“What KPIs do you use to track your outsourcing vendors’ performance?
How is the data that’s feeding those performance indicators being gathered?”
Extracts of an interesting discussion on the outsourcing KPIs started by Joseph Geierman, Senior Facilities Operations Manager (CFM, FMP) at Troutman Sanders LLP, Greater Atlanta on LinkedIn, is highlighted in this article.
Brent H., Vice President – Corporate Facilities Manager at Johnson Financial Group, Greater Milwaukee Area: “I believe the first objective is price. How do you know that you are paying the lowest price possible for the service that you are outsourcing? A reasonable first step to understanding your costs is benchmarking. What are you paying per square foot for cleaning, snow removal, landscaping, asphalt seal and stripe, etc.? Just because you have solicited three proposals for any given service, does not necessarily mean that you have obtained the best price. Many times you will be able to leverage your industry knowledge to lower pricing even further.
“A recent example for us was cleaning. After a thorough review of three cleaning proposals for one of our locations, we noted that the lowest price was $1.76 per square foot. Benchmarking this price against industry standards as well as ourselves has allowed us to leverage industry knowledge and lower our price to $1.43 per square foot. Once you have a strong understanding of what a service should be costing you, you’ll be able to manage it much more effectively.
Moving onto performance, keep a cleaning log book at each of your locations (or at the reception or security desk if it is a single facility.) Ask a key staff member or business partner at each location to partner with you to help ensure that agreed upon service levels are being met.
This approach will give solid information to address any performance issues. Additionally, the general manager at each of your locations will have a strong interest in the facility being properly managed from both a cost and performance perspective. This process will not only help foster strong working relationships, but will also help to align expectations and ensure mutual understanding.
Many Facilities teams manage hundreds of vendors across multiple locations. To effectively manage all of vendors, you will need the help of every eye and ear you can get.
Steve Hanson, I.C.E., J.S. Enterprises, Inc, One Source Facility Care, Greater Minneapolis-St. Paul: Why is lowest price always the deciding factor when selecting a cleaning service or any service for facility managers? That is why they have a reputation in the cleaning industry as being known as PRICE shoppers. Who can give me the lowest price? Don’t you think VALUE should come before price? What’s that lowest service provider really costing you?
I am a facilities manager but I’m not a PRICE shopper I’m a VALUE shopper.
Brent Hess: Cost versus value can be subjective, so taking the subjectivity out of the task at hand, we can go a long way to help align expectations.
A cleaning scope is typically how often will high dusting be completed; how often will the carpets be cleaned; how often will the drinking fountains be sanitized, and so on? Obviously, the frequency will drive the price. The key is to ensure that all vendors are bidding on an identical scope, and have the resources to effectively meet the scope requirements. Cost versus value are not mutually exclusive, and attaining both cost and value is possible.
Additionally, most organizations have more than one trusted business partner for any given service. Our organization has a number of cleaning vendors that perform at an extremely high level – not just one. The same holds true for landscaping: How often do you want trimming to occur, fertilizer applied, bushes trimmed, etc. The key is developing a comprehensive scope that is evenly applied at an enterprise-wide level. When I am asked to manage landscaping services at a new location, I am confident that a number of our current vendors would hit the mark. With a Corporate standard in place, the subjectivity is removed, and the best price can be obtained via a trusted business partner.
Also, as with any product or service, the Facilities team must manage service levels after a contract is put in place. As mentioned earlier, actively seeking input from your business partners will help to ensure that your vendor is performing their contractual obligations.
Scope of Services
I completely agree that in order to develop an effective scope you must rely on the expertise of your trusted business partners / vendors. When we developed our cleaning scope, we interviewed our current cleaning providers to find out what we could do better, what was important to them and were there any areas in their experience that we should focus on more or less. Based on these interviews we developed a scope of services. After the scope of services was created, we forwarded the proposed standards to our vendors and again asked for their review / input. The end result of this exercise was in getting the scope of services that our business partners were comfortable with, and met the needs of our organization.
