(Service) Supply Chain Management

(Service) Supply Chain Management

 

Why Service Is A Verb, Not A Noun

By: Kevin Smith, Chief Operating Officer

 

shutterstock_116303092Can we continue to deliver solutions in the models we’ve done for the last 15 to 20 years? Service sector business currently accounts for about two-thirds of the U.S. Gross Domestic Product, and about 8% of economic growth. A recent CAPS Center for Strategic Supply Research study found that purchased services averaged 42% of total purchasing spending. However, about 72% of the supply chain management professionals surveyed indicated that purchasing services is more difficult than purchasing goods.

In light of the continued trend towards outsourcing business processes and the likelihood of moving these business processes to offshore locations, it is prudent for our own industry to focus on improving the means for obtaining the services that keeps our businesses running. First, there are a number of barriers to address if service purchasing is to be improved.

Lack of resources focused on services

The CAPS survey mentioned above found that the average buyer of direct material is responsible for 33 active suppliers. The average buyer of direct services is responsible for about 125 active suppliers. These buyers are responsible for approximately the same level of total spending. The dilution of the services buyers’ time makes it difficult for the buyers to be proactive with their suppliers.

Lack of Information Technology support

Services buyers are less likely to be supported by technology and information systems, and often have to use software provided by the service suppliers or other third parties for making services purchases and tracking services spending and supplier performance.

Knowing when to outsource

Overdependence on local internal assets (i.e. Onsite Managers) and their knowledge decrease the power that the buyer has over the overall solution.

Understanding of cost drivers and structures

There is limited understanding of the cost drivers and underlying cost structures of the services supplied. Part of the problem with this lack of understanding is that it can create misaligned goals, as the buyer might think that the supplier wants higher volume when the supplier really desires more profit certainty within its volume serviced..

Lack of a holistic view of services spending

In the CAPS study, less than 60% of services spending flows through formal systems and processes. The spending on services is fragmented across many functions and locations, and often flows through decentralized structures. In addition, it frequently involves non-standard services unlike the more refined processes for purchasing goods.

These barriers are critical because services spending are growing as a percentage of total spending as firms outsource more activities, such as back-office operations, that used to be performed entirely in-house. In addition, because services are still largely segmented, services now presents a greater opportunity for potential cost savings than does the purchase of materials and components.

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Addressing Our Opportunities

Service Supply Chain Management (and those identified as SCCM companies) will likely dominate discussions in Retailer boardrooms across the country as a more engaged, service solution is demanded. SSCM isn’t about outsourcing all of your services. It is defined by a motivation towards a more robust solution across each individual trade, defining a clear line between retailer and service partner where goals are more aligned together. But to take that journey, opportunities need to be overcome.

Understand the magnitude of the services purchasing spending

Without an understanding of the total spending, it is difficult to assess the potential for savings and difficult to make a business case for pursuing SSCM solutions.

Segment the purchasing spending based on value and risk.

This will allow you to set priorities, and allocate time so as to reduce the risk while maximizing potential rewards.

Allocate appropriate resources relative to economic return to the area of services supply management.

If there is a big opportunity, it is sensible to dedicate more resources.

Increase the professionalism of the services purchasing area.

A professionally trained service buyer can help control both overbuying and overspending. Services supply managers should have either focused college degrees or additional training on buying, negotiations, cost management, and the particular type of services that they are buying (can we do more within our own industry to train people better?).

Measure effectiveness and ensure proper business controls.

This can help reduce risk and improve compliance to Sarbanes Oxley. What gets measured gets done.

Put the best people in services supply management.

This will help to increase the level of accountability for services spending.

Even though the purchasing of services is growing in importance and magnitude, the resources to manage it are not. Because of the current state of services purchasing, it appears that there are untapped opportunities for organizations to improve their services purchasing in terms of both cost and value by dedicating more, and perhaps different, resources to services purchasing.Industrial Air Conditioning Repair

Bank of America reports in their annual statements that Supply Management is involved in 100% of its services it purchases. But they also share that the responsibility of these services is still kept in the hands of the users (Service Supply Chain) rather than Supply Chain as the users will be much more aware of whether the supplier is performing to expectations.

Ignoring the value of Supply Chain Management processes in a service solution is ignoring the future of our industry. As a supplier, we need to be aware of the systematic changes to our business and be prepared to be relevant in the future. As a Facility Manager, understanding what SSCM is and how it will be a required component of future business decisions will ensure your own relevance in your company’s business.

Dedicating skilled resources to establishing new systems for better managing the purchase of services could result in a tremendous return on investment and improvement in value of services for the dollars spent. Developing an outstanding capability to purchase, and manage the purchase of, services could truly be the next frontier for improved supply chain and organizational performance. The questions remains as an industry, can we help get ourselves there together?

