Strategic Sourcing

Strategic Sourcing

When walking in the woods, it is hard to “see the forest for the trees.” Fly above the forest and you get a much broader perspective.

The same kind of “buying” myopia can occur with any Request for Proposal (RFP) process. Up close, your RFP process is beautifully designed to help your company lower cost — to help you make a good decision. However, at 30,000 feet, you may see eroding landscapes. You may see the ugly after effects of over-mining or deforestation highlighting the erosion of value in the pursuit of a lower price.

Value and price are close siblings, but they are not always the same thing. Price is a dollar amount. It is a hard cost to the buyer. Value includes price, but it also includes a plethora of intangible components like your time dealing with issues, convenience and responsiveness that help you stay focused on your company’s core business, and peace of mind to pursue your real job, versus expending efforts clearing out the weeds in your facility service garden.

When absent, these intangibles accumulate as soft costs for your organizations. What makes soft costs particularly pernicious is that they lack representation on the calculator’s keyboard as easily recognized signs and functions, so they are difficult to add up. Yet, they hide like barnacles on the under belly of a ship creating a drag on your core business. The drag prevents your company from achieving competitive superiority.

Plot your RFP on the Buying Matrix

The “Buying Matrix” shows four areas you can clearly see when you fly above it all and get a higher view of your RFP results.

 

The best way to assure your RFP process is not eroding value or creating a drag of accumulating soft costs, is to use what I have named the “Buying Matrix.” The “Buying Matrix” shows four areas you can clearly see when you fly above it all and get a higher view of your RFP results.

The Buying Matrix helps elevate your perspective so that you can view your process at a higher level. Buying objectives found in RFP’s often fight between two prime objectives: Cost Reduction and Value. If you combine those two, you get the buying matrix. According to the Buying Matrix, purchasing results will fall into one of four possible quadrants:

  1. High cost, low value
  2. Low cost, low value
  3. High Cost, High Value
  4. Low Cost, High value

Quadrant 1: “Oops, I made a Mistake”

If your RFP results are in Quadrant 1 you’re in trouble. Quadrant 1 is an RFP result that no professional buyer would pursue. Quadrant 1 has a not-so-affectionate “dunce hat” associated with it. Who wants to pay a lot for the lowest value, right? However, many buyers do pursue (unintentionally) Quadrant 2, which can create a slippery slope into Quadrant 1 if the soft costs begin to turn to hard costs. For example, say a contractor cuts training for their fire suppression inspectors to meet a new low price, and the inspector accidentally sets off your fire suppression system. Yes, you could recover cost by charging the contractor, but what if you are a multi-tenant facility and you lose tenants due to the mistake?

Quadrant 2: Stuck and can’t get out.

Quadrant 2 is where I believe the current facility service RFP process most often lands. Buyers achieve low cost, but also low value. Quadrant 2 exists because of an artificial commoditization of services. I say “artificial” because if you have ever experienced great service, it is anything but a commodity.

Service is inherently responsive, individualistic and steeped in value when truly provided. Yet the current RFP process commoditizes facility services –reducing the service to the single factor of price while assuming all other factors are commonplace, ignoring differences like intensity of personal care. If you have ever experienced great service, you recognize it is anything but common.

Current buying is tactical, and in the trees. It starts with price reduction as the goal. Procurement specialists are rewarded for savings. As they seek competitive pricing for facility services, funny behavior enters. Vendors know certain scope items are difficult to track, so they don’t represent the scope items in their bids knowing they will not incur the cost. Some even break the law using 1099 employees. Others make managing the service impossible reducing supervision to lower their bids, and consequently transferring management of the service to the back of the service integrator or end customer. I could go on.

As a price drops, there is a clandestine squeezing of value out of the deal. Nobody in the room wants to talk about what is really happening. Buyers think they are getting a better deal, and contractors want the business. What nobody is talking about is that there is a point of diminishing returns in strategic sourcing—that point is when hard costs go down (janitorial costs), but soft costs go up (i.e. time spent managing janitorial, less responsiveness to emergencies, less proactive); then short-term costs go down (monthly janitorial price), but long-term capital project costs go up (i.e. early carpet replacement).

All this funny behavior leads to high reactivity and unreliability. Waste then enters the picture as RFP process has to be repeated more frequently to switch out under performing vendors.

Quadrant 3: You’re so popular!

