Technology: E-Procurement Reduced This BSC's Spending By More Than 12 Percent In The First Year

Company Website

This building service contractor (BSC) provides an array of cleaning, building maintenance and specialty services, and has grown to become one of the largest privately-held companies in its industry. Its workforce of over 3,500 associates maintains more than 85 million square feet of office space around the country, for clients ranging from the corner store to the headquarters of Fortune 500 companies.

Situation

With a widely-dispersed workforce and a small army of field managers, this BSC faced classic challenges in managing costs and procedures. There was little standardization in products, process or purchasing. Budget levels for cleaning supplies were managed locally, and there were many discrepancies between spending and product use from site to site. Procurement information from vendors was also inconsistent, and many opportunities for savings based on quantity discounts were missed. In summary, this BSC was experiencing:

• Overspending against budgets at some sites, while not at others
• Uncertainty in inventory from site to site; loss of supplies
• Difficulty in matching vendor invoices to purchase orders and delivery paperwork
• Ordering mistakes that resulted in over-supply and under-supply
• Unnecessary freight charges due to deliveries of unneeded supplies and rush deliveries of needed supplies that had not been properly ordered
• Difficulty in keeping mandatory right-to-know product information on hand and up-to-date for each site
• Managing orders outside the standard ordering system

In addition, a review of the product mix across all sites showed very high procurement and carrying costs for a mix of cleaning products, with redundancy and overlap of products leading to higher costs than necessary.

Solution

JohnsonDiversey worked with this BSC to set up a pilot program for CONNEXION as a way of validating it and quantifying its value. The pilot began with just the initial product information and site locations loaded into the web-based system. Over the next five months, additional capabilities were added to include budgeting by site, customized reports and an invoice matching function to assist in payment procedures to vendor partners. Preliminary results have shown a reduction in budget overspending, streamlined ordering processes and fewer ordering mistakes. The pilot has provided a comprehensive view of product SKUs by site, number of orders by site, number of manufacturers used and product duplication by site. Objectives for this initial phase included:

• Real time spending visibility and analysis
• Reduced spending via product optimization
• Reduced spending via budget controls
• Reduced freight and order processing costs

Deploying CONNEXION in 2006, the retailer began to see significant, measurable benefits within the first year of implementation.

Results

• The CONNEXION implementation is reducing overall spending by at least 12 percent in the first year, yielding a substantial savings for the BSC and improving their competitive advantage.
• An analysis of the total spend revealed that over 58 percent of total purchases are for chemical products. A deeper analysis of the chemical category spend revealed that over 78 products from 7 different chemical manufacturers were being purchased with significant overlap of individual items from each manufacturer (for example, 5 different toilet bowl cleaning products were being sourced from two different manufacturers). This duplication leads to significant additional costs in training, right-to-know documentation and freight, along with loss of potential volume rebates.
• Analysis revealed a potential for 26.6 percent annual cost savings by optimizing the chemical category to more efficient products and standardization of the current 78 different items from 7 manufacturers to only 40 items from three manufacturers.
• Managers use this spending analysis to work with suppliers to determine more cost-effective product mix solutions for each site. High dollar volume items are sorted out and reviewed for lower cost alternatives by using more efficient package sizes, dilution rates, dispensing systems, or newer, more advanced solutions.
• Planning and budgeting improvements promise to escalate these savings. Using CONNEXION, budgeting and spending controls can be used to centrally control spending, prevent unauthorized over-spending, and enable field managers to automatically track budgetary status on a real-time basis. The CONNEXION budgeting system is fully customizable to the BSC's cost-centers and fiscal calendars and provides configurable business rules to govern spending at the facility level. Field managers can use CONNEXION reporting and analyses tools to benchmark best-practice spending levels and then allocate funds accordingly. As best-practice products and processes are implemented, budgets are adjusted down to ensure that actual savings are realized.
• To date, the pilot locations have remained 1.5 percent under budget by using CONNEXION's budgeting system.