THE RIGHT PRICE FOR MAINTENANCE
Is your portfolio consistently over budget? Many multifamily companies have poor property level purchasing habits that have become an accepted way to do business. Busted budgets, rogue spending, decentralized purchasing programs and a general lack of control at the corporate level are just a few of the issues that plague companies that don’t have a technology-based managed procurement plan in place.
Typical Purchasing Environment
Typically, MRO, paint, floor covering and office supply purchasing decisions are handled at the property level. However, pricing and discounts are negotiated with suppliers on a corporate level. This creates a problem as the purchasing decisions made at the property level are not always in line with corporate guidelines and can erode the value of the negotiated supply contracts. This leaves the management company with little or no control over the supplier, product, and pricing choices being made at the property level, not to mention that maintenance team members who are actually making purchases are doing so against a budget they may have never even seen or understand. Bill Nye, CEO of Fayetteville, North Carolina-based, Caviness and Cates explains, “Before we had a technology solution for purchasing, some of our maintenance team members were keeping budgets with a legal pad and a calculator, some of the savvier property managers had spreadsheets, but even those were hit or miss in terms of accuracy.”
A Better Way to do Business
e-Procurement solutions are designed to increase NOI for management companies by giving greater insight while monitoring spend and giving suggestions for savings on MRO, paint and floor covering- the largest controllable expenses at the property level. When management companies make the decision to implement a managed procurement solution, property level purchasing decisions are made within corporate guidelines, ensuring maximum discounts through approved suppliers. Taming budgets are also accomplished with the technology that an e-procurement solution brings to the table, “We went from asking our maintenance staff to do everything manually, to asking them to simply log into the system to see their budgets in real time at the point of purchase.” said Nye. “The first quarter we were on the system, every single property came in under budget for the very first time.”
A true business solution should be beneficial in more ways than one, and e-procurement is no exception. A technology platform is only the first piece of the puzzle. It’s essential that management companies have a team of experts working in partnership with them to help navigate and update ever-changing catalogs for each portfolio and identify areas for spend reduction and product standardizations. The technology is the tool to communicate and designate the established standards to the property level. Team members are able to place orders with multiple suppliers from one electronic catalog with a few clicks. That means they’re saving time not having to frequently order from several different suppliers. The time saved from calling, faxing and logging on to different websites for each supplier or making offsite trips to big box retailers can instead be used to concentrate on work orders and make readies, “We don’t need our maintenance staff worrying about budgets and wasting time. We need them to make informed purchasing decisions; then move on to their main function which is keeping our residents happy- having that balance is critical.” Nye said, “Our maintenance folks were seeing a lot of windshield time going off site to purchase from big box retail; their mileage is calculated into the overhead and we used to budget $800 a month for maintenance mileage. Now, we budget $450.”
In addition to solving a time management issue, the efficiencies that managed procurement solutions create translate into real dollars. In terms of savings at the unit level, Nye says. “We’ve seen an almost $7.00 per month drop per unit in our maintenance costs, and I attribute that 100% to the technology.”
The Big Picture
There are multiple technology options for managing the procurement process at the property level, but there are some key things to consider. “A managed procurement solution needs to work to create a customized procurement platform that is unique to each customer and is fueled by expertise. Customers need to be able to focus on operations and their residents, not learning complicated software and managing their own catalogs,” said Keu Zafar, President and Co-founder of San Antonio, Texas-based eSupply Systems. “From the implementation and training to account management, you want to look for a solution that actively controls products purchased onsite, monitors purchasing patterns and creates additional suggestions for spend reduction and standardizations.” Like any other program, there may be some resistance to change, but like Nye explains, “You’ve got to get behind the solution and sell it to your staff and help them see the big picture.” So put away those legal pads and calculators and leave the Excel sheets to the accountants. Managed procurement solutions are about empowering your property staff with a technology solution that allows them to do their jobs more efficiently. It’s important to take the time to find a solution that supports your corporate initiatives without creating additional work for your operations team; it will pay off in the future by bringing transparency, control and accountability to the process from the property level up.
Story originally appeared in National Apartment Association’s UNITS magazine in March 2014.