price Growth for Parking Lot Products & Services
Parking Lot & Garage Services
Parking Lot Maintenance & Repair
Ticket Dispensing Machines
Recent Annualized Growth
(2011-2014)
(%)
Forecast Annualized Price Growth
(2014-2017)
(%)
3.2
1.5
0.1
3.5
2.2
1.3
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March 2015 3
Scholarly Savings: Strategic Purchasing for Universities
provide to their students, faculty and
guests. For example, parking services
are vital at most college campuses.
New buildings typically require new
parking lots to accommodate the influx
of people visiting the new facility.
Universities can manage their own
parking structures or hire a parking
lot and garage 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 can bundle the services
together to lower their incremental
expenses and realize efficiency
gains by unifying the management
of their parking lot services.
When constructing a new parking
lot, universities might need ticket
dispensing machines to automate
portions of the parking process. The
purchasing environment for such
machines is currently favorable as a
result of declining input costs and rising
competition among suppliers, so now is
an ideal time to buy. Buyers that wait to
make their purchase for these machines
may be surprised by price increases
when key input costs such as steel
return to growth in the coming years.
Security is another important
consideration for universities. In light
of school shootings, sexual assaults
and thefts, universities will want to
ensure that any new structures are
outfitted with proper security
measures. 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. Research firm
TechNavio estimates that schools and
universities will increase their
spending on physical security
technology at an annualized rate of
14.3% through 2018; therefore, buyer
negotiating power for security-related
products will subsequently be reduced
as demand rises. 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. 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
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
Specialization Levels of Selected
Laboratory & Office Equipment
Laboratory Furniture
Medium
Laboratory Glassware Supplies
Laboratory Fume Hoods
General Office Supplies
Office Desks
Office Seating
Low
Low
Low
Low
Low
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March 2015 4
Scholarly Savings: Strategic Purchasing for Universities
About IBISWorld Inc.
Recognized as the nation’s
most trusted independent
source of market research,
IBISWorld offers a
comprehensive database of
unique information and
analysis on hundreds of
procurement categories.
With an extensive online
portfolio, valued for its
depth and scope, the
company equips clients with
the insight necessary to
make better business and
purchasing decisions while
saving time and money.
Headquartered in
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For more information, visit
www.ibisworld.com or call
1-800-330-3772.
Contact:
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Procurement Research
IBISWorld
Phone: 1-310-866-5033
ashleym@ibisworld.com
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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, these schools have a
number of ways by which they can
respond. Instead of abandoning
construction projects or reducing funding
for much-needed academic and extracurricular programs, universities can
look to reduce their expenses by adopting
strategic buying practices. The strategies
outlined above are just a few of many
methods that universities can implement
when procuring products and services;
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.
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