Protecting your piece of the Pie

You worked hard to get the account at one of the largest companies in town. You overcame tough-to-please occupants or difficult-to-clean areas of the building and went on to win the account when it was put back out to bid. Your customer contact appreciates your quick responses and is proud of your low complaint levels.

Your reward? Well. The customer’s corporate office just mandated that your account be bundled with its other facilities in this region and the bidding process will start in a few weeks.

“Thanks for all your hard work,” says your local contact, “I wish I could keep you in here but I don’t have any say in the matter. I’m just as upset as you are.”

Welcome to vendor consolidation. Please take a number and wait with the other angry building service contractors seething in the corner.

Vendor consolidation attempts to reduce the number of service providers with whom a customer contracts to a more manageable amount. While that could mean one sole provider for a company’s facilities across the nation, it also can mean a few providers covering regions, or even local providers handling an array of services for a facility.

Not every contract situation unfolds as the one mentioned above, but enough BSCs have seen customers reduce vendors in the last few years that it has some of them worried about how well they can compete if a client changes outsourcing strategies.

It’s true that today’s national janitorial providers continue to capture bigger pieces of the nation’s outsourcing pie with multi-million-dollar, sole-sourcing accounts. And to do so, another, smaller BSC must lose their slice of the pie. But just as many customers are weighing the benefits of regional or local providers — which means these companies still have their place at the table. In fact, these smaller companies could position themselves to get that bigger piece of the pie themselves.

The source
The first step in surviving vendor reductions is to understand what customers hope to gain from such a move. Then, it’s up to BSCs to position their companies to provide those things and secure their spots on the narrowing list.

In all, the goal is to reduce costs and improve efficiencies — something gaining even more importance for companies trying to become more fiscally conservative to stave off results of today’s recession.

Savings fall into two categories: lower pricing for services and the reduced “soft” cost of doing business, which comes in the form of paperwork and management hours.

At the same time that cost is a major factor, BSCs should realize that large shifts in vendor management also are connected to changing corporate strategies reaching throughout an organization, says Vince Elliott, president of Elliott Affiliates, a Baltimore-based outsourcing consulting group. These decisions come from the corporate level and often local managers have little say in the matter.

“I admit that if my corporation tells me we’re outsourcing all of our region to one bidder I can’t do much about it,” says Bob Traeger, a Cushman & Wakefield general manager in Minneapolis. “And I know my contractors fear that happening, especially since we have local, regional and national players all serving different facilities here. So it would come down to who best fits what corporate is looking for and any one of them might be out in the cold.”

Chicago-based Bank One Corp. has been working to consolidate vendors since its new chairman came to the company in 2000, says Stan Lata, company spokesperson. The entire corporation was given the directive to “think more like owners and strive to provide the best service in the most cost-efficient way for customers.”

So far, the shift has saved $1.2 billion in vendor-related costs, says Lata. And a special strategic contracting group reviews almost all outsourced contracts.

Hines, a national property management firm based in Houston, looks to its customers to decide how many contractors are necessary for various accounts, says spokeswoman Kim Jagger. While some customers want to reduce their service providers down to smaller numbers, others prefer more localized service, she says.

“It really is a matter of corporate culture,” says Elliott. “So whether it’s a company you already serve or one that you are trying to bid on, you need to be atuned to that culture to understand whether vendor reduction is a possibility.”

The good news is that already being in one of a company’s facilities can go a long way toward gaining favor during vendor consolidation for many local and regional BSCs who have what it takes to meet that customer’s new requirements, says Traeger.

That especially is helpful when companies choose to regionalize contracts rather than nationalize them.

“During these types of bids, we’re seeing the customers finally realizing that if they get a half dozen companies bidding on their business that the pricing is going to vary by competitive nature. And if there are, say, four regions, they may have some bidders who are more competitive in those areas than others, making it more economical to have two to three vendors rather than one," says Bob Jenkins, vice president of sales for the National Service Alliance LLC, which bids for national and regional accounts on behalf of 26 member contractors.

