The Bureau of Labor Statistics recently announced that inflation was up 8.6% in May compared to last year – a jump that hasn’t occurred since late 1981. As Food, housing, fuel, energy, and other costs continue to climb, the ripple effect caused by inflation is starting to become an immediate concern for the Higher Education sector – for both universities and students alike. In fact, according to a recent article published in University Business, the inflation crisis is starting to outpace other critical concerns for colleges and universities, like the impending enrollment cliff.
As one of the world’s leading cost consultancies, Expense Reduction Analysts (ERA) works with many colleges and universities to uncover additional cash flow in over 40 expense categories, helping offset inflationary pressures. In this article, we will review two best practices for Higher Ed to consider when looking to maximize savings potential.
Costs Are on the Rise
Costs are increasing in many key areas for colleges and universities. For example, prices for Food Services, Office Supplies, and other Consumables, Printing, Copier and Print Services, and Insurance are increasing. Can costs be managed in this market?
Cost Management vs. Inflation
The first step is to identify the things we can control – or at least manage – and those we can’t. Although none of us likes inflation, the fact is there is nothing we can do to control it. However, we can carefully identify those costs we can manage and apply the necessary resources to ensure that every dollar is spent wisely. Understanding the difference between cost management and inflation prevention is the starting point.
Take Time to Understand the Supplier’s Business
What are the key cost drivers for your suppliers? How do your purchasing practices impact the supplier’s costs?
The college or university that knows what factors impact a supplier’s cost to serve and works to develop a partnership that takes pricing out of the equation—will find a supplier willing to provide the best possible service at the lowest possible—and profitable—cost.
The challenge is that most purchasers don’t have adequate knowledge of the suppliers’ side of the buy-sell transaction—and many regrettably don’t care to learn.
Minimize the Impact of Inflation at Your College
Effective cost management requires extensive knowledge of products, markets, alternate sources – and a detailed action plan that includes:
- A specific methodology to deal with supplier proposed price changes
- A mechanism to manage supplier margins in the context of cost increases
- Reliable external resources that can validate cost increases
Creativity and Agility May Be the Key
- How do your specs/scope impact the cost to serve?
- What are the cost drivers that can be modified?
- Define “what we want”and “what we need.”
- How agile is your college? (How quickly can you implement changes when market conditions change?)
Know What You Know — and What You Don’t
It’s not a question of “good” or “bad” employees. However, even the most responsible, loyal, longest-tenured employees may not be prepared for today’s market conditions. Do your people have the skill sets to manage costs in this market effectively? Do they have the necessary knowledge? What are their strengths and weaknesses? Is indexing an option with one or more product groups you regularly purchase?
It’s hard to stay ahead of price changes and manage the day-to-day responsibilities. So the real question remains – “does the organization have the time, talent, and information required to develop and implement an effective cost management strategy?”
An Independent, Objective Perspective May be the Answer
Cost analysis is what ERA does every day, and while we haven’t seen inflation of this magnitude in over a decade, our consultants have been managing costs for 30 years.
Cost increases are not new, but they are becoming more frequent. However, the fundamentals of cost optimization have not changed.
We know the market, the suppliers, what drives costs, and how to mitigate the impact of cost increases on our clients’ businesses.
We have the knowledge, integrity, and strategic experience – combined with the ability to listen carefully to your needs, that allows us to evaluate options and assemble a creative solution that addresses the long-term cost management objectives without prejudice or preconception.
Perhaps now is the time to talk to us about how we can help you mitigate cost increases – because inflation is something none of us can prevent.
About the Authors
Together, Mark Rehl, Terry Bitter, and Jim Agnew have nearly 50 years of cost management consulting experience with clients across multiple industries, including education, hospitality, non-profit, transportation, and retail.