Strategic Supply Partners Save Money, Effort and Time

Creating Service Excellence By Building High-Value, Supplier Partnership Networks

Invariably as corporations expand geographically so too does the number of product and service vendors unless held in check.  According to research from The Hackett Group, a leading consultant in the field of lean procurement and supplier relationship management systems, building collaborative partnerships with strategic suppliers with extensive capabilities and geographic reach not only reduces hard costs, but also accelerates administrative productivity creating even greater financial gains.  “With fewer suppliers, the number of distinct transactions fall, as does the amount of time it takes to manage those supplier activities, thus increasing the organization’s overall capacity,” says The Hackett Group study.

 “It costs roughly $700- $1,400 in internal costs per supplier (i.e., labor, outsourcing, technology and related overhead) to source each supplier, set it up in internal systems, transact with it and manage the relationship,” says The Hackett Group.

Figure 1 Supplier Consolidation Leads To Higher Procurement Efficiency Overall

Companies in industries experiencing either rapid growth or growth-by-acquisition (industry consolidation) face intensified operating cost structures.  This places even greater attention and urgency on lean practices and building formidable supplier relationships by category.

“We’ve seen this trend recently in commercial property management as Heartline now takes care of major property portfolios for Avalon Bay, Bozzuto, Equity Residential, and UDR on the east coast as it relates to their amenity fitness spaces,” says Heartline Fitness president Bob Burgess.  “These groups are under enormous operating pressure and are looking for creative solutions to keep costs in check while improving customer experience,” he adds.

Efficiency Gains By Applying Technology and Technical Manpower

“In Heartline’s case, it takes a substantial investment in technology and technical manpower to effectively manage portfolios of this size and geographic reach,” says Burgess.  However, if successful, these corporations can benefit greatly because they are now able to call on one strong provider, have one point-of-contact, and receive one invoice to handle their portfolio needs versus using a plethora of disparate suppliers with varying capabilities in different locales.

With fewer suppliers to manage, number of transaction (and dispersed communications) drop considerably as does the time it takes to communicate with a large and growing supply chain.  According to Jeff Shipman, president of Heartline Technical Services, “By managing a large portfolio of fitness centers, we’re able to take deeper data dives based on product brand, model, and geography, and develop more predictive repair patterns.”  Shipman says,  ”This allows us to model potential product failures, while having the right parts available if failure occurs.   “Consequently, this expertise and cost savings accrue directly to the client’s benefit,” he says.

Certainly, the combination of more intensely competitive B2B climates and the advent of more cost-effective, cloud-based technology solutions has created substantial supply-chain and lean improvement opportunities.    Interestingly, these options not only lower operating costs and improve efficiencies but also elevate both the customer and stakeholder experience.

Case Studies: Commercial Property Management Improvement

  • In the case of commercial property management, consider the improvements available in the sheer ease of doing business.  For example, amenity service software provider, Amenify, is now able to connect to an existing building services platform, allowing management and “residents” access to their key amenity services and information.
  • In the case of Heartline, Heartline’s customer account data base could be bridged to Amenify or directly to the client’s legacy platform, which in turn allows the client access to critical fitness center data (asset inventory, frequency of use, machine availability, service and payment histories, etc.) all tied to the building’s system. Again, ease of use drives deployment, as one login (by management and/or the resident) drives access to the required service or performance data.

Traditional return on investment (ROI) calculations multiplies operating efficiency (margin) by capital efficiency (asset turnover). Whereas “lean” principles concerning supplier network and supply-chain consolidation changes the financial frame of how to improve ROI by solving problems through continuous improvement.  This leads to continuous organization learning, resulting in continuous improvements in operating and capital efficiency,” according to Michael Balle, author of The Lean Strategy.  “Time is currency!” he adds.

Below illustrates the case of the Wiremold Company before and after they implemented lean practices driven by supplier consolidation over a ten-year period.

Figure 2:  Wiremold Company:  Lean Strategy Results
Lean Strategy Results

Former General Electric’s CEO, Jeffrey Immelt, transformed GE digitally to a cloud-based, open operating system allowing it to connect globally to industrial assets, collect and analyze data, and deliver real-time insights for optimizing industrial infrastructure and operations.  Immelt says, “Picture a train or what we used to call a locomotive, now we call it a rolling data center.” We can monitor fuel performance and increase it, we can learn instantly when a wheel is broken and run the train more safely while increasing utilization,” he adds.

At Heartline,  smart, cost-effective technology solutions combined with strong service capabilities and client-supplier partnerships can absolutely move the business (property) performance needle.