5 Ways Spend Management Optimization Helps Maximize Savings
The value of spend management has been well-chronicled throughout the multifamily housing industry. In recent years, the changing landscape of apartment operations has put more emphasis on a comprehensive program that enables property management companies (PMCs) to purchase the right products at the right prices from the right vendors on an ongoing basis. The goal is to maximize savings potential at a time when operations expenses have fluctuated; renters are demanding greater value and competition among PMCs with access to comparative quantitative metrics has intensified.
There’s never been a greater time for spend management optimization, a third-party service that provides as-needed help for properties that want to streamline purchasing, says Jennifer Lester, RealPage, Inc.’s Vice President of Vendor Management.
Proof is in the numbers with spend management optimization
RealPage, Inc.’s Strategic Purchasing Advisory Services (SPAS) is a spend management consulting service that works with PMCs to find hidden savings and drive purchasing compliance. The consulting service analyzes spending practices, as well as establishing and negotiating with vendor networks so pricing is consistent throughout a portfolio.
“You may have a vendor where prices for the same products vary for different properties within the same management company and it’s not necessarily a commodity product,” Lester says. “These are the things that we see and point out to our PMC clients. A lot of times clients don’t believe it’s happening.”
One PMC saved nearly $263,000 annually by reducing its maintenance repair operations supply base from nine suppliers to one. In one year, another PMC saved $106,000 after de-centralized purchasing practices were evaluated and new pricing programs were negotiated and put into place. By simply changing the sheen of base paint from Eggshell to Flat for its apartments, a third PMC slashed its expense by $33,000 per year, without having to go to the mat with the vendor.
Lester said that the perception among property managers may be that spend management optimization takes a lot of time and effort but that’s not necessarily true. In the case of the paint, SPAS simply analyzed purchases across the portfolio and found inconsistencies in the sheens used, which in some cases resulted in higher costs.
“That did not involve an RFP or changing vendors,” she said. “It didn’t involve changing the pricing of the products. It simply involved changing the sheen of paint.”
Properties maintain control of spending with optimization
Lester says a key to the success of the program is to keep the keys to spending in the PMC’s hands but enable them to make better decisions. SPAS coordinates RFPs, crunches numbers and ensures compliance reporting through established programs and protocols so that PMCs can get the most out of purchasing. PMCs can still establish vendor relationships with whatever companies they like.
“It’s totally up to them,” she says. “We work with them and prioritize whatever their pain points are. If they want to touch on maintenance repair operations or floor covering, that’s what we will work on for them.”
Typically, the greatest opportunities for improvement are within maintenance repair operations, paints, floor covering and office products, Lester says.
Lester says spend management optimization should focus in five areas:
1. Establishing strategic partnerships helps align costs
Some vendors can service all parts of the country and others simply cannot. It’s important for properties to align with vendors that can meet needs across the portfolio and deliver the goods, as well as customer service, inventory and pricing.
A spend management optimization consultant can help properties leverage their size to drive the best value for properties, no matter where they are located.
2. Drive compliance and spends through data analytics
As with everything today in the multifamily industry, data plays a big role in property performance. Services like SPAS can show property management companies how to get the best buys and drive compliance, by defining metrics and benchmarks.
Spend management optimization helps properties understand industry benchmarks and works with them to evaluate spend levels, change behavior and drive compliance levels to capitalize on partnerships.
3. Reporting tells the story to middle management and site staff
Information is power, and reporting tools are critical to sorting through the data on a regular basis to tell the story and uncover missed savings opportunities. Properties should compare spend to designated key metrics like spending per unit, number of suppliers and compliance rates to get the full picture, Lester says.SPAS can manage information and convert critical data points into meaningful and actionable reporting that is distributed to middle management and site staff, Lester adds.
4. Creating a communication process to capitalize on negotiated savings
The purchasing department within any organization has a fiscal responsibility to protect the financial interests of the business, Lester says. And the key is communication.
Site staffs should be aware of the many things, from purchasing policies to preferred products and pricing negotiated by the purchasing team. Otherwise, purchases may be made at higher costs and some in the portfolio will lose out on potential benefits of these negotiations.
5. Monitoring compliance levels reveals opportunities to save
Spend management optimization evaluates purchasing processes and partnerships to ensure a property continues to grow and thrive, Lester says. Monitoring compliance levels highlights areas of opportunity, so that corrective action can be taken.
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, Lester says. Spend management optimization and services like SPAS lend additional focus onto an operation at any level, so the property gets the best value.