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Title: Practice


1
Practice
  • 18. Facility management and buying services

2
Program
  • Trends and developments in the service sector
  • Purchasing and facilities management
  • Towards more effective purchasing in a facilities
    environment
  • Buying services definitions and typology
  • What can we learn from the way services are sold?
  • Purchasing services service level agreement

3
Trends and developments in the service sector
  • The service sector is becoming a dominant
    economic activity in many European countries.
  • Service sector includes companies operating in
  • Transportation and distribution
  • Communications
  • Banking and other financial services
  • Professional services
  • Factors explain the rapid growth of service
    companies
  • Focus on core competencies and outsourcing the
    rest
  • Reallocation of manufacturing companies to
    developing countries
  • Introduction of new technologies (ICT)
  • Leasing

4
Trends and developments in the service sector
  • Civil employment in services as a share of total
    employment for a selection of OECD countries in
    percentages of total employment (OECD, 1999)

5
Trends and developments in the service sector
  • Characteristics of services
  • Intangibility cannot be seen, tasted, felt,
    heard or smelled
  • Inseparability service cannot exist separately
    from its providers
  • Variability quality of service depends on time
    and provider
  • Perishability services cannot be stored
  • Most important characteristic is the absence of a
    physical transformation. Also, a clear
    relationship between input, throughput and output
    is frequently absent.

6
Trends and developments in the service sector
  • Other characteristics
  • Large part of the costs of service companies is
    related to labour
  • Service companies generally represent a large
    value added
  • Relative purchasing spend is rather low
  • Because of severe international competition in
    the service sector companies try to reduce
    operational costs. In general, a trend towards a
    higher degree of concentration in the service
    sectors can be perceived.

7
Trends and developments in the service sector
  • Service companies are lagging behind industrial
    companies with regard to their purchasing
    operations. However, this picture is changing for
    three reasons
  • Tendency to outsource support activities
    (security, catering, cleaning services,
    maintenance activities)
  • Integration of support activities in a facility
    management organization (facilitation of the
    co-operation between purchasing and other support
    areas)
  • Increased scale of operations (formation of a
    specialized purchasing department)
  • These developments have increased the need for a
    professional purchasing approach

8
Purchasing and facilities management
  • Purchase-to-sales ratio is low in service
    companies (10 - 50), compared to industrial
    companies (50 80).
  • Purchasing savings will only have a limited
    financial impact.
  • Purchasing for the primary process almost does
    not exist, since service companies by definition
    do not have a production process.
  • Cost considerations are not prime to internal
    customers
  • Given the specialized nature of most investment
    buying the user plays a dominant role in decision
    making leaving administrative matters, at best,
    to the purchasing department.

9
Purchasing and facilities management
Major categories of expenditure
10
Purchasing and facilities management
  • The increased concentration in the service
    industry affects the purchasing operations in
    several ways
  • Increased outsourcing of support activities (e.g.
    security, catering, cleaning, maintenance)
  • Integration of support activities in a facility
    management organization
  • Increased scale of operations
  • This represents a big opportunity for more
    professional approach to purchasing.

11
Purchasing and facilities management
  • A professional approach to purchasing can result
    in savings of between 5 - 20.
  • However this is not a simple matter. Top
    management will often fail to provide support,
    and buyers will get recognition only by providing
    a superior service to their internal departments.
  • Purchasing managers should therefore be service
    driven rather than cost driven!

12
Towards more effective purchasing in a facilities
environment
Perceived by purchasing department
Perceived by internal departments
  • Low price
  • Good contract
  • Objective supplier selection
  • Delivery reliability
  • On time
  • Right quantity
  • Right quality
  • Fast response time
  • and feedback
  • 4. High accessibility

Expectations levels with regard to purchasing are
not always identical
13
Towards more effective purchasing in a facilities
environment
  • Success factors for a purchasing department as
    formulated by customer departments
  • Easy access (both by telephone and personally)
  • Fast reaction to questions and problems
  • Prompt delivery of goods ordered
  • Short delivery times
  • Consistent quality of goods delivered
  • Immediate feedback in case of (unforeseen) order
    changes
  • Provided these requirements are met, users are
    willing to allow purchasing to take a more
    pro-active role and involve them at earlier
    stages in the purchasing process.

14
Towards more effective purchasing in a facilities
environment
  • To improve the customer orientation of the
    purchasing department, the following approach may
    be useful
  • Analyze and document internal product/customer
    combinations step-by-step
  • Asses internal customer satisfaction
  • Target setting and action planning
  • Cross functional buying teams and organizational
    structure
  • Develop supply and commodity strategies
  • Implementation and monitoring

15
Towards more effective purchasing in a facilities
environment
Customer product group matrix
a) Total purchasing volume b) Purchasing
expenditure c) Market share purchasing d)
Expected volume
16
Towards more effective purchasing in a facilities
environment
  • Improvement measures with regard to the
    purchasing customer interface
  • Joint efforts aimed at reducing number of
    products (standardization)
  • Joint efforts aimed at supplier reduction
  • Improve accessibility and customer orientation
  • Internal measures to improve purchasing
  • Improve product and market knowledge
  • Improve purchasing technique and skills
  • Simplifying ordering system (e.g. e-procurement)
  • Delegate routine buying to internal customer

17
Towards more effective purchasing in a facilities
environment
  • In discussing the optimal structure for a
    purchasing department within a service company,
    several options exist as guiding principle
  • Customer characteristics
  • Product characteristics most often encountered
  • Service characteristics
  • Supply market characteristics
  • The basic dilemma is how to secure an effective
    internal customer orientation in combination with
    knowledge or products and supply markets.

