Architecture presentation 9

Effective Sourcing Strategies

forConstruction & Facilities

Management Services

Effective Sourcing Strategies

Typical Category Breakdown

Common Issues

Necessary tools

Strategies

Opportunity Identification Methods

Case Studies

Summary

Construction & Facilities Management Categories

Major Projects – Typical new construction, large project in size and sq footage

Renovations - Renovate existing space

Minor Projects – New single room construction

Maintenance – Existing facilities operating and repair activities

Common Issues Sourcing Services

Lack of focus with respect to the magnitude of dollars spent on these routine types of services (i.e. non major project work)

Lack of appropriate personnel (head count and skill set deficiencies)

Lack of involvement by sourcing professionals using Best Practices processes for the acquisition of services

Lack of purchasing policies and procedures for acquiring these types of services

Lack of senior management support

Construction/Maintenance services viewed by management as “necessary evil” that can be done by anyone with little risk/benefit to the company

Common IssuesEstablish Comprehensive Purchasing Procedures

RFP/RFQ Development

Statement of Works Development

Supplier Selection

Supplier Evaluations & Performance Management

Common IssuesDevelop Performance Metrics

Cost

Time

Quality

Internal/External Customer Service

Major Projects

Background - Major Projects

Typically involve new construction/major renovation One off process where large product/service

purchases are non-reoccurring Large project in dollar size (millions of dollars in

FF&E) and sq footage (100,000 sq ft and up) Company responsible for all FF&E (furniture,

fixtures and equipment) Work with internal/external designer/design firm and

architect for specification development Project duration lasts from 2 – 5 years

Issues – Major Projects

Some Key Issues: Logistics Project schedule, delays, contingencies, etc. Disposal of existing FF&E Refurbishment of existing FF&E Relocation of existing FF&E Attic stock Maintenance costs Relocation costs New and existing asset tracking and

management Equipment placement and testing

Hardin/Cap One

Commissioning

Project Team

Migration

SCHEDULING

DESIGN COORDINATION

SWAT

ASSET TRACKING

INVENTORY ANALYSIS

MIGRATION MGT

LOGISTICS

QUALITY CONTROL

Scheduling

SCHEDULINGDESIGN

COORDINATION

INVENTORY

ANALYSIS

QUALITY CONTROL

ASSET TRACKING LOGISTICS COMMISSIONIN

G SWATMIGRATION

MANAGEMENT (EXECUTION)

Delivery of all FF&E to conform with project and construction schedule

Schedule all pre-moves and all moves

Schedule removal of all non-relocated assets for lease turnover

Schedule de-installation and re-installation of relocating FF&E

Schedule refurbishment of reused assets

Coordinate logistics for inbound freight

Review specifications regarding price and product availability vs. move-in schedule

Validate specifications, drawings, order quantity, and product types for FF&E

Review specifications, drawings, placement for potential as-built conditions, i.e., columns, window mullions, ADA guidelines

Determination of FF&E to be relocated

Determine FF&E to be disposed of/stored

Determine FF&E requiring refurbishment

Prior to ordering FF&E, review product vs. specifications and drawings

Workstation type/Quantities

IT/Telecommunications outlet placement

Specific FF&E power requirements

Specific FF&E HVAC requirements

Specific FF&E plumbing requirements

Manage and monitor delivery/installation of new and relocated FF&E

Expedite all repairs/replacement of product

Determine requirements of current asset tracking system, i.e., minimum dollar value of asset tracked, and types of assets tracked

Verification of requirements, delivered and installed per specifications

Tag for location reporting and migration control

Schedule deliveries and installation of FF&E with construction and migration schedule

Determine if warehousing is necessary for staging, refurbishment of existing furnishings, attic stock, and off-gassing

Coordinate de-installation, move and receipt of relocating FF&E

Coordinate receiving FF&E and utilization of elevators and hoists

Roll-Around testing for IT/Telecom equipment for each workstation

Punch list all workstations with specifications and drawings

Examine quality of workmanship

Schedule repairs and/or replacement of FF&E

Ensure MEP matches FF&E placement schedule

Select cross-functional team comprised of Hardin and Capital One personnel for SWAT

Define function, duties and purpose of SWAT for project

Activate SWAT for project duration to ensure schedule integrity

Define Day 1 move-in SWAT team functions and duties

Orientation/information gathering (includes Personnel, IT, Telecom)

Validation and verification of re-locating assets

Plan and coordinate all activities with mover

Selection and pricing of mover services

Move management

Post move analysis for each move group

Issues - Major Projects

Everyone wants to buy/manage/provide the products and services required for the project – Most for the wrong reasons Furniture distributors

Design firms

Construction Manager

Property/Facilities Manager

Installation Company

Third Party consultants

Who Should Buy?

