Pulling back the curtains on hidden facility costs
By Jay Leyden, email@example.com
Today, retail companies have realized that projecting a consistent and positive brand image to their customers is a major factor in achieving customer satisfaction. That means everything from lighting standards and cleanliness to HVAC and exterior landscaping are potentially as important to their brand as, say, their advertising campaign or the quality of their products.
Problem is, these days many retail brands operate 200 or more stores across the country. It’s exceedingly difficult to keep a finger on the pulse of such complex and changing enterprises. While many CFOs, VPs and facility managers from today’s leading retail store brands look to outsource the maintenance and management of their facilities, evaluating the total cost of maintenance by third-party service providers can often be difficult -- and misleading.
The process of outsourcing facilities management has changed significantly over time. Previously, sourcing groups were content to accept hourly quotes for various trades, such as electricians and plumbers, on a location by location basis. They compared these rates and often took the lowest price in an effort to get the lowest cost for their company.
This is not to suggest that hourly rates are not an important element of managing your facilities spend. It just shouldn’t be the only element you’re managing. Within the work order itself, there are at least five categories of costs that should be managed.
Additionally, there are numerous additional costs that can significantly impact an organization’s spend. Examples of these types of costs, which also need to be considered in a TCO analysis, include:
- Support costs, such as call center transactions and account management;
- Management fees (cost per square foot, fee per location, etc.); and
- Expense reimbursements for other overhead, support or direct FTE costs.
When added on to even the lowest hourly rate, these hidden costs can often offset any apparent savings over the seemingly higher rate providers.
Additionally, choosing the lowest hourly cost provider does not necessarily translate into the lowest total cost for the company. Just like judging the size of an iceberg from the surface of the water, trying to estimate a company’s long-term facilities cost by managing the hourly rate tends to overlook many hidden cost components of facilities service.
Consider this: Would you be better off with a plumber who charges $55 an hour or one who charges $75 an hour? On the surface, the answer seems obvious. But what if the former plumber started billing your job 15 minutes before he actually arrived on site, spent two hours working, had to come back for a second visit because he didn’t have the parts and then billed you a second time for the return visit?
On the other hand, the second plumber signed in using IVR phone technology after he arrived on site, had all the required parts on his truck and completed the fix in one hour. Do you still think the $55 per hour plumber provided the lower cost?
If you’re thinking about outsourcing facilities maintenance to provide a consistent level of high-quality services at your retail stores, ask these key questions during your evaluation or RFP process:
1) Does the prospective service provider offer a total cost of ownership business model? This type of model would take into account more than just hourly service rates. Properly managed, a total cost of ownership model enables providers to deliver significant financial and operational results -- without the need to charge incremental management fees. That’s because total cost of ownership offers guaranteed rates that already include the provider’s compensation as well as the cost of services. So it can deliver meaningful results that extend far beyond rates and fixed fees per store.
2) What type of innovative processes and technology does the company utilize to help lower your costs? Based on years of detailed records, some facilities maintenance companies are now creating service histories and standards for key types of equipment in different parts of the country.
So an electrical problem, for instance, can be diagnosed during an initial call from the store manager to the maintenance company’s service center. Because of scripting created with the customer’s input at the start of the relationship, the call center can diagnose the problem over the phone. As a result of this “phone fix,” the service technician is almost never sent -- avoiding any charges and saving your company money. If the technician does need to be sent to perform work, there are innovative processes in place that will ensure you’re billed a guaranteed rate only -- without the add-ons that can drive up your company’s costs.
3) What kind of incentives exist to lower your company’s maintenance spend? Imagine for a moment a retail company that spends $15 million per year on maintenance repairs. If outsourced using the historical model, the charges for repairs would be passed on to the retailer and the outsourcing provider would collect either a flat fee per month or a fee per square foot for their management services. So in the situation in which spending the following year is $14 million, the outsourcing provider would receive just as much revenue as it did before. Ask yourself this: how does this model align the interests of the two parties? Where is the incentive for the management company to actually manage your spend?
Remember, professional maintenance companies that advocate total cost of ownership understand the hidden costs of managing multiple store locations. By using advanced systems and innovative processes to manage them, companies such as FM Facility Maintenance can work with retail brands to help improve efficiency and reduce overall costs. In fact, when companies using the TCO model get the right historical information from a client up front, these companies are extremely confident of the savings they can deliver -- and can create a baseline budget that guarantees reduced costs in the future.
So the next time your sourcing department suggests piloting the future of your company’s facilities needs based on simply comparing hourly service costs, understand that there is more to maintenance than meets the eye.
Jay Leyden is senior VP at FM Facility Maintenance in Hartford, Connecticut. He can be reached at firstname.lastname@example.org.