Sourcing for Facilities: The Seven-Step

Process

Bob Solomon, President, ServiceChannel

Paul Walsh, Director Strategic Sourcing, Gap Inc.

2

Agenda

• Share the Seven Step sourcing process

• Provide examples of how it can be applied in facilities management spend categories

• Bridge the gap between sourcing and facilities experts

• Case Study Review

3

Key Sourcing and Procurement Terms

Term Definition

Sourcing Finding and executing strategies for acquiring needed goods and services that meet client requirements • The process ends with a contract

Procurement Executing transactions against the contract • The process begins with a contract

Spend The dollars a company spends on everything except salaries and benefits • Direct/Indirect, GFR/GNFR, Addressable/NonAddressable

Managed Spend Spend that has been through a strategic sourcing review and is being bought on contract.

Spend categories Types of spend by commodity, department, or supply base • In facilities, this means by Trade

4

A Seven Step Sourcing Methodology

• Develop Benefits Case

• Profile Category • Develop Sourcing Objectives

• Create Supplier Selection Criteria

• Complete Traditional RFP Process

• Prepare fact-based Negotiation Packages

• Roll out Agreements and Monitor KPIs

1. Kickoff and Assess Opportunity

2. Profile Internally and

Externally

3. Develop Category Strategy

4. Screen Suppliers and

Selection Factors

5. Conduct Competitive Exercise with Supply Mkt.

6. Negotiate and Develop Sourcing Re-commendation

7. Implement Agreements

• Develop Category Analysis Plan

• High-level Data Collection and Analysis

• Build TCO model

• Conduct Industry Analysis

• Develop Sourcing Strategies and Tactics

• Conduct Supplier Analysis

• Conduct Auctions

• Collaborate with Incumbent Supplier/s

AND/OR

AND/OR • Negotiate

Agreements • Develop

Implementa-tion Plan

Key

act

ivit

ies

Po

ten

tial

Del

iver

able

s

• Spend Analysis • Category

Profiles • Sourcing Waves

• Internal Profile • External Profile • TCO Model

• Category Strategy

• To-be Processes • Sourcing

Objectives

• Potential Supplier “Long List”

• Selection Decision Matrix

• RFI (Optional)

• RFP/RFQ • Reverse

Auctions • Collaborative

Discussions • Potential

Supplier

• Fact-based Negotiation Package

• Sourcing Recommendation

• Category Value Proposition

• Finalized Agreements

• Implement. Plan

Quick Wins

Sources: Accenture, AT Kearney, ServiceChannel

5

Determine Strategy

Steps 1-3

Negotiate and

Contract

Steps 4-7

Receive Invoices and Pay

Analyze

Strategic Sourcing Procurement AP/Settlement Analysis

Procure And

Manage Xactions

Source to Pay Process

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Benefits Case – Sourcing Wave Plan

A wave plan prioritizes in-scope categories into “waves” based on savings opportunity and ease of implementation elements

Wave 1

Wave 2

Wave 3+

Ease of Implementation Elements • Category sourcing complexity • Company spend distribution • Market conditions • Client readiness

Savi

ngs

op

po

rtu

nit

y

Ease of Implementation

$8M

$6M

$3M

Wave Three (+)

Wave Two

Wave One

Drugs & Pharm

Rent Legal

Telecom Software

Ind. Equip & Serv

Furniture

Print Ag. Equip & Supplies

A&E

Services Auto

Service

Adv & Mktg

Industrial Equip. Rental

Health Services

Const. and Build

Mgmt Services

Cleaning Supplies

Admin. Services

Office Equip.

Med/Lab Supplies

Office Supplies

Food Auto

Micro Comp & peripherals IT Services

MRO Roadway

Bldg. Mtis.

Easier Harder

Main fr

Food

Safety & Sec Equip

Radio Equip Freight

Fuels

Network Equip.

Source: Accenture

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Strategic Sourcing Gemstone

Demand Management

Product specification improvement

Volume concentration

Best price evalua-tion

Joint process improve-ment

Relationship restructuring

Global sourcing

High buying power Low buying power

Source: AT Kearney

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Gemstone Levers in FM Gemstone Strategy Lever Example FM Applicability

Volume Concentration • Compare locations to regional/national suppliers

• Fire/Life Safety • Pest Control

Best Price Evaluation • RFP/Auction • Benchmarking • Unbundle parts

• HVAC • Janitorial • Floor Care

Global Sourcing • NA • NA

Product Specification Improvement

• NTE/SLA management based on real data

• TCO Modeling

• HVAC • Equipment

Joint Process Improvement • Integration to contractors • Parts unbundling • Source to settle process

Relationship Restructuring • Realign Broker use based on usage data

• Across broker-intensive trades where locals are sufficient

Demand Management • Troubleshooting script • Warranty work • Deferred maintenance sch.

