Chapter 4Purchasing 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 managementMajor categories of expenditure

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

1. Delivery reliability

• On time

• Right quantity

2. Right quality

3. Fast response time

and feedback

4. High accessibility

1. Low price

2. Good contract

3. Objective supplier

selection

Perceived by internal departments

Perceived by purchasing department

Expectations levels with regard to purchasing are not always identical

Effective purchasing for facilities

Department A Department B Department C Total value

Computer hardware

Computer supplies

Office equipment

Temporary labour

Services

Total volume

Customer product group matrix

a) Total purchasing volumeb) Purchasing expenditurec) Market share purchasingd) Expected volume

Improve customer orientation (1)

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

2. Assess internal customer satisfaction: Find out what bottlenecks there exist in the relationship

3. 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

4. Cross functional buying teams and organizational structure: Teams with specialists from user departments should be

formed to develop specific sourcing plans.

5. Develop sourcing strategies: Use purchasing portfolio Detailed action plan per purchasing category

6. Implementation: Careful monitoring and results in terms of:

Savings generated Customer satisfaction Administrative lead time

Improve customer orientation (2)

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

Breakdown Supplier Base Non-Production Related

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635

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213154

148132

126 11292 86 78 68 54 48 43 39 35 28 25 21 18 14 10 7

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.