Spend Management: Save Money by Standardizing your Property
Story by: Tim Blackwell
The scenario is all too common in the multifamily housing industry. An apartment portfolio will unnecessarily spend itself out of a good thing. The fruits of years of planning and executing the next move in a major market or acquiring a new set of properties are slower to come simply because a spend management program through vendor consolidation and product standardization is not in place.
Spend management is the infrastructure to support management’s philosophy of who you are buying from, what you’re buying and ways to enforce best practices. Standardization makes spending practices consistent, which results in savings and fewer headaches in managing a portfolio whether with new construction or a retrofit. Throughout the process, it’s essential to identify vendors to work with all properties to identify the best products and price the portfolio can use across its properties.
Working with a multitude of vendors can be a good thing, but if everybody is not on the same page some very important savings can be missed. Not only will properties in multiple locations pay different prices for the same products, the front office may miss out on some volume rebates. Wouldn’t it be a shame to lose out on a 5 percent annual rebate simply because the tier was missed by $5,000? That happened recently to one company that wasn’t working with a standardized process.
Some companies with a process in place, however, are reaping the savings. One saved 18 percent on a paint program, another $100,000 in maintenance, repairs and operations, and yet another $45,000 on appliance purchases.
Also, standardization removes emotion from the process. The maintenance team at each property can get emotional about products they’ve become accustomed to using. Such personal bias toward a bigger ticket item could cost the property unnecessarily.
Technology-based solutions are available to assist in this process. They promote procedural consistency, help drive program compliance and standardize product and pricing options. Simply, they help eliminate the potential for missing out on significant savings.
The following are components of a successful standardization program that can help a portfolio save money and achieve consistency in day-to-day purchases at the apartment community.
The key to any type of spend management or standardization program is data intelligence. Good, reliable analytics can be used to glean information from a variety of areas. With accurate data, you’ll be able to review purchases, make necessary changes to your process and communicate, up-to-date information to your team. While a property may work with only one supplier, a comparison of invoices across a portfolio might even reveal that each property is paying a different price for a gallon of paint. Ideally, a property should negotiate a standardized rate for paint no matter where it is purchased.
Unfortunately, many times not enough emphasis is put on communication, especially during any significant changes of the management process. Make it a point to ensure that everyone is on the same page, before proceeding. Communicate to the field that a change is in place and how the players should work together through the process. While there could be resistance to working with suppliers, it’s important that procedures are followed, in order to achieve the full benefit for the portfolio.
Once the program is created, closely monitor it to ensure that agreements and internal purchasing procedures are being followed. Running a report will enable you to see if it reveals you’re paying the same price, or has there been an increase.
Regional supervisors and accountants need complete visibility into site level spend at the time of purchase all the way through the receipt of goods. For organization purposes, invoices should be electronically transmitted into your back office accounts payable system for payment. Separation of critical duties can ensure audits go smoothly.
Communication and reporting drive compliance, which is integral to your purchasing structure. If you aren’t actively driving compliance to the partnerships that support your business, you could be leaving savings on the table. Do you have a mechanism to make sure the site staff is educated?
Successful spend management and standardization is all about communication, execution of resources and reporting. The results are more transparency into key portfolio expenditures and identifying and achieving savings. Are you optimizing spend management through vendor consolidation and product standardization?