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Originally published in Interiors & Sources

12/04/2002

Buying Power

Strategic Vision For Bottom-line Results

 

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The Buildings Market

Profile: The Buildings Market, a report on the subscribers to Buildings magazine, was published Sept. 1, 2002, to gather reliable, objective, current information about readers of Buildings magazine, the size and nature of their businesses, how they work without outside design services, and their role in building product buying and specification decisions. A random list of 2,000 names was pulled from Buildings’ subscriber database on May 30, 2002; by the cut-off date of June 21, 2002, 559 surveys (28 percent) were returned. The combination of the large sample size and the high response rate yield a confidence level greater than 95 percent for projectability over the entire subscriber base (57,019 subscribers).

Building managers at Parkway Properties, headquartered in Jackson, MS, have a great deal of say from whom they purchase products and contract services.

The company's portfolio of 55 properties is located in 10 states, from Phoenix to Virginia and north to Chicago. Consequently, vendors and suppliers aren't always consistent in different regions.

"We do have some national contracts that we have put into place," says Jack Sullenberger, Parkway's senior vice president of technical services. "We went to specific vendors with our entire portfolio in order to get the best value."

Parkway, however, does not outsource any of its purchasing functions. Sullenberger says they did a beta-test program with a firm in Atlanta, but building managers were not comfortable with the process. "We have not been successful to-date, trying to make outsourcing work," Sullenberger notes. "Our managers felt that we might not be getting the best prices or efficiency in the process. We find handling our purchasing at each region works best for us."

In a diverse industry full of many kinds of facilities and business models, the way buildings professionals approach product and service procurement is as varied as the industry itself.

At the government/institutional level, product spending and service contracts are highly regulated. A bid process isn't always optional; it's often the law. And in the building management sector, decentralization of purchasing functions is highly common, as it is in large owner/developer companies with multiple sites across the country.

Brian Chase, director of facility management at Colorado State University, Fort Collins, CO, says the university requires competitive bids for anything over $5,000 and formal bid procedures if a project or purchase exceeds $25,000. "Occasionally, we have an emergency situation where we will sole source to a vendor for equipment that must be obtained in a matter of hours or days due to a mechanical failure," he says. "Except in emergencies, it is almost always possible to get competitive bids for goods or services within a reasonable time, so at Colorado State University where we have more than $27 million in operational budgets and nearly $100 million in construction projects, competitive bidding saves us hundreds of thousands of dollars."

At Dallas-based Trammell Crow Co., purchasing activities have always been decentralized across the company. No corporate procurement department exists today.

Instead, the individual facilities teams working within the organization's 613 million square feet of commercial space across the United States oversee the procurement of products and services on behalf of their clients. Formerly, these facilities pros spent a great deal of time on purchasing - locating suppliers, negotiating prices, and managing multiple vendors. It seemed like they had to be everywhere at once in the purchasing game, as well as manage their facilities.

That all changed in 2000 when Trammell Crow facilities departments opted to leverage their collective buying power through an e-commerce venture called SiteStuff (www.sitestuff.com), which provides owners and managers of commercial and multi-family properties with an e-marketplace of goods in a web-based format that is said to streamline the procurement process.
Trammell Crow, CB Richard Ellis, and Jones Lang LaSalle Inc. joined into a web-based alliance with SiteStuff in 2000 and, as a result, receive competitive pricing, quality, and terms available in the market when purchasing goods and services. "Our building managers now buy products online at prices negotiated by SiteStuff," explains Scott Reppert, a senior associate in Trammell Crow's New York City office. "In some sense, you could say we have outsourced our procurement platform to SiteStuff."

Reppert says client buy-in on SiteStuff has doubled since 2001 in terms of metric dollars spent. "Our clients are buying across more categories," he notes.

While Trammell Crow uses e-commerce to "outsource" its purchasing function, some other companies rely on a network of consultants and contractors to secure the necessary products - still maintaining control of the materials specified. Additionally, buildings professionals have begun to explore the concept of consolidating service provider contracts across an organization, as well.

Trammell Crow decision-makers are internally exploring ways to better leverage corporate buying power with national service provider contracts for their clients. Historically, the process of identifying service contractors has been left up to the field - the local offices and the building managers in those offices. Trammell Crow management hopes to streamline that function by creating an internal service provider qualification program.

"We spend more on services than we do products, so we need to spend more through less companies," Reppert says. "We're exploring a selection of higher-quality providers. In most cases, we already have national agreements, but what we're really trying to do is ensure that we're leveraging what we have available with those suppliers across our entire network."
It appears most organizations do work from a preferred vendor list where possible. However, as many industry leaders say, those lists are not carved in stone.

"We always try to work new vendors into the mix," says Jeffrey R. Jennison, vice president of real estate asset management for Watson Land Co. in Carson, CA. "This keeps our existing vendors on their toes and also allows us to experiment with vendors that may prove very valuable."

Parkway has national vendor contracts with a waste disposal company, elevator companies, carpet suppliers, and a vending company. Sullenberger says ideally they would like to add more national service contracts across the portfolio, but it is sometimes difficult to make these agreements work. The company has 9.7 million square feet, and, as Sullenberger says, to get one supplier to service its portfolio efficiently and effectively can be challenging.

"We have found it difficult to go from one market to another with national contracts for certain services," he says. "They may perform satisfactory in one market, but not in another market. Instead, we assist our managers in obtaining the best bids and proposals, but we don't mandate that they use one company just because that vendor has a contract with Parkway in another city."

Instead, the company has investigated regional contracts, breaking the properties down into east, central, and western service zones. For example, 20 percent of the Parkway portfolio's square footage is in the greater Houston area. As a result, the company has contracted one janitorial provider, one elevator company, and one waste disposal contract for all of its Houston sites.

"We are continuously looking at the portfolio to determine where we can put together the most square footage so we can to get the best price and service possible, whether it is with one vendor or several different firms," says Sullenberger.

Robin Suttell, based in Cleveland, is contributings editor at Buildings magazine.

 

 
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