Do you want to realize a 10-25% savings on your building maintenance spend?
No problem—you just need to verify your employees or service providers performing your MRO (maintenance, repair, and operations) are in compliance with your procurement goals and objectives.
Except it’s not that simple, is it? Ensuring your employees, property managers and service provider buy from suppliers under contract sometimes seems like an impossible task.
So, how can you actually get them in compliance? We’ve got some recommendations and best practices but first, let’s make sure everyone is using the same definition.
What Do We Mean by “Procurement Compliance”?
It’s important that everyone on the team understands what we mean when we say “compliance.” In general, compliance means doing what you’re supposed to do. When you’re talking about procurement compliance in building maintenance, “compliance” often refers to the proportion of spend being purchased from MRO-contracted suppliers and the percentage of buyers following your payment procedures—especially when pricing and service levels have been advantageously pre-negotiated with suppliers.
Sure, when an emergency repair is needed, time is critical, so employees and service providers will purchase parts and materials from suppliers who are closest to the property and have the parts in stock (i.e. “off-contract buying”). However, for all other purchases, we need buyers to purchase from suppliers “on-contract” to maximize discounts. The end goal is to get the best value (price and service level) from as many of your suppliers as possible, knowing you likely have limited resources to dedicate towards that goal.
If you’ve been able to negotiate contracts with certain suppliers, the key question to ask is “How do you ensure that the buyers in your company are actually using those suppliers?”
Critically, only companies that can drive toward full compliance will be able to fully realize the potential 10-25 percent savings in MRO costs.
So how do you address these issues with your buyer community? For best results, we suggest following these steps:
1. Educate employees, property managers and your service providers about compliance.
Unfortunately, your buying community often think - if they keep spend within budget, they are doing good. Coming in at or under budget is never a bad thing—but it’s ignoring the possibility of a much bigger payoff. Education helps employees, property managers and your service providers understand that your company’s contracts have been carefully negotiated to secure the best prices and service levels available and they should be focused on using those negotiated suppliers wherever possible.
2. Use a carrot, not a stick, mentality.
You are likely to experience higher compliance rates when your employees, property managers and service providers understand that it helps them achieve their own performance goals as well. When they realize that both building owners and tenants—the two audiences they must please to succeed—will benefit from the lowered costs and better service levels that result from compliance, it’s likely that they’ll become significantly more motivated to differentiate in a competitive market. Positive reinforcement is often more impactful for changing behavior, which leads to our next point…
3. Comprehensive Reporting.
Do you know your contract vs. non-contract spend today; are you receiving comprehensive transparent reporting indicating contract and non-Contract spend by buyer, user, building, dept, etc.? This will help you better understand your saving opportunities, who is compliant (with your negotiated contracts and services) and measure performance. Allowing your buyers visibility to this information will help them understand how they can individually contribute to your expense reduction goals - not to mention a built in incentive amongst other buyer peers to be compliant.
4. Offer incentives.
Are you offering your employees, property managers and service providers incentives for meeting goals? If not, you’re like a lot of building owners and managers…and, to be blunt, you’re missing a huge opportunity. Incentives work, and they help increase buy-in. You can save a significant amount of money when you have high compliance rates, so why not use a small portion of that money to reward them for complying? It doesn’t have to be something big, but simple rewards can generate a lot of excitement. Consider a quarterly incentive based on compliancy percentage from the reporting mentioned earlier.
5. Prioritize compliance.
While compliance typically refers to the proportion of spend being purchased the way it is supposed to, it can also have a broader meaning. Procurement compliance can also refer to: the percentage of spend that your procurement department has influence over (often referred to as spend under management [SUM]), tracking how well those suppliers are performing, the percentage of on-time payments, how often accounts payable uses the lowest-cost payment method, and how well your sourcing professionals are following the procurement processes and guidelines you’ve agreed upon. Don’t get overwhelmed! Start with what will be most effective for your organization, will save the most money and move down the list as you get each item under control.
If you feel as though you’re stretched too thin to effectively tackle compliance, you don’t have to pass up on the potential savings. After all, we created Qmerit to help companies fill that gap.
We deliver a managed service that harnesses the buying power generated from the aggregation of building MRO spend amongst all of our clients. Importantly, MRO spend is typically found within the undermanaged mid-tail, tail spend and maverick spend category of companies. Our managed service allows our clients to focus on what is most important - their customers and differentiating themselves in their market, instead of dedicating resources to often non-revenue generating areas like MRO.
At absolutely NO COST, our clients receive a number of benefits including: ongoing supplier negotiations, account management (including compliance and adoption assurance services), and an optional consumer-like eProcurement platform to do price comparisons for MRO parts and materials. In short, we let you outsource the trouble of establishing and maintaining money-saving relationships.
If you’d like to learn more about how we can help your company cut costs, we’d love to hear from you. Please drop us an email or give us a call.