Whatever your category, successful Procurement initiatives are built on solid baselines. Data collection can be time-consuming, even tedious work, but no sourcing efforts can succeed without it.
Unfortunately for Procurement teams, some categories are far more challenging to assess than others. Recently, Source One's Jennifer Ulrich and Nick Harasymczuk sat down with the Source One Podcast to discuss data collections for one especially complex spend area: Facilities Management.
Even seasoned Procurement professionals sometimes struggle with Facilities Management's diverse subcategories and large supply bases. If they run into trouble early, they might find themselves establishing inaccurate baselines and going to market without the appropriate strategies.
Reflecting on their years of Strategic Sourcing experience, Nick and Jen share best practices for weathering the category's challenges throughout the data collection process. Don't have time to listen? Here's a transcript of the conversation:
Source One: Hello, and welcome to the Source One Podcast. Consider us your source for insights and updates on Procurement and Strategic Sourcing, anytime, anywhere. Today I’m joined by Source One Associate Director Jen Ulrich and Senior Project Analyst Nick Harasymczuk for the first installment in a three-part series on effectively sourcing Facilities Management Services.
This complicated spend area includes costs as diverse as pest control, custodial services, security systems, and fire protection. Understandably, it can pose distinct challenges for organizations looking to optimize spend and supplier relationships.
Before we get started, could you both introduce yourselves and give us a sense of your position at Source One?
Jennifer Ulrich: This is Jennifer Ulrich, I'm an Associate Director here at Source One. One of my main areas of expertise is the Facilities Management space. I'm focused on executing Strategic Sourcing initiatives for my clients and helping them navigate through the various challenges that come with running and managing a facility
Nick Harasymczuk: And I'm Nick Harasumczuk. As a Senior Project Analyst, I primarily develop ideas for current and potential projects. Over the last year and a half, I've collaborated with Jen on several Facilities Management initiatives. I'm focused primarily on optimizing spend and streamlining services pertaining to subcategories like the ones you've mentioned. I also serve as the Project Lead here for various additional projects and manage the teams of interns assigned to these projects.
S1: Thanks, so why not start with the very beginning of a sourcing initiative? Whatever your spend area, it’s crucial to collect data and establish an accurate baseline before going to market. Nick, could you speak to the importance of this process and describe what it typically looks like?
NH: Well, we can’t kick off any sourcing effort without an understanding of our project’s scope. To begin developing strategies and allocating resources we’ve got to familiarize ourselves with our client’s goals, the specifics of the products and services being sourced, the timeline of the project, and the identities of all relevant stakeholders.
Once we’re certain of that information, we can start to collect data. Conducting interviews with stakeholders and suppliers, we assemble all the detail we can about the client’s past, current, and planned purchases. This means looking at contracts, statements of work, and other documents to develop our baseline. That provides our minimum starting point. Then the sourcing process can begin in earnest.
S1: Are some categories easier to baseline than others?
JU: That’s definitely the case. It all depends on what sort of information we’re looking for and how companies and their suppliers track it. With Utilities, for example, contracts and invoices typically provide a sufficient picture of current rates and usage. That’s because the nature of the cost model within the supply base necessitates historical tracking. This, in turn, makes baselining simple.
S1: But achieving a baseline for Facilities Management spend is rarely so simple?
JU: That’s right. Within this spend area, companies are oftentimes managing multiple suppliers at varying levels of sophistication. This category is also heavily service-oriented and often based on ‘time and materials’ cost models. Unless the suppliers are explicitly asked to track information such as labor hours spent per job, both capital and ad hoc work, material costs by line item including markup and unit cost, and any ancillary fees assessed – they’re unlikely to keep it for their own records. This is especially the case for those "mom and pop shops" using off the shelf technology to quote and invoice their customers.
S1: And what are some ways a poor baseline can cause headaches for this category in particular?
NH: Inventory management, for example, can prove both tedious and daunting task if we’re going in with data that’s inaccurate and/or nonexistent. Unfortunately, the larger the footprint a company has the more opportunities there are for data to be muddied and inaccurate.
S1: Could you describe an example of an initiative you’ve seen slowed by poor data?
NH: 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 even country. 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, streamlined approach nationwide 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.
S1: What did a “shift in strategy” entail in this instance?
NH: Our team began to engage directly with 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 eliminated service gap exposure. While our initial projections fell short due to this shift, we were still able to secure savings on a site-by-site basis.
Of course, whenever a major shift in strategy occurs during a sourcing initiative there are bound to be ripple effects. These can’t be ignored. For example, our timelines had to be adjusted, resources allocated accordingly, and additional stakeholder engagements were required as while we implemented the shift.
S1: Sounds like all the more reason to strive for the most accurate baseline possible.
JU: That’s right, it’s important to identify any gaps in your data that might create these challenges and develop a methodology for calculating savings that Finance will support and recognize.
Without data such as typical labor hours billed within a specified time period, it will be very difficult to forecast savings results on a labor rate reduction. The same goes for materials markups, without a detailed list of materials used including quantities and markup structures, claiming savings on this spend will take some creativity.
S1: So what can the creative procurement professional do to avoid or address these challenges at the baseline stage?
JU: Well, it’s always important to remember that a lack of historical data does not limit your ability to recoup these savings in the future by applying new best practices to contracting and billing.
One effective best practice might be requesting that all future invoices be detailed at the line item level. That way, in a quarter or six months, you can revisit the data for analysis or sourcing. . Additionally, you can insist that contracts include language that tasks suppliers with providing more visibility into particular costs so that an apples-to-apples comparison can be made in the future.
NH: I’m glad you mention contracting, Jen. Our biggest take away from this particular initiative was the realization that our client did not have transparency into their line item cost(s) across their facilities. To remedy this, we worked with the client to add binding language to every service agreement. Suppliers would now be required to provide line item breakout and details for any and all goods or services rendered on site.
S1: And you expect changes like these to have a lasting impact for your client?
JU: Absolutely. In addition to short-term savings, this new degree of transparency will have even greater benefits down the road. They’ll not only better understand their spend, but also enjoy increased visibility into specific costs. This should mean greater savings and more efficient operations well into the future.
S1: What other strategies would you suggest for companies looking to better collect data and assess their inventories before going to market?
JU: Insisting on more transparent contractual language and greater line item detail is a good start, but for companies with large amounts of inventory or several locations, additional long-term options should be considered. For example, 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.
S1: Thank you both. I look forward to continuing our conversation in the next installment.
Next week, Nick and Jen will discuss leveraging your data to develop strategies for going to market. You won't want to miss it. In the meantime, consider reaching out to Source One's Procurement experts. They've got the experience and the market intelligence to optimize spend in Facilities Management and any other category.