Pigs at the Academic Trough
If you managed a plant and your president suddenly told that you that cutting costs would no longer be a part of your job, you’d either think it was April Fool’s or start laughing at the joke. But in higher education today, maintaining or reducing costs is truly of secondary importance. And one of the major reasons for this is the Federal government. According to a recent Forbes article we’ve reprinted on page 34 of the Surplus Record; “Federal grants, tax credits and deductions, and government-subsidized [student] loans have soared 151% over the past ten years after inflation, to $94 billion last year, according to the College Board.”
Fair enough, you’re thinking to yourself. What better a use of Federal funds than educating future leaders of North America—not to mention bringing in the best and brightest from around the world and encouraging them to stay and build a future in the United States? But the problem is that these subsidies have created such bloated systems that even their decade long 150%+ inflation adjusted growth has not been enough to keep tuition at affordable levels. Indeed, according to a Forbes citation, the cost of keeping the doors open at a typical college has outpaced the Consumer Price Index by 48% for the past 25 years. The result of this is that “the price that students pay out of pocket—called the net tuition—still rose 28% after inflation over the past decade at public colleges and 33% at private ones.”
It’s high time to change the trend, considering that the only winner in this game is the university bureaucrat. But is there any way to change spendthrift ways of universities today? Consider that “in 1929 universities spent 8 cents of each operating budget dollar on administration; today they spend 14 cents … In 1976 colleges had three nonteaching professionals for every 100 students; 25 years later they had six.” In other words, universities have become support and job entitlement systems for entire regions rather than accomplishing their initial charter—to educate the next generation of professional, industrial, academic, military, and political leaders of our country.
Perhaps when looked at from the lens of what universities have become, it’s not ironic that despite the fact that many have operations research departments which teach supply chain topics—some even have faculty dedicated to the study of procurement, specifically—most operational sourcing practices in academia would get most private sector managers fired. Consider how Emory University has faced usage-adjusted energy price increases of 4.9% for the past ten years, yet commercial users have realized only a .2% adjusted rise, according to Forbes.
So where is procurement in all of this? Is better sourcing not their job? We had the chance to speak to a number of university procurement heads earlier in the year and found the room divided between those who saw their responsibility as largely promoting the social good (e.g., making sure money is spent in the community and/or with diversity suppliers) versus those who took a harder stance on cost cutting (through better sourcing and changing the behavior of employees through better demand management). Personally, we think the leaders of this latter group will begin to make a name for themselves if and when Federal aid begins to come with more cost containment—let alone cost cutting—strings attached.
On the farm, it’s a well known fact that pigs and other types of livestock will gorge themselves on certain types of feed when it’s made available. In the case of academia, however, we’re not fattening payrolls and overhead with an eye to serving up the heads of administrators in the cafeteria hall. But as university alumni and as taxpayers, perhaps our only hope to reign in university spending is being more vocal about revisiting the non-vegetarian dining options available t us in dealing with the issue.