Tony Chazhoor, MD, IPC India explains how doing business with service providers and facility heads differs, and the pros and cons of both.
In terms of percentages, what are the proportions of sales to service providers vs facility owners/FM heads of organisations?
The current trend is indicative of a 70% share of the FM service providers, while the direct buyers and dealers/partners account for the remaining 30%.
How has this mix evolved in the past year? According to you, what is the reason for this trend?
Organisations are looking at options where certain facility management activities can be managed with the utilisation of internal labour & resources, while the other non-core critical compliance activities are passed along to experienced and resourceful FM service providers. Large FM companies are well established and have a lot of trained workforce and bulk purchasing power, so they save money on equipment, supplies and consumable goods, among other things, and part of those savings are passed along to the end consumer.
The cost-cutting trend in the facility management sector has become a more critical necessity than a mere expenditure optimisation measure, and companies are looking to balance their activities.
As a solutions provider, you will naturally have differing relationships with these two categories of clients. Please tell us about what differs in the purchasing process.
With industries/direct purchasers, the process begins with an initial site survey/application visit, and a ‘FACT’ sheet is submitted to the client. Hereafter, the recommendations are discussed with production/plant heads and the terms and conditions like AMC, CMC and service TAT are thrashed out. The technical negotiations are practically over at this point.
Based on the recommendations, the plant team internally shares the procurement request form (PRf). Upon approval of the solution suggested by the seller, the negotiations for price adjustments take place and the vendor registration process is completed.
Once the purchase order is shared by the buyer, the delivery and installation process is quickly completed.
The established FM companies with their large workforce and presence across geographical spheres regularly acquire machinery for their new contracts. The manufacturers/sellers generally directly contact the operations and procurement teams. After the specific technical and commercial negotiations, an RFQ request is shared by the buyer.
Once the quotation is shared, either on a case to case basis (one-off contracts) or as ARCs with key account clients (Where minimum order quantity and price is fixed on an annual basis), the delivery and installation process gets underway.
All things considered, which of these two types of clients is easier to do business with, and why?
FM companies who have their key account clients always have contracts either in hand or as a prospect, because new real estate development is constantly on the rise in a developing economy like ours.
The FM service providers are workforce ready and have their own site assessment teams and a consolidated procurement plan with numbers, depending upon their inventory and new machines purchase plan.
Furthermore, the FM companies are aware of the competitive prices prevalent in the market, thus making the technical and commercial negotiation short and more precise.
What are the advantages and disadvantages of selling to each type?
Direct buyers – Advantages
Generally, industrial buyers with their specialised application-based requirements offer better prices and the payment terms are often prompt and more secure.
In the industry, the market potential is higher as there is a need for specialised solutions which only large OEMs can offer. There is also a largely untapped space which is advantageous for the established OEMs with large portfolios.
Direct buyers – Disadvantages
There are service and delivery challenges due to remote locations of the sites. The ‘concept cleaning’ selling – though rewarding – is a long drawn process. The staff manning the site is generally unacquainted with the machine application, though pharma and food industries may be an exception to this.
Direct buyers/Industry have Capex restrictions and fixed projections due to an allotted annual budget for cleaning equipment.
Service providers – Advantages
A quick sale is one of the advantages. The other is the references a manufacturer can get from an FM company’s end client. In many cases, FMs have their own service staff, so the breakdowns can easily be fixed and the downtime reduced.
Service providers – Disadvantages
The payment terms can be drawn out over a period of time. The profit margins are low and they are finally bound by the end user specification, where the FM companies have to comply and deploy specific machinery, notwithstanding their understanding of the merits of other solutions.
In the coming years, how do you feel this balance of clients will evolve, and why?
Although there has been some perceptible shift towards in-house facility management due cost cutting – leading to direct
buying – the outsourcing of facility management shall continue to be the largest segment of the FM industry.