Chapter 4 Purchasing and facilities management

Program The role and position of purchasing in a facilities environment Key success variables for purchasing in a facilities environment Measures aimed at improving the effectiveness of purchasing How to classify services that are contracted by organizations What it takes to buy indirect products and services

Purchasing and facilities management Purchasing-to-sales turnover ratio is relatively low Purchasing for the primary process is usually absent (since there is no physical production process) Purchasing saving have a limited effect on return on assets Management will spend most of the time on value added and people-related issues and activities, they will put little effort in support activities (purchasing)

Purchasing and facilities management Major categories of expenditure Buildings, installation and Infrastructure Real estate Restructuring and renewal Maintenance Technical installations Security Systems Office furniture System walls Temporary buildings Housekeeping Energy Catering Cleaning services Green keeping Removal services Security Garbage removal Clothing Technical support materials Temporary labor Hiring of temporary personnel Interim managers Consultants IT programmers, analysts and project managers Services Transport services Travel Accommodation Training and education Search and recruitment Market research Media Events Factoring IT & Telematics Mainframes and software Midrange systems PCs Peripherals Data communication networks Telephone switching equipm. IT projects Outsourcing Office supplies and printing Copying Office equipment Office supplies Paper Packaging material Printing Representation Books and subscriptions Adapted from Rietveld, 1995

Purchasing and facility management The service sector is changing from a traditional and local arena to an international arena. As a result, service companies strive to improve their services for the end user whilst reducing operational costs. Increased outsourcing of support activities Integration of support activities in a facility management organization Increased scale of operations

Effective purchasing for facilities Perceived by purchasing department Perceived by internal departments Low price Good contract Objective supplier selection Delivery reliability On time Right quantity Right quality Fast response time and feedback 4. High accessibility Expectations levels with regard to purchasing are not always identical

Effective purchasing for facilities Customer product group matrix Department A Department B Department C Total value Computer hardware Computer supplies Office equipment Temporary labour Services Total volume a) Total purchasing volume b) Purchasing expenditure c) Market share purchasing d) Expected volume

Improve customer orientation (1) Analyze and document internal customer /product categories: Determine the total purchasing spend per department Determine which fraction of this is purchased through the purchasing department Assess internal customer satisfaction: Find out what bottlenecks there exist in the relationship Target setting (detailed action plan): What customer/product category combinations the purchasing department will reinforce its position, i.e. market share The actions necessary to make this happen The results that can be expected from these actions

Improve customer orientation (2) Cross functional buying teams and organizational structure: Teams with specialists from user departments should be formed to develop specific sourcing plans. Develop sourcing strategies: Use purchasing portfolio Detailed action plan per purchasing category Implementation: Careful monitoring and results in terms of: Savings generated Customer satisfaction Administrative lead time

Effective purchasing in facility environment Different approaches for an optimal structure Focused on the internal customer Product focused orientation (most used) Supplier focused orientation How can an effective internal customer focused approach be achieved in combination with knowledge of products and markets? Make the internal customer responsible for going through the purchasing process Solving internal communication problems by pointing out an account manager of the purchasing department for each specific customer department

Buying indirect goods and services Indirect goods and services that are required for those activities that do not belong to the company’s primary processes. Distinction on destination: Buying of general goods and services Buying of investment goods Buying of trade items Distinction on character: IT, marketing and communication, professional services, human resource management, facility management, transport and logistics, technical maintenance

Buying indirect goods and services Spend on indirect goods is sometimes higher than spend on direct goods and services: Outsourcing of processes Average 50:50 Indirect purchasing generally uses a big supplier database Suggestions for cost savings: Reduction of number of suppliers Introducing category sourcing Analyze user pattern ‘end of year fever’ Product standardization Supply base reduction Reviewing current contracts and agreements Reducing transaction costs Outsourcing the purchase of small items and contracts

Breakdown purchasing spend 635 Breakdown Supplier Base Non-Production Related 422 Number of suppliers 213 154 148 132 126 112 92 86 78 68 54 48 43 39 35 28 25 21 18 14 10 7 IT R&D MARKETING PROPERTIES UNKNOWN CATERING TELECOM BANKING CONSULTANCY RECRUITMENT AUTO LEASE MISCELLANEOUS MEMBERSHIPS INFORMATION STAFF FACILITIES OFFICE SUPPLIES PRINTED MATTER WASTE-DISPOSAL POSTAL SERVICES INDUSTR. CLOTHING COMP. OWNED CARS TRAVEL AGENCIES PATENT AGENCIES TEMPORARY LABOUR

Conclusion Services companies represent a growing share of economic activity in most European countries. Developing a professional purchasing approach in service organizations is a far from simple matter For reasons of effectiveness buyers should be primarily service driven rather than cost driven. Facility goods and services are part of indirect sourcing.