Moving forward, we have a clearly defined scope that can be utilized to solicit proposals. Defining clean can be difficult, so a standard is useful in ensuring that all providers are bidding on an identical scope. Few things are more challenging to an organization than not being awarded work based on a misinterpretation of the scope. I have found that our
providers truly appreciate having a defined scope for reference, as it takes the subjectivity out of the equation. Additionally, if any of our providers see an area of concern or opportunity, the scope is adjusted and all parties are given the opportunity to revisit their numbers.
Without a standard in place, I don’t believe it is reasonable to expect any provider to bid on something as subjective as “clean”.
Cameron Christensen, Director, Facility Services at California State University, Northridge: That is a great question. There are two issues here; the contract KPIs, and work efficiency KPIs. I would believe that for the contract KPIs it depends on the contract type. We have a fixed fee contract for our custodial services. There are few KPIs that we stress over.
The KPIs that we focus on with our contractors are largely quality-based and not dissimilar to what we hold of our in-house staff. Our contractors and in-house staff are subjected to APPA (Association of Physical Plant Administrators) of cleanliness levels two and three as described in the Operational Guidelines. This helps to ensure that there is a clear standard and that our expectations are clearly communicated.
Regarding performance indicators, we are presently working on refining our processes of inspection and reporting as well as training inspectors on the APPA standards. Our goal is to have a two-tiered approach of training on the standards and electronic data gathering and reporting from inspections. As we understand the standard and compile inspection data, we can analyze where our shortcomings are, re-train, and hold accountable where needed.
Other than the factors that impact the cost of the contract such as those in a cost plus or other variable fee structure, the overall performance indicators that measure responsiveness, cleanliness, efficiency of work completion, etc., would be the same for both contracted and in-house staff. As someone who has worked for both an in-house operation and been the contracted provider, I have found little difference between the two worlds when it comes to measuring the work. Measuring the contract efficiency is a different animal and that would depend on your contract structure.
Frank Mashuda, Facility Manager at Metropolitan Washington Airports Authority, Washington DC: It is my experience that good subcontract specifications must be supported by sufficient, trained staff to perform inspections that accurately capture contractor compliance, combined with a clear and simple process for taking deductions for work not performed. Otherwise the whole contracting process becomes a “cat and mouse” exercise with lawyers that provide neither value to the client nor a partnership with the subcontractor or client. Our focus on cost controls often take us to this reality.
Bob Anderson, Director of Business Development at Facility Source, Florida: In addition to using standard matrix, organizations outsource a provider to:
- Provide resources for staff training and development
- Provide access to buying power from an organization which buys a lot of product and supplies
- Provide subject matter expertise on SOPs, products, and equipment selection
- Provide off campus oversight in regional support or non-site based labour
- Provide advancement opportunity for hourly employees that you cannot offer
- Controlled benchmarking from vendors clients
- Impact on your business. Your business growth/revenue or OEE should be evaluated in perspective to the quality of service delivered. The lowest cost vendor may cost you revenue.
The negative side of these indicators is easy to see.
If your service provider has not had on-boarding and development programs for their employees for a while,
If you can buy the same products off the shelf for the same or lower cost,
If no new solutions or improvements have been provided in months,
If no hourly employee has had to resign to move to a higher paying position within the same company,
If the service provider only provides comparison to the national benchmarks,
If your business is getting complaints about the quality of the service because your facility is not clean or maintenance activities are not performed… then you are long overdue to replace your service provider.
Measuring and reporting these matrix will assure the service provider performs on commitments made during the sales process. There are many other KPIs which will tie to the commitments made during the sale and contract negotiation process specific to your outsourcing objectives. Some of these KPIs change over time during the life of the contract. There should be an agreed to formal scorecard during the contract negotiation and then the living document would be modified with agreement by both parties over time.
The most important thing to remember is that you are hiring an “Expert”. You do not know what you do not know, but you do know why you think you need the expert in first place.