Buyers? Beware

Attendees

• Martyn Sherrington (SGP Property and Facilities Management)
• John Bowen (Gulfhaven)
• Andrew Turner (UK Power Networks)
• Peter Titus (DCT Facilities Management)
• Lucy Jeynes (Larch Consulting)
• Mark Hurst (Office Depot)
• Susan Scott-Parker (Employers’ Forum on Disability)
• Les O’Gorman (UCB)
• Andy Quinn (SCEE)
• Jason Cousins (Olswang LLP)
• Emily Hill (Dixons Retail)
• Jeremy Waud (Incentive FM)
• Matthew Smith (Office Depot)
• Steve Bagshaw (Supply Management and FM World)

Starting points

Martyn Sherrington heads procurement for SGP.
Starting point: Both sides need to talk more.

Andrew Turner, buyer UK Power Networks.
SP: planning is fundamental.

Peter Titus, director, DCT Facilities Management.
SP: Listen more and get the specification clearer.

Lucy Jeynes, Larch consultancy.
SP: Buyers must appreciate that FM is not a commodity.

Mark Hurst, director, FM sales, Office Depot.
SP: understand full spec needs from the onset.

Susan Scott-Parker, Employers’ Forum on Disability.
SP: Understand the human better.

Les O’Gorman, head of facilities, UCB Celltech.
SP: Involve procurement colleagues more routinely.

John Bowen, commercial consultant, Gulfhaven.
SP: Respect what both parties can bring.

Andy Quinn, director of purchasing and facilities, Sony Computer Entertainment Europe.
SP: We need more of a combined structure.

Jason Cousins, facilities director, Olswang.
SP: More trusting relationship required.

Emily Hill, Dixons Retail.
SP: We need more data driven analysis.

Jeremy Waud, MD, Incentive FM Group.
SP: Often procurement does not have the experience to buy FM.

Matthew Smith, head of procurement for trade and non-trade at Office Depot.
SP: Shared understanding and goal alignment.

Involving procurement during the FM contract lifecycle

Les O’Gorman: The key is to involve procurement early on as a business partner. In one of my previous organisations, we involved procurement in our routine service partner meetings. They would come along, hear how the contracts were performing and talk about scope variation issues and KPI challenges, etc.. Involving them in that process is critical, because when you come to write your specification and scope you have a procurement person who is warmed up, who knows what you are trying to deliver and understands where the current contract perhaps doesn’t work well or could work better. Don’t involve them just at contract renewal or re-tender — involve them all of the time.

Emily Hill: We also used to just bring procurement in at bid stage, but having looked at FM over the past few years, we’ve built in continuous improvement through periodic workshops where we look at the data to see whether we have the balance right. Unless you understand the root cause of why something is happening, you won’t get to an improvement stage.

Lucy Jeynes: We’ve seen situations where procurement is involved at the start, but then contact and management of the contract is then split out with procurement only becoming involved again when there is a contractual problem. Procurement becomes divorced from the day-to-day operation of the contract, so that next time it’s up for tender they don’t really know how it went this time around. Often an organisation that isn’t happy with how the service has turned out goes back to tender with pretty much the same sort of document set and process it had last time.

The way tender documents are constructed can constrain service providers. The purpose of the process is to enable the market to demonstrate its best offer, but sometimes that can get lost. It is difficult for the selling side of the table to put its best business case across when it can only answer the questions in the tender document. It doesn’t have an opening to say: “This is why you should choose us. This is why we are different.”

Andy Quinn: But the nature of procurement is changing. We’re seeing a more strategic theme with category management dedicated to property and facilities, having regular meetings, planning ahead and being involved in meetings. This helps to keep track of any issues with the specification and how to you get continuous improvement and value from the suppliers. Hopefully procurement has gone into that change quite a lot over the past few years, and should now be starting to deliver.

Jeremy Waud: Some procurement professionals can be extremely good at buying the wrong thing. Take an organisation that’s buying cleaning, catering, security and M&E. Procurement typically gets involved when these contracts come up for their three-year term. They’ll automatically start looking for a better deal rather than saying, “Wwhat is our strategy? Is this the right way of procuring these services?”

The strategy should be: “Which things do we want to do in-house? Which do we want to outsource? Of the things we want to outsource, what’s the best way of bundling them, if at all, to get best value?”

