How to Capitalize on Your Purchasing Strategy
Multifamily properties are valuable to their vendors, but sharing the wealth could put apartments at a disadvantage.
Jennifer Lester, Vice President Vendor Management/Strategic Purchasing Advisory Service at RealPage, says a common mistake properties make is having too many vendors in their stable. At RealWorld in July, a team of purchasing specialists talked about effective techniques in vendor management and purchasing strategies that can prevent unnecessary expenses over the long haul by using the right vendors.
Vendor consolidation helps get the best prices, service, and partner
Using multiple vendors for maintenance, repair and operational purchases throughout a portfolio can be more expensive than spending with a preferred vendor and maybe one other, Lester said. Narrowing vendors can lower costs through volume pricing and help achieve rebates that otherwise wouldn’t be achievable through dealing with multiple partners.
Lester pointed to one scenario, where a 6,500-unit property management company that used five vendors for the same services saved $130,000 a year by consolidating to two. The company used a preferred vendor for about 95 percent of purchases and paid less.
Another property management company would’ve achieved $15,000 in rebates had it spent the majority of $1.5 million annually in expenses with a preferred vendor instead of using four vendors. By spreading the spending, the company couldn’t become eligible for rebates that kicked in at the $1 million mark with the vendor used the most. The 12,000-unit property management company also could have saved $17,250 on $750,000 in purchases with three other vendors.
“You should really try to narrow down that pool of vendors,” Lester said. “A lot of people get scared of that. They think vendor consolidation means that they can only use one vendor for each product category and that’s not the case. 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.”
The savings don’t always come just by consolidating vendors. Product standardization and compliance also play big roles, Lester said. Low compliance levels coupled with an expansive vendor base and multiple product choices all contribute to lost savings.
Product standardization helps consistently manage day-to-day spending
The value of product standardization, Lester says, is consistent day-to-day spending practices, savings, fewer headaches in managing a portfolio and removing emotions. Portfolios should be establishing a strategy by choosing a vendor that works with all properties, identifying the best products to use and negotiates favorable pricing. The portfolio also must communicate the plan with its properties.
A big advantage to product standardization, as well as compliance, is efficiently managing even the smallest of purchases, whether in quantity or price.
One property management company, Lester said, purchased multiple styles and assortments of toilet seats from three vendors, paying an average of $8.12 per seat. With a preferred vendor and volume pricing intact, standardizing the seats to one style and assortment dropped the cost 20 percent to $6.53.
The same was true for buying copy paper for another property. Narrowing spending to one brand or weight instead of nine saved 8 percent.
Lester said the higher prices for the toilet seats and paper are also examples of what happens with rogue spending, where properties buy different products – sometimes on the spur of the moment – from multiple vendors. Ideally, properties should coordinate purchases and use the same vendor to get the best pricing and service.
“These are small things that can have a big impact at the end of the day,” she said. “You can have 10 different things that aren’t standardized, and it can certainly impact your expenses.”
Compliance is an important part of a purchasing strategy
Savings likely would not have been achieved in all of the examples above if properties don’t comply with their purchasing strategies. More often than not, the difference between the success and failure of implementing a standardized, consolidated purchasing strategy is effective communication and reporting. Non-compliance can go undetected with a lack of reporting, Lester says.
“If you’re not monitoring how your programs are going, are your properties buying from the vendor of choice, are they buying the product of choice, are they adhering to your purchasing policies, there is no point to any of this,” Lester said. “Compliance has to be another piece of this. That mostly comes with reporting.”
Lester said that after the final door knob has been negotiated with a preferred vendor, properties should communicate the deal to regional and site staff. Also, spending levels should be monitored monthly or quarterly, results publicized and corrective action taken, and regional and site staff held accountable.
“To effectively measure compliance and improve adoption, a mechanism must be put in place to not only review the data but drive corrective action,” Lester said.
An effective purchasing strategy not only benefits the bottom line, but it also creates stronger partnerships and value with vendors and increases the buying power and service levels a property can expect.