Most organizations don’t have the time or people skilled in major projects to effectively manage/source a large project in addition to normal duties

Optimum solution for major projects is the use of a Third Party Consultant due to the following: Works for clients interests Objective in performance Work in cross-functional team Brings to the table extensive experience and history of

achieving results Knows where the pitfalls are in these types of projects Knowledge of all components of cost in the the Total

Acquisition Cost model

Required Information Major Projects

Specifications for FF&E Coordinated Drawings Material Takeoffs Project Schedule Company Standards Project Budget Types of agreements for services with

Architects, Design Firm, Construction Manager, Construction Company, etc.

Strategies – Major Projects

Develop initial bid specifications that are flexible and do not lock in a specific product or manufacturer

Obtain specifications well in advance of actual RFP/RFQ issuance

Conduct Pre-Qualification process with potential suppliers in the market

Challenge design decisions – Bring business sense to the process

Consider the total cost, not just unit price Build mock-ups when possible Conduct focus groups with key stakeholders,

architect and design firm

Cost Savings/Avoidance Opportunities - Major Projects

Key Issue – Early involvement on the project prior to decisions being made results in the maximum savings

Look for alternatives – FF&E: Fabrics (COMs vs. SOMs vs. knockoffs)

Sizes - close to desired recommendations

Colors – close to desired recommendations

Reconditioned/refurbished products (i.e. Files)


Negotiate total cost for all products/services: Delivery & Freight Installation/labor FOB point/acceptance Staging & off gassing Attic stock Continuation of product Future needs Packaging Warranties Protection of facilities during installation


Find “hungry” manufacturer/distributor that closely meets design requirements

Use third party provider, consortium and/or buying groups to take advantage of their leveraged spend for those products and services you require

Reverse auctions – Use when and where applicable, but be cognizant of total cost vs. potential savings


Scheduling – Common Mistakes That Cost: Products come in too early - incur extra storage, delivery

and handling costs as well as significantly increase potential of damage

Products come in late – Room/Floor/Building has to be “opened” to allow for size, weight and required utilities of FF&E resulting in significant costs and damages to facility

Don’t coordinate delivery and installation schedule with CM, Operating Engineers, etc. resulting in trucks being turned away, unnecessary labor costs being incurred

Labor disruptions – due to your suppliers, installers and contractors resulting in work stoppage, sabotage, and other damages and delays

Benefits Major Projects

Lower total cost for required products/services 5% - 40%

Avoid unnecessary costs for delays, handling, damages, transportation, etc.

Lower project related costs by ensuring on-time delivery of all required products, including relocation management

Formal measurement of services provided

Supplier management metrics & enforcement

Ensure lowest total initial cost for project as well as lowest long term maintenance, replacement and support cost

Benefits Major Projects

Best Practices sourcing practices applied to all services

Apply professional sourcing strategies to purchase of all required products/services

Leverage benefits achieved into internal Facilities Management program

Develop/enhance professional relationships via cross functional teams with internal departments

Take ownership of spend for capital construction and maintenance

Reduction of inventory, improved use of working capital

Facilities Management

Background Facilities Management

Companies manage services for properties that are owned/managed in following manner: Use own employees, invest in labor, equipment,

fleet and parts

Use small, local companies to provide services Primary issue is on-time, quality service, secondary issue is price

Use third party provider to manage and provide required services

Use combination of all of the above items

IssuesFacilities Management

Hard to leverage small service providers for companies located in multiple cities/states

Labor costs typically are the majority of the cost of services, material costs are traditionally small

Required services are on demand, hard to predict and/or schedule, but typically require immediate solution (i.e. water/gas leak, snow removal, etc.)

