4 Tips for Monetizing a Purchasing Strategy
Even with a fine-tuned purchasing strategy, the costs associated with maintaining an existing asset or upgrading a new acquisition can add up. These expenses make it critical to get the most out of your investments in fixtures, maintenance materials and even office supplies, especially for large rental portfolios.
A solid purchasing strategy doesn’t just save you money; the consistency and dependability involved also makes your portfolio more desirable to suppliers, empowering you to negotiate even better deals down the road. Jennifer Lester, vice president of vendor management/strategic purchasing advisory services at RealPage, highlights purchasing strategies as a means to create mutually beneficial relationships with vendors, ensuring both the best prices and services.
You should take four core components into account as you develop your portfolio’s purchasing strategy – vendor consolidation, product standardization, compliance techniques, and involvement with a group purchasing organization.
“The reality is that properties need to keep an eye on what they are buying, who they’re buying from and what is being paid,” she said.
1. Narrow your pool of vendors to ensure best pricing
Narrowing the number of vendors used for maintenance, repair and operational (MRO) expenditures can lower costs. A property management firm can likely negotiate lower prices based on the promise of more business, especially if purchases extend across the entire portfolio.
Using multiple vendors and buying less from each often results in paying more. For example, a portfolio that buys several different types and colors of paint from multiple vendors often will pay a higher unit cost than when buying an agreed-upon color and finish from a preferred vendor.
To illustrate the point, Lester discussed how one property management client previously used five vendors for MRO expenditures and then saved $130,000 a year by consolidating to two companies and negotiating a better rate.
“You should really try to narrow down that pool of vendors,” Lester said. “You can certainly narrow it down and have a primary and a secondary, but it’s to ensure you get the best prices, the best service and the best vendor.”
2. Standardize products to help manage day-to-day spending consistently
Product standardization streamlines purchasing and ensures consistent day-to-day spending practices with fewer headaches and higher savings.
Effective product standardization means finding preferred vendors that can negotiate favorable pricing on one or two of the best products and supply them across your entire portfolio at the same unit price. Lester noted that one property management company, which didn’t have standardized practices in place for buying toilet seats, ultimately paid 20 percent more – nearly $1,200 – when purchasing various styles from multiple vendors.
Standardizing everything across your operation – down to your office supplies – leads to more efficient management and greater cost effectiveness.
“These are small things that can have a big impact at the end of the day,” Lester said. “You can have 10 different things that aren’t standardized, and it can certainly impact your expenses.”
3. Communicate and enforce purchasing strategy compliance
Typically, the difference between the success or failure of implementing a standardized, consolidated purchasing strategy boils down to communication and reporting. Non-compliance can go undetected with lack of reporting, Lester says. She said “there is no point” to developing a unified purchasing strategy if unmonitored properties can easily ignore the policies and preferred-vendor lists. Compliance and reporting have to be a part of the equation.
However, compliance does require a balanced communication equation. Management must clearly communicate pricing, vendors and other aspects of the strategy as soon as they’ve been negotiated for the portfolio. Follow up with individuals on the team to ensure they understand and can therefore be held accountable. Set up transparent guidelines for monitoring monthly or quarterly spending, as well as for corrective action.
4. Join a Group Purchasing Organization
Joining a multifamily group purchasing organization helps you make sure that all of the areas above are covered. Regardless of the size of your platform, a GPO is easy to use and enables you to buy the right item, at the right price, from the right vendor—while ensuring compliance. All of the discounts have already been negotiated for you in advance, saving untold time and effort. To learn more about what to look for in a group purchasing organization, check out this eBook.
Ultimately, an effective purchasing strategy benefits the bottom line, but it also leads to stronger partnerships and value with vendors, increasing the buying power and level of service a property can expect.
According to Lester, “If you are getting what you need from your vendors, all of these other things fall in line.”