Quadrant 3 is for buyers who value prestige. You see this in products all the time—Rolex’s, Mercedes, etc. For services, examples include executive catering, sports and entertainment agencies, etc. Quadrant 3 buying, usually by nature of the prestige or brand, excludes aggregated buying. The buying behavior is highly individualistic.

Quadrant 4: I’ve hit the Sweet Spot!

The sweet spot for every buyer is Quadrant 4: Low cost, high value — “the best bang for your buck.” In quadrant 4, you have reduced cost and maximized value. The significance is the value part of the equation. Value is quality; value is peace of mind; value is quick responsiveness to your needs by being there when you really need it; value is flexibility according to your business situation; value is cost reduction without sacrificing quality by using technical skills like Lean 6 Sigma; value is time to pursue the core business otherwise distracted by the fall-out of bad service.

Without value, you risk trading hard costs for soft costs and short-term cost for long-term cost. For example, take janitorial services. If costs are lowered to the extent that insufficient supervision and training are provided in the service, then facility managers will have to trade a hard cost reduction (lower janitorial price) for an increase in soft cost (escalated time spent by the facility manager dealing with complaints and responding to disruption in service).

The trade-off between short-term and long-term cost is also significant. Here are just two examples:

Reducing your preventative maintenance costs can lead to higher capital costs as components and complete systems break down over time due to poor maintenance.

Reducing your preventative maintenance schedule for your air-handling system to save cost in the short term can make the system work harder and reduce its life cycle ballooning long-term costs.

Quadrant 4 represents the most balanced and best results for these two trade-offs. That is why Quadrant 4 should be the target for all cost-conscious buyers. If you achieve quadrant four, it means that you have maximized efficiency from the facility service provider, but the contractor is still motivated and capable of delivering value.

If you are finding the results from your buying decisions are falling into either quadrant 1 or 2, look at your RFP process, and ask the question, “What about my RFP process is quadrant 1 and 2 results?” Start there and stick with your root-cause analysis and eventually you’ll find your deals falling into Quadrant 4.

Look for Quadrant 4 service providers whom have invested in service reliability. They will be companies with specialized skills needed to minimize service variation through standardized systems, and disciplined practices like Lean Sigma. Look for providers who are structured for high service responsiveness through technology, advanced reporting and metrics. Finally, look for a partner who can establish high-service reliability and customer responsiveness to drive customer satisfaction upfront. Look for a partner can then reduce the service’s operational cost through a structured approach so that quality is not lost.

Do these things, and you will be a true Quadrant 4 buyer obtaining lower cost for you company with the highest value.

Marc Collings

Senior VP of Sales and Marketing at Varsity Facility Services
Marc Collings is Varsity's Vice President of Marketing for Varsity Facility Services. Marc oversees the company's growth, branding, positioning, customer support and analytics. In this role, he has positioned the company as a customer solutions leader for lowering cost and improving quality. He also led the company-wide rebranding and strategically positioned the company as a sustainability leader, serving on a committee for the EPA, obtaining the Ashkin Group award for sustainable leadership, leading Varsity's CIMS Green Building certification with honors, and developing Varsity's S.H.A.P.E. sustainability strategy, which improves service results along five dimensions: Safety, Health, Asset Preservation, Productivity and the Environment.

In 2011, Marc's team won the large company category, "Best in the Industry" marketing materials from the Building Service Contractor Association International (BSCAI). Marc also directs Varsity's proposal writing, sales process and tools development, marketing campaigns, corporate website SEO performance and customer support center.

Marc has spent his career developing strategic capabilities that enhance value to customers and the company. A Lean Sigma Green belt himself, he developed the company's Lean Sigma offering, providing an innovative solution to customers' need to lower cost while raising quality. He led the development of JanOPS, an industry-leading janitorial operating system, which brings standardization and service consistency to large campus and geographically disperse national accounts.

Prior to this position, Marc was responsible for strategic management at Varsity. He has initiated or directed multiple strategic technology initiatives, ranging from a corporate website, a corporate intranet, a web/smartphone based quality control system, a learning management system, a corporate content manager and knowledge wiki, salesforce.com deployment and customization, and an Android app which facilitates the GROW sales process he has developed.

Marc is the author of several leadership and management training manuals, field guides, marketing collateral and case studies. He speaks Portuguese and Spanish and holds a bachelor degree in English/Technical Writing and a Masters of Business Administration in Finance from Idaho State University. Marc enjoys mountain biking, skiing, fishing and golf. He is happily married, and he and his wife Victoria enjoy raising and spending time with their four children.

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