There isn’t a right or a wrong answer to that; it’s a cultural, strategic discussion. Once you’ve done that you say, ‘what are our corporate objectives, and does this achieve them?’ There’s an awful lot of work to be done there. Once you have all that straight, you can then say: “We know what we want; how are we going to get it?”

The relationship with the procurement department

LO’G: Because procurement is often part of the finance division it often has a global reach that facilities doesn’t. So you can end up with a global procurement deal landing on your desk as a client FM in the UK that you have had no input into at all. A lesson we’ve learnt from our procurement colleagues is an awareness of that global, national or regional picture. A skip-hire firm that gives you a good deal in London may be the wrong company to provide the same in Scotland. Sometimes, procurement don’t see that. We have to do better in FM at getting that message across.

Martyn Sherrington: Doesn’t that go back to procurement’s remit? If you have an organisation with one buyer, that one buyer is not going to be expert in everything.

JW: There’s no reason why an internal procurement team can’t work with the internal property and facilities team, and bring some external expertise and skill to the table.

Jason Cousins: We have cross-functional teams that take regular meetings with property and facilities. But it’s not just about that, it’s also about having finance and HR involved, having that strategy in place. Property and FM has the relative luxury of quite long-term contracts because we are tied to long-term leases for buildings. It’s just being able to have time to test assumptions. Is it better to renegotiate the contract, or are there better offerings in the market? If you have that built in advance, it addresses a lot of the issues.

LJ: One of the issues is that a lot of FM service bundles are quite complex. They involve lots of things that are quite complicated to understand if you don’t routinely buy these services, such as the way prices are constructed. There may be a number in the bottom right-hand corner, but there might be call-outs, parts, spares, a mark-up on projects, the cost of a specialist sub-contractor. Sometimes the amount you end up paying is far removed from the amount in the contract bid.

From an FM and procurement perspective, it’s important to develop an understanding of what it is really going to cost to have that service. Also really important is what constitutes a realistic market price for that service. If people are coming in at below market rate, either they are going to struggle to deliver on the contract or they are going to be looking to make up on the extras.

John Bowen: A buyer may not be an expert in everything being bought, but they are an expert in buying. That’s one of the things they can bring to the table on this. A lot of what is being discussed is about price at the point of placing the contract, not about the whole life of the contract, which is the key thing.

The other issue is the way the world will have changed in the three years of the contract. If you are going out to contract now you are going to be looking at things historically — what you’ve done, how things have performed, what the KPIs have been; everything you are looking at is behind you. But where are you going? How much of that do you really know? A lot of what we are trying to do is to bring in flexibility around contracts so that you can change things. The point about suppliers and prices is vital; you need your suppliers to be profitable. What are you going to do if they fail?

Steve Bagshaw: Andy, you are director of purchasing and facilities, so you wear both hats. What’s your view?

AQ: I agree that you want to be aware of where your business is going and what your priorities are. It depends on the structure of your business. It is going to be different for everyone, but provided you can be professional, versatile, flexible — all those attributes that make you a valued partner, whoever you are talking to in the business — it will be good.

In FM, there’s a huge amount of visibility of service. Value is really important. People have spoken about advice, service, quality, but it has to be value driven, and that value is all about your people. Do you have the right people in the right place to deliver your business objectives? Do you have the right processes in place for those people to deliver value?

Susan Scott-Parker: If an aim is to enhance productivity for employees, then a service provider may need to adapt the workspace for a person, the client may need to shift the IT and yet another company may be contracted to do the shifting. They can struggle to get a speedy and efficient response through that chain. How do you fix that?

L’OG: It comes back to communication and planning; communicating and regular meetings are really important.

SSP: It may not be clear who is responsible for delivery of that change quickly.

LO’G: The client has to own that issue. Service providers are going to be between a rock and a hard place, either going out on a limb and spending a lot of money modifying a workstation or whatever and risking the client not refunding that money. That’s effectively a workplace change or a small project or minor works. The specification should be flexible to allow for additional works outside of the specification that can be treated as a separate project, discrete from the service.

