Title: Practice
1Practice
- 18. Facility management and buying services
2Program
- 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
3Trends 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
4Trends 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)
5Trends 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.
6Trends 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.
7Trends 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
8Purchasing 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.
9Purchasing and facilities management
Major categories of expenditure
10Purchasing 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.
11Purchasing 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!
12Towards 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
13Towards 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.
14Towards 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
15Towards 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
16Towards 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
17Towards 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.
18Buying 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.
19Buying 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
20Buying 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)
21What 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.
22Purchasing 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
23Purchasing 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
24Purchasing 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)
25Purchasing 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