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Supplies & demands

With so much focus on cutting costs procurement departments in many organisations become more powerful. But moves to enforce existing contracts and drive expenditure reductions can put them at odds with FM departments.

 20 May 2010

The global recession, and its subsequent focus on cutting costs, has seen procurement departments in many organisations become more powerful.

Boosted by the greater attention paid to the profession by senior management, procurement has been only too keen to take advantage of the opportunity to get more spend categories under management, as well as enforcing existing contracts and driving further cost reductions wherever possible, often putting them at odds with FM departments.

A survey by procurement journal CPO Agenda, for example, in November 2009 found that 58 per cent of senior purchasing professionals said they were “confident” they would emerge from the downturn in a better position to contribute value in areas such as supplier relationship, innovation, sustainability and growth, and 35 per cent were “very confident” this would be the case.

“In recessionary times procurement takes on a very corporate skin as if they are the protector of the corporate world, whether it’s private or public sector, and the FM team seems to feel less like a customer and more as if it is being driven by procurement,” says Ian Fielder, chief executive of BIFM. “If they haven’t got common objectives around whatever the corporate goal is – to renew, refresh, save money or bring in innovation – therein lies a problem.”
One of the main charges levelled against procurement, especially in the current environment, is that it tends to prioritise cost over other factors such as quality, timeliness and value. “Procurement hasn’t always recognised the difference between price and cost,” says David Pearson, managing partner at DJP Consultancy. “They’ll look to drive prices down but in doing so they could be costing themselves more in the longer term.”

Difficult relations
FM World spoke to a portfolio manager within the FM team at an asset investment bank, who requested not to be named. She has worked across various organisations with differing balances of power between FM and procurement and admits that the relationships between the two have tended to be “difficult”.

“A lot of the purchasing people I’ve come across are more experienced in purchasing goods, where one chair is the same as another from different suppliers,” she says. “But when it comes to services there are nuances between different contracts, proposals and tenders and if they hadn’t been involved in purchasing services before it was a harder battle to persuade them that the cheapest one wasn’t necessarily the best option.”

One company ended up having just two service providers covering most of its extensive FM portfolio, she adds. “We knew they weren’t best in class but they were the cheapest,” she says. “It’s difficult from an FM point of view when you’re trying to provide what you consider to be a good service but you’re working with a company that hasn’t won the contract on that basis and therefore you aren’t incentivising delivery. You’re treading a line between keeping customers happy and working within the parameters of the service provider.”

According to Lucy Jeynes, managing director of Larch Consulting, a further issue is that procurement often follows standardised templates – especially in the public sector – which can make it difficult for potential suppliers to demonstrate extra value they can add around quality of service. “It beats all the subtlety and differentiation out of suppliers,” she says.

This is something that resonates with the FM portfolio manager, too. “Sometimes you just know one company will give a better service than another but it’s very difficult to justify that to someone who doesn’t work with them,” she says. “It’s frustrating too when companies let themselves down with their tender but you know they do a really good job. All the procurement person can go on is the tender process.”

A question of cost
Mayur Patel is facilities director at Reynolds Porter Chamberlain LLP. His department currently handles its own sourcing arrangements as there is no procurement department; a set-up he is keen to retain. “We tend to live and breathe what we want, so we devise our own specifications,” he says. “For a tender you get different prices from different companies so it then allows us to question people about price. It would be difficult for people within a detached procurement team to do that because they’re not going to fully understand what these people do.”

Yet according to Gerard Chick, head of knowledge and research at the Chartered Institute of Purchasing and Supply, procurement brings far greater benefits than simply reducing costs. “Good procurement leaders and functions should be aligned with what FM is trying to achieve,” he says. “They should become the rallying point as both cost-savers and as people who are looking at what happens beyond.”

Having a dedicated procurement professional – either as part of the FM team or through an in-house operation – is essential, he says. “If they’re spending money that will come off the bottom line then you need qualified people,” he says.