Property management companies provide many required services in some or all of properties currently occupied

Internal existing Facilities/Property Manager is key stakeholder and typically is resistant to change or perceived loss of power by purchasing involvement and formalization of process

Methodology

Opportunity Identification

Dedicate Resources

Establish Comprehensive Purchasing Procedures

Build Organizational Support

Develop Performance Metrics

Opportunity IdentificationFacilities Maintenance

Conduct Expenditure Analysis

Implement Business Process Assessment

Target specific areas for improvement

Implement Business Process Improvement

Tools, Methods and Processes

Expenditure Analysis

Business Process Assessment

Implementation of Business Process Improvement Program

Opportunity IdentificationFacilities Management

Expenditure Analysis Information A/P detail

G/L detail

Current & future budget

Supplier detail

Specifications

Company Standards

Existing contracts/agreements


Conduct selective benchmarking and price validation for all products and services

Develop data base detailing the following:• Current unit price

• Product and service specifications

• Total cost spent per product and service

• Part numbers and/or other relevant identification of products currently utilized

• Spend by each supplier of similar product and service provided

• Identification of all providers of similar products and services

Identify and access the required financial data

Assemble the data into a meaningful format

• Build the Cube:

Department

Commodity

Supplier

• Validate data

Analyze Data to Identify Opportunities

• Create baseline spend summary

• Identify benchmarks

• Apply benchmarks to quantify savings potential



Financial Information Required• GL Database

• GL Chart of Accounts

• Accounts Payable Database (Invoices)

• Accounts Payable Database (Supplier)

• Capital Expenditure (All Items)

• Budget for Current Year and Prior Year

Building the Cube

Components of a Expenditure Analysis V

endo

r

Dep

artm

ent

Commodity

Summary Reporting

GL# GL DescriptionBusiness

Unit #Business Unit Description

Total Spend

Spend %

550450 Customer Armored Service

1000 Sun Valley $31,879.93 0.53%

2000 North Hollywood $2,558.80 0.04%

4000 Granada Hills $3,999.92 0.07%

6000 Warner Center $2,215.00 0.04%

7000 Van Nuys $198.50 0.00%

GL# GL DescriptionVendor Code Vendor Description

Total Spend

Spend %

564300 Telephone Expense330 PACIFIC BELL $263,470.65 4.34%AT T AT&T $26,821.73 0.44%1048 Prime Matrix $26,228.49 0.43%GENTEL GENERAL TELEPHONE CO OF CALIF $14,407.00 0.14%1358 A.Z. STEIN CO., INC $6,176.40 0.10%172 D.C.N WIRELESS $5,649.95 0.09%1355 DEPARTMENT OF WATER & POWER $1,000.00 0.02%GL # Commodity Category Total Spend Spend %

520050 Rent Bank Premises Facilities 957,442 21.02%

561075 Check Processing/Item Processing Industry Specific 490,353 10.77%

564450 Professional Services Expense Professional Services 430,886 9.46%

563050 Legal Fee-Outside Council Professional Services 318,333 6.99%

564150 Stationery & Supplies Expense Supplies & Printed Materials 292,695 6.43%

520400 Maintenance & Repair BLDG Facilities 267,157 5.87%

564300 Telephone Expense Technologies 258,465 5.68%

564550 Courier Services Industry Specific 148,027 3.25%

521100 Equipment Maintenance & Repair Facilities 121,148 2.66%

544000 Direct Mailings Marketing & Advertising 116,827 2.57%

564100 Postage Expense Marketing & Advertising 82,891 1.82%

520000 Utilities (W&P) Facilities 77,983 1.71%

520200 Employee Parking Facilities 71,459 1.57%

520650 Janitor, Gardener & Supplies Facilities 65,102 1.43%

520450 Parking Validations Facilities 60,688 1.33%

571450 Security Guard Service Industry Specific 58,230 1.28%Other GL's 736,571 16.17%

Total GL Spend 4,554,256 100.00%


The information gathered during an Expenditure Analysis is a crucial tool in identification of cost reduction opportunities and implementation strategies. This information is sorted in the following manner:

• Summation of commodity category spend

• Categorization of all general ledgers into commodities through the development of a commodity tree

• Detail the sourceable spend under contract

• Detail the sourceable spend captured by the purchasing department

• Detail the potential opportunity based on the baseline spend

Total Sourceable Spend

$4,554,256

Facilities$1,694,506

Industry Specific$795,670

Marketing &Advertising$448,252

Other$31,029

PersonnelServices$132,049

ProfessionalServices$829,453

RecordsManagement

$16,601

Supplies & PrintedMaterials$292,694

Technologies$313,996

Armored Transport ServiceRolled Coin ExpenseCustomer Armored ServiceCheck Processing/ItemProcessingCourier ServicesCourier ServicesSecurity Guard Service

Advertising-EmploymentAdvertising-Coml.