The facilities department’s role in determining FM value

PT: The FM should take the lead in all these things, engaging with every stakeholder be it HR, IT, the managing partner, whoever, to get that specification right. What is it we’re procuring? How long is it going to last? What is your input? Get the spec right, then you know what you are doing and hopefully a lot of these issues won’t come up. If you build the right team, you won’t be arguing about who owns this because it should be one team, one vision — the head of FM and their supply chain, be it in-house or outsourced, self-delivered — they have to deal with that problem.

AT: There’s also the competency of the selected contractor to consider. Where both the FM and procurement communities can really help each other is in using their extensive networks — benchmarking clubs, BIFM forums, LinkedIn, whatever it might be. You have to ask your network: “Does this product work?” You’ll very quickly get good feedback to say: “It will work, but make sure you address such and such issue.” We have to use our business networks more effectively to make sensible choices.

Martyn Sherrington: It goes back to the relationship you have with your supplier. If you have an adversarial relationship because the buyer has beaten them down on price in the first place, the supplier is going to be looking for ways of making their margins up. If you set it up so that they can make money, they’ll be there for the long term and more receptive to talking to you and coming up with ideas that can help both parties.

JC: We’re hearing the words process, cost and price an awful lot. What I’m not hearing is ‘value, customer, flexibility, evolution’ — which brings us back to understanding the structure. I’m keen to understand things from a layman’s perspective — is our core focus always meant to be on process, cost and price, or should it be on those other things?

EH: Definitely value. The FM supplier has to demonstrate where it is providing value. A key area for us is cleaning, because we have a lot of stores. We found that our FM provider wasn’t driving value on that, so we removed that service and went direct with a cleaning company so that we could control it.

MS: Then how do you establish what value is from the onset? How do you picture what value means to the customer? How do we get to that point?

EH: Value to us is making sure that our store is cleaned to the specification we have given and making sure that relevant audit checking is carried out. If the FM provider is literally sitting there taking on a few million pounds, extra revenue, as such with some profits in there, but are not doing anything else other than that, then that is not value to us.

MS: Do you talk to your retail customers?

EH: Yes, we carry out surveys. That data is key because otherwise you get emotional. What you end up with is the “he said/she said” situation: it gets emotional if there’s no data there.

JB: Value comes from delivering what the organisation wants and that varies from organisation to organisation. In a lot of cases, the organisation isn’t communicating that to its end-users or customers, so you find yourself as a service provider trying to deliver something people don’t want, so the client hates you.

Where I have had the influence in big companies, I try to close that loop, to make sure that people do understand. Everybody in the organisation should know where it is going and why it all works that way and why it is that yes, you get that pen. That is the pen that you get; you don’t get other ones. Those sorts of issues. It is the silly things. I liken it to having a handful of sand in the gearbox; one grain won’t ruin your gearbox, but a handful will over time. It’s those minor irritants.

LO’G: To me, ‘value’ is doing what is expected and doing it well; ‘added-value’ is the differential between a good service partner and one you don’t get on with, and that comes through innovation. That’s where regular dialogue through the life of the contract allows you opportunities to say: “This spec is wrong. We’re hitting our KPIs, but customer satisfaction levels are low. We should review this.”

The other thing we haven’t mentioned yet is partnering. BS11000 is a mechanism for managing a relationship and a contract relationship from beginning to end; from starting work together right through to changes in the contract, to the exit phase. It lays down the simple things you should be doing: regular reviews and the sharing of data and information. Most British standards are not rocket science and this is the same, but it is a very good document. The thing that’s impressed me most about BS11000 is the very adult bit, the ‘exit phase’, which says: “Our relationship at some point will end, so let’s plan for it now and make sure we agree up front what that will look like.”

Involving procurement in the day-to-day management of FM contracts

JW: Buying service-related activities is completely different to physical objects. Most buyers could buy pens competently. Give the same buyers the task of buying a cleaning and catering contract, and chances are they wouldn’t know where to start because the complexities are massive.

MS: Identifying the specs up front, understanding who your stakeholders are, market-researching suppliers, creating a balanced scorecard to assure some objective assessment — these are all things that apply whether it’s services or a commodity. The processes and mind-set should be the same.

