Reducing Retail Facilities Costs
Introduction
A national retail chain hired a new head of facilities to identify opportunities to reduce spending at its corporate offices and 1,200 stores. He was a seasoned facilities manager with over a decade of experience in similar roles. After a thorough assessment, he identified several key areas where the company could reduce its facilities costs, and needed an actionable plan that he could present to the executive committe.
Background
The retailer outsourced its facilities maintenance to a leading management service provider, who used a proprietary software system to manage work orders and invoices. Stores would first contact the retailer’s call center, who then submitted work requests in the proprietary system on the store’s behalf. The call center was well staffed, and was very focused on providing best-in-class service to their stores. They were constantly looking for ways to do more, and were given the bandwidth and resources to suggest and implement improvements.
Challenge
The management service provider's invoices were not itemized, making it difficult to track spending on parts and labor. The new facilities manager's analysis showed that the company was spending roughly 50% more on facilities maintenance than comparable companies. The lack of a centralized system for tracking and analyzing costs made it difficult to predict and budget for future service requirements. The system also lacked key information needed to budget for annual capital replacement projects. The company's reliance on outside providers created a culture where store managers and staff neglected routine maintenance and cleaning tasks, which led to more frequent repairs and a negative customer experience.
Response
I partnered with the head of facilities to report his findings to the executive committee. The findings included a steady increase in service costs over the previous five years. Rather than reporting on the standard breakdown by cost type, store characteristics and geography, we instead focused on the value of the key metrics that their current management service did not provide. Comparing the current expenses to industry benchmarks, our analysis showed that they were indeed spending almost 50% more than should be expected. With this information, the committee was firmly in agreement that a change was necessary.
The more difficult issue was how to lower these costs, since hiring in-house maintenance teams would have been cost prohibitive. We laid out a plan for the call center team to:
Create a contact database for major service provider types, including locksmiths, window washers, plumbers, and electricians.
Collect whatever information was available on service providers near each store. In a few cases they had previously worked directly with skilled trades outside of the management service, but in most cases they would need to start from scratch.
Identify multiple highly-rated service providers within a 30-minute drive to each store in the cases where no previous records existed
Contact each service provider in the database to enroll and negotiate prices and terms for standard services
Leverage the call center’s request system to manage feedback, by soliciting and aggregating feedback after services were performed
In addition to the call center activities, we established a formalized checklist of regular light maintenance and cleaning activities to be performed by the staff at each store, which was tracked in the call center ticketing system for compliance.
Result
The company exercised an early-out clause in its contract, using the management service's inability, or unwillingness, to provide detailed historical cost information. In the first year, they had lowered their average service costs per store by 38% over the previous year, and established a more accurate baseline for forecasting purposes and for further savings. They later leveraged the new system to generate an inventory of major operational assets, giving them the ability to initiate capital replacement projects from a list of assets meeting certain criteria, saving thousands of dollars annually per store.