Advertising-EmploymentAdvertising-CivicPublic Relations-GolfTournament

Public Relations-MixersPublic Relations-GiftsPublic Relations-AnnualReport

Public Relations-Misc.Public Relations-Cruise

Public Relations-Event Tick

Public Relation-Openings

Public Relation-ChambersDirect Mailings

Membership Dues-CivicMembership Dues-Other

Subscriptions & Publications

Postage Expense

Meeting ExpenseMileage & Auto RepairExpense

Employee RelationsHealth & FitnessExpense

Temporary EmployeeExpense

Employee EducationExpense-OutsideEmployee Education-Training/Supplies

Equipment Maintenance& Repair ComputerData Capt. Equipt/MaintATM ExpenseTelephone Expense

Stationery & SuppliesExpense

Prof./Film ProcessingProf./Filekeepers

Appraisal FeesLegal Fee-OutsideCouncil

Legal Expense-CorpSecretaryLegal Expense-CollectionsProf - MIS

Professional ServicesExpense

Miscellaneous Expense

$1,694,507 $795,671 $448,253 $31,030 $132,049 $16,601$829,453 $292,695 $313,997

Utilities (W&P)Rent Bank PremisesEmployee ParkingMaintenance & RepairBLDG

Parking ValidationsJanitor, Gardener &Supplies

Equipment Maintenance

& RepairEquipment Rent

Auto Lease Expense

GL Description

GL TotalGL TotalGL Total GL Total GL Total GL Total GL Total GL TotalGL Total

GL Description GL Description GL Description GL Description GL Description GL Description GL Description GL Description

Commodity Tree

Potential Save

Commodity Total SpendLow End

Savings %High End

Savings %Low End Potential

High End Potential

Facilities $8,737,066 8% 19% $698,965 $1,660,043

Professional Services $4,829,453 7% 21% $338,062 $1,014,185

Industry Specif ic $11,795,671 12% 18% $1,415,481 $2,123,221

Marketing & Advertising $5,876,900 12% 24% $705,228 $1,410,456

Technologies $10,678,544 11% 20% $1,174,640 $2,135,709

Supplies & Printed Materials $3,214,567 18% 35% $578,622 $1,125,098

Personnel Services $2,348,799 7% 22% $164,416 $516,736

Other $9,986,135 5% 13% $499,307 $1,298,198

Records Management $1,568,874 9% 17% $141,199 $266,709Total $59,036,009 $5,715,919 $11,550,354

We determine:

• How much is being spent

• Who is doing the spending

• How many suppliers are being used

• What is the basis for supplier selection

• What are the critical needs of internal customers Analyze data to identify greatest cost savings opportunities Compare current performance to best practices and identify

areas of opportunity Prioritize savings and improvement initiatives

Business Process Assessment

The BPA is a thorough analysis of the current supply chain process to determine if your company is properly leveraging its purchasing power.

During a Business Process Improvement Implementation you will: Develop a Total Cost Model

Strategically source selected commodities

• Identify opportunities

• Develop strategies

• Solicit proposals

• Select suppliers

• Negotiate contracts

• Manage contracts

Re-engineer and streamline existing processes

• Implement improved process flows

Business Process Improvement

Acquisition Cost All costs associated with processing an order from request through payment:

Total Cost ModelProduct Cost The actual cost of the product or service. Other examples beyond the

actual unit price are:

• Maintenance / Repair / Parts Support

• Support materials

• Surplus Value

• Transportation

• Delivery to users site

• Installation

• Set-up / Testing

• Supplies

• Office Space

• Equipment

• Services

• General & Administrative

• Wages & Salaries

Carrying Cost All costs associated with stocking & maintaining inventory

• Cost of money

• Inventory Management

• Warehouse expense

• Insurance

• Taxes on inventory

Total Cost Model

Acquisition Cost

Carrying Cost

Product Cost

ACACCCCC

PCPC

TotalTotal

Strategies for Improving SourcingFacilities Management

Establish a strategic sourcing program for procurement of targeted services

Broaden purchasing department’s scope of responsibility to ensure professional buying principles are applied to the procurement of services

Get purchasing involved as early as possible

Utilize cross-functional teams

Develop performance metrics

Process & Cost ImprovementFacilities Management

Use property management companies – leverage off of their spend

Outsource management or all or majority of typical facilities management services to a third party provider

Use consulting firm to identify opportunities and establish programs specifically for your company – You handle the program and purchases

Leverage spend via use of third party companies (i.e. FacilityPro) to turnkey purchases of all indirect materials and services required Leverage spend

Reduce direct and indirect costs associated with purchasing required services

Process & Cost ImprovementFacilities Management

Identify opportunities, aggregate and leverage spend

Rationalize supplier base – More volume per contractor, lower cost of services in consideration

Negotiate formal agreements – Firm pricing for labor/materials for defined time frame

Provide materials when possible using your existing company contracts

Establish SOWs, SLAs and KPIs for services and suppliers

Look for alternatives to “traditional” sourcing agreements for services

OutsourcingFacilities Management

The IFMA Survey indicated that 35% of respondents say reducing costs and 30% say the focus on core competencies are the two primary drivers for outsourcing services

According to survey conducted by the International Facility Management Association (IFMA), the 10 services most often outsourced are:

Architectural design

Trash and waste removal

Housekeeping

Facility systems

Landscape maintenance

Property appraisals

Major Moves

Hazardous materials removed

Major redesigns

Furniture moves

Benefits Facilities Management

Lower total cost for required services – 10% - 30%

Formal measurement of services provided

Supplier management metrics & enforcement

Reduced A/P cost and FTEs – 5% - 20%

Rationalized supplier base – 50% reduction

Best Practices sourcing practices applied to all services

Move for reactive to proactive approach – contract administration vs. tactical buying

Reduction of inventory, improved use of working capital

Case Studies – Major ProjectsMerrill Lynch Global HeadquartersWorld Financial Center Project

$200 million procurement budget Documented savings totaling more than $40 million due

to analysis of proposed expenditures and development and implementation of recommended bidding and negotiation strategies

Managed and was responsible for purchasing, warehousing, receiving, installation, asset tracking and installation services

Negotiated contracts for all furniture, fixtures, floor covering, window treatment, capital equipment and services including television studio, audio visual systems, security systems, mail distribution systems, medical equipment, move and installation services

Challenges included moving 12,000 employees into the World Financial Center with minimal disruption to employees

Case StudiesState of Pennsylvania

The Keystone Building houses four state agencies and totals 940,000 square feet, $20 million budget. Responsibilities included:

Developed and verified specifications as well as the procurement, delivery, installation, and asset management of all new furniture, fixtures and equipment

Relocation management activities included development of the program materials, training and education, review of overall records retention policies, procedures and existing programs

Directed and coordinated the move of all personnel into the new facility from the nine facilities

Developed a procurement schedule, bid strategy and negotiating final pricing agreements and contract terms and conditions

Case StudiesState of Pennsylvania

Presented recommendations for award of contract

Scheduled and received all shipments of new furniture, fixtures and equipment into the new facility

Ensured all new materials were asset tagged, bar coded, and scanned into the project asset management system

Supervised and managed installations of all FF&E to ensure compliance with the installation specification – on schedule and free of defects

Savings for project FF&E totaled approximately 25% of project budget

Project completed almost eighteen months ahead of schedule resulting in significant cost avoidance in rent payments and associated costs

Case StudiesFacilities Management – Health Care

Consolidated facilities management services to single service provider

Reduced annual direct spend for services by approximately 8%

Reduced annual indirect spend in accounting, personnel, operating and overhead costs by approximately 5%

Maintained or improved quality of services provided

Established better control over process due to improved span of control

Architecture presentation 9

Design

Transcript of Architecture presentation 9