 

Kevin Smith is the Chief Operating Officer at Ferrandino & Son, Inc. You can reach Kevin at 866-571-4609 ext 1185 or by emailing ksmith@ferrandinoandson.com

 

A Handyman Case Study: “The Impact was Instantaneous”

A Handyman Case Study: “The Impact was Instantaneous”

By: Kevin Smith, Chief Operating Officer

 

Handyman_WEBThe challenge with building a great case study on how to reduce costs is that you first have to receive permission to spend money to prove your point. This can be quite difficult, as most of you probably know. Suggesting that a Handyman Program could reduce your reactive maintenance spend would likely result in many affirmative nods, until you layout how you want to test it. Many restaurateurs have begun to overcome these challenges by better leveraging their spend over a larger footprint of restaurants.

So before we go forward, let’s go back a little bit.  Restaurants have a unique advantage over a traditional retailer in that their staff is often more aligned to handle some of the more rudimentary repairs; from minor painting to loose handles or misaligned doors. This approach makes sense as the cost to deliver these repairs is significantly less than bringing in an outside supplier.

But what if you were able to tackle more involved maintenance (anything from a filter change to a ballast replacement to the installation of a new sink or toilet) around a PM visit that identified and monitored more than 200 touch points in your restaurants? For one restaurant chain, this challenge was tackled head on.

As a franchisee with more than 250 locations across multiple brands, keeping their restaurants fresh and updated was a continuous challenge.   At a casual meeting during the RFMA tradeshow in 2013, we highlighted some of our positive experiences with retailers around these types of handyman programs. Unsure if it would translate well to their specific needs, we scheduled a series of meetings both in their offices and more importantly, in the field at their facilities, to discuss what approach might bring them value.

After 3 months of work-shopping and tweaking, a 206-point checklist was developed which we felt best captured the majority of their maintenance spend from a reactive perspective. We initiated site walks, performed PM inspections and began to bundle existing reactive (non-emergency) work orders into these services.

The impact was instantaneous.

We saw an immediate savings in just the bundling of the work orders even after overlaying the cost of the PM visit. Additionally, there was a “common sense agreement” that while 90 days wasn’t long enough to gauge reduced spend on the PM work itself, common sense told us those 206 touch points were catching things that could and would ultimately lead to a future repair need.

After 90 days of testing this program in 45 of their restaurants, we sat down to analyze the results, discussed what worked, what didn’t, and most importantly, what could be improved upon. During these meetings, we had participation both from the restaurant’s Field Team and their corporate stakeholders. This was critical as there were competing goals that we were trying to identify and accomplish.

The biggest benefits from this project happened when we:

Extended the service to two days (mornings only, as it better aligned with the restaurants operating hours

Removed 40 of the items on the checklist that ultimately didn’t seem relevant, but added 24 new ones that were not originally considered critical

Modified the bundling process to better capture non-handyman services (minor plumbing, minor electrical) that could be delivered at a lower hourly rate by redirecting them into this program

Designed a finalized pre-inspection process, customized during each walk at the individual facility, which addressed any site anomalies not captured through the standard checklist

Put in place a priority system to better triage service requests based on long-term strategy around the asset (the restaurant facility in its entirety, as well as the individual assets)

Upon completion of this program review, we were able to put in place a Handyman Program for 252 of their 265 restaurants (we excluded the 13 locations that had expiring leases and were going to be closed or relocated). Over a period of 60 days, we performed initial site walks and rolled out the initial PM service. This included a fair amount of both local supplier coaching and working closely with the local stakeholders (Restaurant GM’s and District Managers) to ensure all parties understood the program goals and what their expectations should be.

In addition, as a value-add to this Handyman Program, we consolidated their reactive service needs for some of the core services that aligned with our greatest strengths. This enabled us to bundle more of their reactive work and allowed us to leverage our relationships with each GM due to the amount of “touches” that were created.

Fast forward 18 months and the successes are easily identifiable:

Seamless Transition

By utilizing Program Managers in the markets, we were able to leverage our own employees on the ground to work closely with the Restaurant GM’s during the critical site-walk phase to better align all of the program goals.

Cost Reduction

While we didn’t have specific access to their prior spend, casual data sharing with our client showed a savings of between 18% and 24% in the second six months of the program – as enough data was captured to compare historical spend to current spending.

Long-Term Goals

Continued program improvement with a checklist that is fluid and adaptable as budgetary and site needs continue to evolve.

The client realized that this program was successful due to the immediate savings.

For us, aside from this specific partnership, we have been able to take elements of this program to other customers. This confirmed that the “bones” of the program makes sense for any sized client.

We were excited to have the chance to work on a solution to their maintenance needs and were very lucky to partner with a client who understood the value of a sustainable, preventative maintenance program.

Kevin Smith is the Chief Operating Officer at Ferrandino & Son, Inc. You can reach Kevin at 866-571-4609 ext 1185 or by emailing ksmith@ferrandinoandson.com