Such a professional can also ensure organisations are able to factor new legislation such as new carbon regulations and the Equality Act into the sourcing process. “Smart procurement people understand these things but if you have someone from one function who has been dumped with the procurement role, how much credence do they give to these issues, and how much can they really focus on them?” asks Chick.

Even the unnamed portfolio manager concedes there are positives to having a procurement team involved. “They are more experienced in managing tender processes and in following company policy,” she says. “They had an independent view on what was being presented, not just from a cost point of view but generally, and they would challenge our thinking. It would make us justify not just to them but also to ourselves why it was important that we spent more money. You can get carried away with looking at the service that companies offer.”
But with cost constraints likely to remain in many organisations for some time – and the two functions having to work together on initiatives such as sustainability and carbon reduction – FM and procurement will need to develop a more productive and harmonious working relationship in the future.

Mutual understanding
John Bowen, chair of BIFM procurement special interests group and managing director of the Gulfhaven consultancy, suggests practitioners talk to their opposite numbers in procurement so both sides can understand the other’s viewpoint. “You’re unlikely to be defying a direct instruction from above; no one will be telling the buyers not to talk to operations,” he points out.
Fielder at BIFM suggests a more formal approach, based around implementing service level agreements (SLAs) between the two disciplines. “Really there are three elements: who does what, who receives it and how it is measured,” he says. “One person has a requirement, one person meets that requirement and you have a common view on how you measure it.
“Internal departments hate having SLAs,” he adds. “They’re more than happy to use them on suppliers but when it’s one department working with another they don’t want to be measured. But if you ask about the service level then it starts to put in people’s minds that there is a relationship here, where one of you is a customer and one is an internal provider.”

At Larch Consulting, Jeynes believes the two elements require a new way of working, where FM leads the development of the specifications and the evaluation of potential suppliers, and procurement offers support around the organisational process and the contractual elements.
“Often you find that procurement tries to develop the specs for something that they buy every three years but they’re not involved with the running and management of the services,” she says. “On the other side we see FM people struggling when they don’t have support from procurement. Where the procurement team is providing expert advice and support – a bit like an internal consultancy – it seems to work a lot better.”

Yet for any change to be truly effective it is likely to require at least backing from, and probably to be driven by, senior management. Bowen, for example, suggests establishing a common goal where both departments are rewarded on the company’s performance.

“I’ve worked for companies in the past where the purchasing team has been purely incentivised on savings and it comes to a point where the only way you can really make a saving is by reducing the quality of the product or the service that you’re buying,” he says. “In those circumstances then it can go badly wrong. If procurement, like everyone else, is working towards a profitability target rather than a pure cost target it works much better.”

For her part, though, the portfolio manager believes FM could play its part simply by educating procurement about its own priorities and demonstrating the differences between service providers. “FM is still a relatively new industry to a lot of people and if they don’t know anything about it they can’t be expected to help support the decisions that we’re making,” she says. “Instead of trying to keep them out of the process, we should try to include them as much as possible.” 

How one FM function is staying in control
For Stephen Cook, head of facilities management at British Arab Commercial Bank, retaining control of procurement within the FM function makes perfect sense.

“If we buy something and it’s not being delivered we can bring it back into line,” he says. “We have monthly meetings with our service providers as well so if anything does begin to go wrong it doesn’t do so for very long.”

Having responsibility for supplier selection means the bank can pick the provider it feels provides the best fit, he adds. “We look for service providers who want to work with us and jump at the chance to work for British Arab Commercial Bank,” he says. The function has used external procurement agencies in the past, including recently to procure electricity. “In all honesty it was the worst contract we ever entered into and we pulled out of it because they promised something and didn’t deliver it,” says Cook. But retaining control within the FM department doesn’t mean that cost isn’t an issue. “Everything we do is purchased cost-effectively; there is no waste,” he says. “But we don’t skimp on things that could impact on the bank’s reputation.”

Nick Martindale is a freelance journalist