18
Buying services definitions and typology
  • Definition (Grönroos, 2000)
  • A service is a process consisting of a series of
    more or less intangible activities, that normally
    (but not necessarily always) take place in
    interactions between the customer and service
    employees, and/or physical resources or goods
    and/or systems of the services provider, which
    are provided as solutions to the customers
    problems.
  • Since they relate to human exchange of knowledge
    and expertise, services are intangible and cannot
    be made on stock.
  • Services relate to the performance of a
    predefined activity that is executed in
    cooperation with the customer.
  • A difficulty is to separate what is considered to
    be the suppliers responsibility and the
    customers responsibility.

19
Buying services definitions and typology
Pure services offerings
Pure products offerings
Combined product- Service offerings
Services
Goods
  • Intangible
  • Heterogeneous
  • Production, distribution and consumption are
    simultaneous processes
  • More difficult to demonstrate before the purchase
  • Cannot be transported
  • An activity or a process
  • Core value produced in the interaction between
    buyer and seller
  • Tangible
  • Homogeneous
  • Production and distribution are separate from
    consumption
  • Can be demonstrated before the purchase
  • Can be transported
  • An item
  • Core value produced in facility

20
Buying services definitions and typology
  • The OECD service typology differentiates between
  • Facility services (e.g. cleaning, catering,
    security)
  • Financial services
  • Information and communication technology services
  • Business organization services (e.g. consultancy)
  • Research and development and technical services
  • Transportation and distribution services
  • Human resource development services (e.g.
    training)
  • Marketing services (e.g. advertising, reselling)

21
What can we learn from the way services are sold?
  • Wetzels et.al. (1999) present a framework to
    understand business service relationship trust
    and commitment. They claim that trust and
    commitment depend on
  • Service quality
  • Supply market
  • Relationship characteristics
  • Direct contact and interaction between supplier
    and the end-user in the customer firm seems to
    play a vital role.
  • The decision to remain in a certain relationship
    will be based on affective (e.g. positive
    feeling) and calculative (e.g. high switching
    costs) motivations.

22
Purchasing services service level agreement
  • Purchasing process related to services
  • Pre-qualification of service provider of prime
    importance
  • Secure supplier capacity and capabilities
  • Check upon key personnel
  • Availability of working space and other working
    conditions
  • Defining and managing expectations beforehand
  • Contractual arrangements
  • Performance based contract

23
Purchasing services service level agreement
  • Many buyers increasingly try to make
    arrangements through using Service Level
    Agreements (SLA)
  • SLA is a performance based agreement with a
    supplier
  • Service level is defined in very specific terms
    by using key performance indicators (KPI)
  • SLA will also outline the resources that will be
    used by both supplier and customer
  • There are two scenarios for the supplier
  • When able to meet the SLA ? supplier will receive
    full payment
  • When unable to meet SLA ? supplier will be paid
    less

24
Purchasing services service level agreement
  • Service levels may be specified in the following
    ways (Axelsson and Wynstra, 2002)
  • Specifying inputs describing resources that will
    be used by the supplier to deliver the service
    required (e.g. temp labor)
  • Specifying throughput based on a general work
    description the range of activities that will be
    performed by the supplier is described (e.g.
    construction)
  • Specifying output describing the final result.
    The functionality of the service is stressed
    rather than the activity itself (e.g.
    maintenance)
  • Specifying outcome In this method the value
    rather than the functionality of the service is
    stressed (e.g. purchasing consultant)

25
Purchasing services service level agreement
  • Contracting for services some suggestions
  • Specify performance or outcome rather than
    activities
  • Describe when and where the service need to be
    provided
  • Describe who will benefit from the service and in
    what way
  • Check the supplier reputation, expertise and
    qualifications
  • Ask for CVs of key personnel and secure their
    availability
  • Analyze supplier service process and quality
    system assess and discuss weaknesses and threats
    and major risks
  • Invite supplier to present Business Case based
    upon work description
  • Assess cultural fit between buying company and
    supplier
  • Pursue performance based contract (i.e. SLA)
  • Agree on what financial, human, technical and
    information resources will be made available by
    the customer
  • Allow for detailed inspection and quality
    procedures
  • Discuss and agree on dispute resolution
    procedures
  • Agree on performance based payment schedules
  • Describe communication structure and make working
    arrangements
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