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Indirect spending can account for 35% to 45% of an institution’s expenses, yet it often gets overlooked as a place to save money and generate revenue. McKinsey research shows that a focused approach to category management can reduce indirect costs by 10% to 15% with a fairly short turnaround. About eight in 10 organizations see substantial savings within the first two years.
Yet, McKinsey’s survey shows that education and public sector organizations are at the very bottom of the list when it comes to leveraging strategic management of procurement categories to realize gains. There is work to do here.
Management is especially important in indirect procurement categories. Much of the indirect expenditures happen behind the scenes and may be scattered across different departments, schools, or campuses. In some cases, they may appear as small expenses but can add up to significant amounts.
Tighter control of spend within indirect procurement categories requires visibility into total spending and the ability to break down expenditures into categories, which means rethinking the way indirect procurement occurs. In many institutions, a significant number of indirect purchases are decentralized. This can create cost inefficiencies that hurt cost control initiatives.
How can you reduce overall costs and generate revenue from your procurement categories? Here are a few ways colleges and universities are achieving this goal.
When you can group purchases into procurement categories, you can often improve your negotiating power. By aggregating spending in similar areas, you may be able to get better terms and pricing, lowering your costs. At the same time, you may be able to consolidate suppliers to reduce vendor management and lower administrative costs.
While not directly generating revenue, the money saved can be shifted to free up funds for other strategic initiatives, such as improvements to the learning environment, student services, or marketing and advertising.
E&I Cooperative Services leverages bulk buying power from its member organizations to achieve volume discounts and best-in-class pricing with top manufacturers and suppliers. These savings are passed directly to members that opt into cooperative contracts.
With more consolidated buying and higher volumes, you may also be able to negotiate rebates and additional incentives from suppliers, which generate revenue. Some cooperative contracts available from E&I Cooperative Services include financial incentives for buyers in the form of rebates or additional discounts.
A less common strategy is to form a local buying group with businesses in the area. College and university procurement teams can act as lead agents for the group, sharing a commission for soliciting, negotiating, and handling the procurement process. With greater volume, discounts may be achieved, resulting in savings for others in the group while providing an additional revenue source for higher education institutions.
A comprehensive spend analysis can uncover hidden savings and areas in which to consolidate purchasing. E&I Cooperative Services offers members a no-cost Strategic Spend Assessment (SSA) to identify how to bring more spending under contract, maximize control and efficiencies, and reduce costs.
There may be opportunities to develop revenue-sharing programs with key suppliers. For example, establishing a partnership with textbook publishers to access digital and physical textbooks at discounted rates and share proceeds from rentals.
Another example would be to partner with a waste management company, negotiating to receive a portion of the proceeds for recycling programs.
Unlike other GPOs, E&I Cooperative Services provides a patronage distribution to its members based on its profits for the year. The board of directors looks at net profit and determines the appropriate rebate. A minimum of 20% of the patronage is paid out in cash, and the remainder is credited to each member as Certificates of Equity (COEs). These refunds serve as a valuable revenue generation tool for many members.
E&I is a member-owned non-profit working solely in the education sector for the benefit of its 6,000 members. The amounts returned can be significant. More than $6.32 million in patronage refunds were returned to members in 2023. Rebates offered by other GPOs are typically contract-specific, which is just a way of delaying the payment of pricing discounts.
Contact E&I Cooperative Services today to discuss other cost-saving and revenue-generating strategies for your college or university.