MS: If you know what you want, it is relatively easy to wrap a process around it, whether it’s a pen, a cleaning contract or a new car. It’s about understanding what it is you are trying to achieve through the process, setting and managing expectations throughout the process and checking them to make sure you are on the right track because during the process they may have all changed. What is good right now may not be necessarily good in the future.

EH: Performance measures are key. We have two key measures so that we can say: “This is what good looks like” from the outset. We had our own performance metric called ‘right first time’. And when we looked at it, no-one was using this particular measurement. ‘Right first time’ meant arriving within the SLA, fixing the job within 24 hours, and then there being no repeat failure within three months.

The second performance measure is on our reactive budget. We have a target that is clear. It’s an understanding between the organisations of what ‘good’ looks like, and possibly that’s been missing from some conversations.

Andrew Turner: The key is to have technical involvement in developing the specification from property and facilities, but also there’s the nature of procurement, ensuring that it takes the view from the whole organisation. It’s a sharing of best practice, so that you deliver what the requirement is, but are also not afraid to challenge the market.

We’ve talked a lot about values, but for a lot of businesses the key emphasis is cost and that’s often coming from the CEOs. While they like value and want that, that’s not going to get them a profit. Satisfying the day-to-day needs of your internal customers, as well as the board — that’s the hard bit.

LJ: There is an issue about how we start off in these contracts; there’s this great optimism and a honeymoon period in which it is all lovely, but we reckon that about 85 per cent of contracts aren’t renewed a second time with the same provider so there is a high level of dissatisfaction.

What you tend to find is you don’t get epic contractual failures. When there’s some massive incident, that’s when everyone works really well together; it brings out the best in everybody.

But an FM contract is a bit like a marriage — it’s the equivalent of leaving the tube off the toothpaste and the toilet seat up, a series of small under-performances, over and over again, that undermine the relationship.

These issues don’t necessarily bust any of the SLAs, but they annoy you over an extended period. Very often that isn’t dealt with contractually, because it’s never a single incident that would merit a termination of the contract.

Peter Titus: How much of that is due to the FM being weak and waiting for things to end before saying: “I’ve had enough, here is a break clause, I’ll go and buy from someone else”?

If they are not renewing it must be because of something quite trivial, otherwise they’d have terminated the contract for performance.

LJ: Few FM contracts are terminated for poor performance; people tend to struggle on until the end.

AQ: It’s down to developing a relationship of trust and then being able to make sure that you are meeting these people regularly so they know what they are supposed to be delivering, because it is very difficult to get a complete specification.

There are different ways of doing that. The technical specifications, where you have absolutely everything you wanted there and then the buyer saying: “You didn’t include that, so I’m going to charge extra”, or a performance specification that says: “In this specification we are going to say we are going to work together and be flexible, create value, deliver what we are trying to do, keeping our clients and customers happy.”

But that takes time to develop. The other way of solving a performance issue is to write into every contract that it is only ever three months old, so that you continue to deliver and so you know that at any time, for any reason, it is only three months.

SSP: I am interested in this word ‘value’ that keeps popping up.

I’ve been watching one major banking company as it’s re-engineered its in-house supply chain, making adjustments for its employees. But of course they are using a lot of external suppliers in the process. The value that they are documenting, I wonder if it wouldn’t be helpful to collect it more routinely?

They’re seeing a 10 per cent improvement in productivity, sickness levels dropping, a 50 per cent cut in employees taking them to tribunal and a general sense of improvement of employee engagement. How many of you look for that kind of value data?

EH: You have to understand the root cause first.

SSP: If this is what they are saying is the value of an improved supply chain operation, that is how they are defining it. They have cut the cost of their chairs from £900 to £400, but they’re not interested in the cost. The reason they have those chairs is to enhance productivity. It is the end-user being the human beings in these buildings and collecting that kind of data we think is quite exciting and helpful. Do you [Emily Hill] collect that kind of data?

EH: Yes, we are doing something on absence at the moment. Productivity and time and motion studies. It’s the only way to do it. Otherwise, you are going to make that change without knowing what the problem is to start with.

SSP: I don’t think many companies do collect that kind of data.

AQ: I agree. It’s about the softer, ‘touchy-feely’ elements of the contract, such as employee productivity and reduced absenteeism. It all comes back to what the objective of this piece of work is that we are going to go and do? What does ‘good’ look like from the client side and from the user side?