Universities Use Purchase Power to Cut Costs

The state of Michigan is partnering with public universities to explore joint purchasing opportunities that may help reduce rates for products and services. The idea that pooled buying power can drive down costs is certainly not unique or new. But Michigan ’s economic woes and related decreases in state support for universities, combined with skyrocketing increases in costs related to such thing as health care and utilities, have prompted schools to be more aggressive in their search for savings.

Gavin Leach (Finance and Planning) said an existing example of the joint purchase advantage relates to Internet service. For several years, all 15 public universities have managed and run their Internet services through the statewide Merit system.

“Obviously, if you have 15 institutions that need the same thing, they will be able to negotiate a lower price for the product or service by pursuing it in a cooperative manner,” he said.

The same logic is being applied to a recent effort in which universities have issued a request for proposals to utility companies, asking them to submit bids for providing natural gas to the group.

“We have already been extremely aggressive in this area, but we are willing to participate to see if there are additional savings,” he added. “We have a staff position dedicated to energy management, and that has saved us a significant amount of money over the years.

“We are also exploring the possibility of future joint requests for proposals regarding health care, as well as other areas we could save – life, dental and optical insurance, for example, and financial processes such as credit card fees.”

According to the Presidents Council for State Universities of Michigan , increasing health care costs are the fastest-growing expenditure area for the state’s universities. The PCSUM fall newsletter reported that the Michigan Universities Coalition on Health (MUCH) recently discussed the feasibility of having all universities’ health care needs delivered by a single third-party administrator to generate savings while preserving access to quality health care services.

“The main challenge is blending the interests of 15 universities because they administer their benefits programs in different ways,” Leach said. “But it is worthwhile to explore a partnership in this area, because there is potential for additional savings.

“Basically, the universities are exploring a variety of new opportunities to cut costs on goods and services because they have run out of other places to cut. We are willing to consider any joint venture that has the potential to save money.”