“Often times, national providers are a product of their regional management anyway,” says Traeger. “So it is easier to compared them more equally with regional providers in those same locations.”

While Cushman & Wakefield have some sole-source accounts in facilities they manage across the country, he says the Minneapolis area leans toward individual providers for each account in its 5 million square-foot portfolio.

One reason to not consolidate is that if property management firms are involved, they often don’t want to give a contractor too much power that there no longer is a need for the management firm, Traeger admits. “It might sound cold, but we want to stay in business too. Not to mention I want to know what is going on in my building and I don’t want to go to another contractor who is in charge of six different services or locations to find that out.”

Another reason some companies won’t choose to sole-source is because they’ve chosen to have more control over their contractors, says Elliott. He recalls one company that had 2,600 locations that decided the best way to manage facility services was to hire local and regional contractors directly and create an internal infrastructure. It set up a call center and local area managers to manage the contractors, rather than go through property management firm or large national contractor.

“They looked at the numbers and realized they would be spending 25 to 30 percent of their $8 million outsourcing budget to pay a middle man and it was cheaper for them to do it themselves,” Elliott says.

Savings also could play into why large corporations continue to keep a small, rural provider when consolidating. “If you are the best provider in a small, remote location, it would cost another company more to bus in workers just for a few hours work and the customer knows it,” says Elliott.

Determining your own future
Contractors have two main approaches they can take to make the best of vendor consolidation situations. They can be proactive and expand existing accounts before the customers thinks of doing it themselves. Or, if that isn’t an option, they can do their homework so when that day comes, they know how to work within the changing system.

“The more services we provide the harder it is to turn us loose,” says Dannette Young, vice president of sales for United Building Maintenance, Dallas. She and president Texas Allen prefer to offer vendor reduction options themselves, rather than try to fight a corporate decision later.

NSA members take the same approach. If one regional BSC learns that its customer is expanding contracts or wants to increase efficiencies, that person lets the customer know about the NSA’s national scope. That way the regional still keeps its business, if not gaining more, and other members gain additional work.

In addition to keeping a look-out for ways to capture more business, contractors also have to do their own digging and suggest the benefits to their customers.

“If you want extra business, when you go to property management firms you need to do your homework and know where else they operate and what it would cost to clean in those markets,” says Young.

The toughest problem with this strategy is running into areas where labor costs are higher than where you already service, making it tougher to offer an across-the-board price structure, adds Allen. Some times you just can’t beat the locals in this case.

And not every customer will bite at the offer to handle more business without corporate mandates to do so. That means BSCs need to maintain solid relationships with their customers throughout the length of their contracts so when the right time comes they can move into position.

“Many outsourcing relationships fail because one or both parties has poorly maintained their part,” says Bill Hall, president of Pretium Partners Inc., Columbus, a sales training and consulting group that has researched outsourcing trends.

“To manage relationships right, contractors need to have processes in place to properly manage services and maximize performance, as well as handle problem resolution, out-of-contract issues and services, and contract disputes,” he says.

One part of relationship management is making sure the BSC continually works with the customer to measure quality and service levels. It’s absolutely critical to involve the customer so that person will remember how well the BSC has performed when it really matters most.

Contractors also have to endear themselves to upper-level executives who could be outside of the local area they currently serve.
A chief operations officer always will be involved in large outsourcing decisions, as will the chief financial officer, and any high-level operations vice presidents or directors. One way to start a relationship with these people is through someone they already trust, such as your local contact or someone entirely outside of the company.

If that is not an option, BSCs need to attempt a cold call, says Hall. But must do so with the utmost care and precision.

“To cold call, you need to have a very strong initial value statement that gives them a reason to meet with you — a compelling business reason to allocate precious time,” he says.

BSCs need to remember that just because vendor consolidation often happens at the corporate level, that doesn’t necessarily mean the customer will overlook existing BSCs. They may be more impressed with the savings such contractors provide than people would expect.