Facilities Management Sourcing Challenges Blog Mini-Series: Part 2

As my colleague Jennifer Ulrich previously discussed in part one, the first – and most critical – step in the sourcing process is establishing a sound baseline in order to lay the foundation for a successful sourcing initiative. When it comes to facilities, she highlighted the fact that sourcing projects bring with them several layers of complexity that procurement professionals need to be aware of before engaging the supply base and the market. Jennifer emphasized several key elements that are “must haves” for any procurement checklist including labor (cost per hour), material and markup costs, usage rates, invoice transparency, and ancillary fees. When properly captured, this information is the catalyst for success and savings.

While conceptually inventory management is straightforward, it can prove to be a tedious and daunting task if the data is inaccurate and/or nonexistent. The larger the footprint a company has the more opportunities for data to be muddied and inaccurate. Recently, Source One was involved in a large scale facilities sourcing project for a client with over 200 locations throughout North America. These locations varied in size, region, and country (US/Canada). While a streamlined, single source provider was the original goal with the majority of these facilities projects, we quickly learned that the amount of data available was not sufficient. Conducting an efficient, standardized, national streamlined approach would require more information and detail that simply was not available. Market feedback was also unclear and was built around a variety of assumptions that did not align with the baseline data that we were able to capture. Many locations had scopes that were not able to be standardized (additional kitchen area to be cleaned, different sprinkler systems, multiple HVAC compressor units, etc), and proved to be extremely difficult to standardize in one RFx. It became clear a shift in strategy was required. Our team began to directly engage the incumbent suppliers at each location in hopes of leveraging a long term contract, client/supplier relationship, and long term strategic growth in order to achieve savings. This ensured that scopes were level set, and no service gap exposure. While initial projections fell short due to this shift, we were still able to secure savings on a site by site basis.

Whenever a major shift is strategy occurs during a sourcing initiative there are ripple effects that must not be overlooked. Our timelines had to be adjusted, resources allocated accordingly, and additional stakeholder engagement as needed while we implemented this shift. As with any project there were plenty of lessons to be learned, but the biggest take away from this initiative for our client was the realization that they did not have transparency into their line item cost(s) across their facilities. This resulted in binding language being added to every service agreement requiring each supplier provide line item breakout and detail for any and all goods and services rendered on site. While we were able to achieve some short term savings, this transparency will allow the client to not only better understand their spend, but also provide them with visibility into specific costs which will lead to future savings when this business goes back to market.

Contractual language requiring transparency and line item detail is a good start, but for companies with large amounts of inventory/several locations, additional long term options should be considered. There are a variety of facility management software programs that offer companies the chance to gain control of their supply chain operations and inventory. The costs can range from hundreds of dollars per month per service to annual subscriptions that can cost as little at $1,000 per month depending on the type of facility a company has to manage.

So what do you do after you’ve established your baseline, and gotten a handle on your inventory? Check back soon for more entries on how to take your company’s facility management to the next level!