Of budget cuts & cost pressures: 5 lessons in procurement for universities

There’s no denying the vital role the higher education sector plays in the global economy.

Regardless of which country they’re physically located in, what universities do will always have a knock-on effect on the communities they serve; effects that extend well beyond classroom walls. Within the institution, universities don’t just educate millions of students each year – they also employ tens of thousands of staff.

Collectively, both students and staff, through direct and indirect activities, help stimulate the local economy by generating and delivering tax receipts.

But it doesn’t end there.

The university supply chain stretches on much further than that, oftentimes transcending geographical boundaries to reach countries far outside their physical confines. With a dollar value that’s easily in the billions, this supply chain supports GDPs and millions of jobs across a wide range of sectors, providing a buttress of sorts to keep the wheels of industry turning.

This is why how a university spends its budget matters greatly, both to the future of the institution as well as the sectors they work with and wider society.

But heightened government and student expectations, cost pressures and uncertainties in the political and/or policy environments mean university purchasing or procurement offices are operating in a much tougher climate.

Universities want to ensure effective use of their resources and that their procurement decisions are long-term and strategic rather than short-term and tactical. Their budget decisions must deliver value to both their clients and themselves, in a manner that ensures that more than just preserving their key assets, they are also enhancing and growing them.

To help university procurement teams operate effectively in today’s dynamic environments, U2B has compiled five lessons/tips from the experts:

1) Know your market

Whether it’s about selecting a contractor for refurbishment works on an old student accommodation building or improving pastoral care services, it’s important to understand the market forces that are and will contribute to that decision.

University of Chester Procurement Manager Tina Yu says market awareness helps universities better understand organisational priorities and identify opportunities that can add value.

“Understand how forces impact short, medium and long-term strategies, how these translate into key projects and milestones and how these will be measured,” she says in Supply Management.

“Gather and analyse management information to make informed decisions. Review, scope and future proof requirements through output specifications.”

2) Optimise through collaboration

Partnerships can reduce inefficiencies in an otherwise bureaucratic procurement process.

It also fosters knowledge-sharing and communication, and sparks ideas for more collaborative opportunities, whether for discounted ‘group buy’ investments; for research and development in new and novel technologies; or to answer the need to scale.

Last year, the 33 campuses of University of California and California State University joined forces to share the use of a single procurement platform called the “California Universities Sourcing” or CalUSource. The first-of-its-kind system brings together over 500 UC and CSU procurement specialists, thousands of faculty and staff and tens of thousands current and potential suppliers in a more streamlined and cost-effective process.

Through information-sharing and leveraging their economies of scale, the two university systems are able to take advantage of higher value bids made by suppliers seeking expansive opportunities, reduce costs and increase their potential for reaping better benefits and revenue.

3) Determine your institution’s key assets. And then put them at the center of the process

The Association of Governing Boards of Universities and Colleges (AGB) suggests that an institution’s key assets typically include the following:

• personnel;
• curricula;
• students;
• facilities;
• equipment;
• information resources;
• financial assets; and
• intangible assets.

Before a board makes budgetary decisions, they are encouraged to define each one broadly and factor them into the process, looking at how the decision impacts them both in the long and short term.

There’s no reason why procurement teams shouldn’t do the same. Their purchasing moves will affect how these assets are preserved or managed, so they should be placed front and center in the process.

4) Gather, analyse, repeat

It’s important that every purchasing decision is not made in a vacuum; each one must be given fair evaluation through the gathering of feedback and stringent analysis of the risks and constraints involved.

To gain a balanced perspective, Yu recommends consultation with all key stakeholders impacted by the decision, from the consumers to senior management, sector experts and even community groups.

“Focus on what’s important, for whom, why and how risks and constraints may be mitigated or managed. One size does not fit all and a plethora of best practices exist so adapt what’s best to each situation,” she says.

5) Focus on investing in strategic goals that deliver long-term value

Sustainability is key. At a time of budget cuts and cutthroat competition, big budget procurement decisions, especially ones that involve recurring expenses, must be evaluated very, very carefully to ensure they are sustainable and delivering long-term value to the institution.

Consider implementing a strategic finance approach, whereby fiscal decisions (matters pertaining to the institution’s revenues and assets) are aligned with the university’s mission and long-term goals. This is a strategy for fiscal prudence that takes a multiyear perspective and incredible foresight; it requires an in-depth understanding of the higher education landscape and then fitting budgets around every expected bump and pothole.

As well as considering the opportunity cost of each decision, procurement teams should embed the SMART goals strategy into their cost-benefit analyses and always keep their ears to the ground to ensure these decisions not only make fiscal sense but are also timely and relevant.