Compliance and rogue spend and purchasing, OH MY!! While these words seem daunting, they are key to staying on budget and increasing net operating income (NOI). In order to fully map out a purchasing strategy, you need to define what compliance means for your organization and communicate that to your employees.
What is rogue spend? Rogue spend involves the items purchased from suppliers outside of your approved purchasing policy and can be simply minor leakage from negotiated contracts or grow into a larger problem of uncontrolled spending. This unregulated spending can account for 25-80% of your organization’s total spend.
To make this process easy for you, we have compiled a list of 4 action items that you should take to fully map out your purchasing strategy to remain compliant and avoid rogue spend.
1. Determine and Identify What Non-Compliance is Currently Costing Your Property Owners
Conduct an analysis of your organization’s spend patterns over the past 12 months. Keep it simple by focusing on maintenance, repairs and operations (MRO) expenditures to get started. Once you compile the appropriate data and analyze it, you will see distinctly identifiable trends and anomalies. You will most likely find that your portfolio is purchasing numerous different makes, models, quantities, etc., of the same product types. More importantly, you will see that by standardizing products and processes, you will be able to save significant sums of money on an annual basis.
This exercise will take some time, but upon completion, you will have concrete and compelling data related to savings. If you don’t have the internal resources to accomplish these tasks, there are industry resources that will perform these services at no cost.
2. Redefine What Compliance Means for Your Team
The reality is that when we refer to compliance, we are talking about being consistent, efficient, and finding ways to purchase goods and services with an intelligent and cost-effective process. Create a new moniker that will resonate with your staff. Instead of compliance, promote standardization and efficiency.
3. Share Your Findings with Stakeholders
Providing empirical data showing potential savings that can be realized through collective action will help to gain the support you need. In addition to hard dollar savings, there are other significant benefits associated with standardization including:
- Access to a catalog with fewer choices to streamline decision-making for staff, saving execution time and effort
- Opportunities to coordinate bulk orders lowering per unit cost and reducing paperwork
- Standardization of R&M products, reducing the cost and complexities associated with future maintenance
4. Map Out Your New Plan
Now that you have explored standardization and shown why it is important, use this moment to create a team-building exercise. You will need to obtain their help in designing the program, communicating the merits of the initiative(s), defining how reporting will be set up, and determining the best way to employ technology. Give your team a stake in the results by linking financial incentives to successful outcomes.
Group Purchasing Strategy
Building an effective procurement compliance strategy is not trivial, but if you can pull it off, you will create an environment where reporting is improved, employees are more productive, and lasting savings for your company are realized.
Partnering with a group purchasing organization (GPO) can help you navigate this process as well as manage your spend. By utilizing the contracts within a GPO’s portfolio, you gain cost savings as well as other benefits, including a partner to navigate the current rocky market. A GPO can help you track rogue spend and ultimately decrease the amount of it your organization is experiencing.
Ready to get started? Contact us today!