• Across all trades

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Q4

Waste Services RFP • Ensure best in class solutions for Waste & Recycling Management services • Reduce cost through vendor pricing, increased recycling, appropriate

equipment and containers and maximizing efficiency • Maximize rebate potential • Improve visibility to performance, spend and Gap Inc. sustainability goals

through better technology and reporting tools

Q1

Q2

2013 2012

-12 Suppliers interviewed and pre-qualified (Fixx book) -RFI/RFP questions drafted

-9 Suppliers advance to RFI/RFP -Select Finalists -Begin Negotiations

-Award Business -Contract Review & Execution -Deployment

Objective

Timeline

Spend

Objective

Waste Management

Spend $”Y”M (79%)

Retail Lease Spend $”X”M (21%)

Waste ManagementSpend

Retail Lease Spend

2012 Waste Spend - $X +Y M

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Waste Services Overview Strategic Sourcing launched a comprehensive RFP for all services related to Waste Management incorporating all Brands and functions across Gap Inc. The efforts of this initiative resulted in:

• Selection of a new Supplier, TBD • Cost reduction of x % - $x in professional fees • Securing of additional services such as customized reporting, enhanced Sustainability and Project Management tools, improved data capture processes and Global capabilities • Comprehensive list of service ownership (LL vs Gap Inc. responsibility) to serve as basis for audit

Regionalized market focus Transparency to waste procurement process Robust reporting platform Comprehensive data validation process Strong partnership with Utility Bill Pay Supplier, ServiceChannel Purchasing leverage: $20B managed spend

Why did we choose this supplier?

Services

Optimization & Analysis

Sustainability Budgeting & Forecasting

Performance Reporting & Technology

Utility Bill Processing &

Payment

-Procurement strategy & process

-GHG reporting --Initiative tracking

-Develop annual budget -Monthly forecast & variance reporting

-Produce monthly Dashboard reports

-Receive, process & pay utility invoices

-Resolve billing exception types

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THE OLD WAY

• Local decision or relationship driven Strategy

• Paper-based, vendor days, phone, fax Negotiate

• Paper or handshake, filed in drawers never to be seen again Contract

• Phone calls, faxes and paper work orders on service; no way to manage parts/supplies Manage

• Paper invoices and late payments Pay

• Call and ask suppliers for reports on ad-hoc basis Report

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The New Way

•Local decision or relationship driven

• Sourcing and Facilities team up for “loose-tight” solution Strategy

•Paper –based, vendor days, phone, fax

• Can be electronic, even real-time, using algorithms Negotiate •Paper or handshake, filed in drawers never to be seen again

• Electronic, living documents, “consulted” on every invoice Contract

•Phone calls, faxes and paper work orders on service; no way to manage parts/supplies

• Automated documents, check in/out, catalogs, troubleshooting, workflow, surveys

Manage •Paper invoices and late payments

• Automated invoice, 4 way match, payment and discount management

Pay •Call and ask suppliers for reports on ad-hoc basis

• Complete transparent, flexible reporting in your hands not the supplier’s

Report

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Recap of Sourcing Methodology

• Step 1: Kickoff and Assess Opportunity

• Step 2: Profile Internally and Externally

• Step 3: Develop Category Strategy

• Step 4: Screen Suppliers and Selection Factors

• Step 5: Conduct Competitive Exercise with Supply Mkt.

• Step 6: Negotiate and Develop Sourcing Recommendation

• Step 7: Implement Agreements

Picture provided by: louisville.edu

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Additional Resources

• PRSM Resources

White Papers:

– Sourcing Case Studies for Retail Facilities

– Supplier Insights into Competitive Sourcing Options for Retail Facilities

– Understanding Retail Facilities Sourcing

• “Purchasing Must Become Supply Management”, Harvard Business Review (September/October 1983)

– http://www.purchasingchessboard.com/

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Q&A • Paul Walsh, Director of Strategic Sourcing, Gap Inc.,

paul_walsh@gap.com

• Bob Solomon, President, ServiceChannel, bsolomon@servicechannel.com

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Topics and Discussion Includes:

• Trends in How We Buy

• Ranking the Respondents: RFP Scorecards

• A Framework for Assessing and Improving: Under-Performing Service Providers

• Anatomy of a Waste Management and Recycling RFP

• Qualifying Green Vendors & Products

• Diverse Strategies in Developing a Strategic Sourcing Plan