Using Procurement Categories to Boost Higher Education Financial Strength

Higher education is in a tenuous state these days. Increased costs for goods and services, declining enrollments, thinning state support, and growing concerns about the value proposition of spiraling tuition costs are taking a toll. A Fitch Ratings market analysis forecasts challenges ahead, anticipating a deteriorating credit environment for higher education and additional economic headwinds—such as labor and wage pressure, elevated interest rates, and uneven economic recovery.

“Limited increases in tuition are unlikely to be sufficient to
mitigate elevated operating costs.”
– Fitch Ratings U.S. Higher Education Outlook 2024

This will be especially challenging for more tuition-dependent colleges and universities. Many schools will be forced to make uncomfortable decisions, delaying purchases and sidelining projects to meet budget constraints.

In this environment, procurement teams can play a significant role in helping academic institutions weather the storm. By deploying a sourcing and procurement category strategy, significant cost efficiencies can be achieved.

The Benefits of Optimizing Procurement Categories

Procurement category management strategies can boost the financial strength of higher education institutions by analyzing and managing specific categories of spend rather than addressing procurement in a fragmented manner.

Financial benefits include:

• Spend visibility and control: Category management provides a comprehensive view of spending patterns in specific areas, such as IT, facilities, or laboratory supplies. This visibility enables institutions to identify opportunities for consolidation, negotiate better contracts, and exercise greater control over their expenditures.
• Leveraged buying power: By aggregating demand across departments or campuses for a particular category, institutions can leverage their combined purchasing power to secure more favorable pricing and terms from suppliers.
• Supply base optimization: Through category management, institutions can often consolidate their supply chain, reducing the number of suppliers and establishing larger and more strategic partnerships. This can lead to cost savings, improved supplier relationships, and better risk management.
• Cost avoidance and reduction: Demand management, product standardization, and value analysis can avoid unnecessary costs and reduce overall spending within specific categories.
• Process efficiencies: By streamlining and standardizing procurement processes within categories, colleges and universities can eliminate redundancies and reduce administrative overhead.
• Supplier performance management: A procurement category strategy can include consistent monitoring of supplier performance to ensure service levels and goals are met.

Category strategies can also be aligned with the institution’s overall financial objectives, ensuring that procurement decisions support broader strategic priorities.

By adopting a structured and disciplined approach to procurement category management, colleges and universities can optimize their spending, minimize waste, and maximize value. In turn, this contributes to an institution’s financial strength, enabling it to allocate more funds toward its core mission of teaching, research, and service.

Effective Procurement Category Management Strategies

If you ask higher education procurement leaders whether they have a procurement category management strategy in place, most will say yes. If you ask them whether it is working efficiently and actively reducing cost, you might get a different answer.

While there may be categories and approaches in place, they may not be big enough to make a difference across the organization or have multiple levers to drive significant value. Procurement teams must have a solid understanding of the benefits and goals to implement real change.

The majority of category strategies fall short by not clearly linking strategy proposals to the benefits and value that they can bring.

• Boston Consulting Group

Category management strategies need to take a long-term, holistic view of spending across the entire institution. Rather than focusing on short-term savings, boosting financial stability requires sustainable cost optimization and process improvements over time. Best practices include:

• Comprehensive spend analysis: Conduct a thorough analysis of spending data across all categories to identify priority areas and potential consolidation opportunities.
• Strategic sourcing: Develop a strategic sourcing plan for each major category, leveraging techniques such as competitive bidding, negotiation, and supplier rationalization to secure the best possible terms and prices.
• Demand management: Work closely with stakeholders to understand and manage demand patterns, optimize inventory levels, and eliminate unnecessary or redundant purchases.
• Product standardization: Collaborate with end-users to standardize product specifications, reducing variability to unlock volume-based discounts from suppliers.
• Value analysis: Continuously evaluate the value proposition of products and services, exploring opportunities for cost-effective alternatives or process improvements.
• Continuous improvement: Regularly review and refine category strategies, adjusting for market changes and emerging best practices to drive ongoing optimization.

Leveraging Cooperative Contracts

Colleges and universities can stretch their budgets by taking advantage of cooperative contracts to increase their purchasing power. E&I Cooperative Services has competitively solicited agreements with top suppliers and manufacturers throughout the country to provide goods and services, leveraging the combined buying power of 6,000 member institutions to achieve significant category savings.

E&I is the only member-owned non-profit sourcing cooperative that exclusively serves the education sector.

Contact E&I Cooperative Services today to discuss procurement category strategies to improve your higher education institution’s financial outlook.