MOHD NAZALI MOHD NOORSUKULPAT KHUMPAISALLiverpool John Moores University

What is this paper about?

FM and SCM?

Why Chen and Paulraj (2004)

SCM theoretical framework?

How does it relates to FM service

delivery?

Conclusion and Q&A

• Part of literature review in the author’s PhD research.

• SCM in relatively new in FM and very little literature or documented evidence available in this field (Nelson, 2004)

• Provides a fresh literature overview on the application of SCM in FM service delivery

• Our paper emphatically focuses on Strategic Purchasing and Supply Management elements.

• Effective and efficient management of SC shows that 60% 60% of variable costs are driven by decisions made outside the organisation (Ross, 1999)

• Effective management of SC would enable optimisation of the SC as well as the control and management of these variable costs.

• Considering the fact that facilities account facilities account for as much as 15%15% of an organisation turnover, this would imply that at least 9% at least 9% of the organisation turnover can be effectively managed and controlled through successful management of the FM supply chain (Nelson,2004).

• SCM in FM needs to be developed at strategic, tactical and operational level.

Mohd Nazali Mohd Noor

• Confusion over several SCM terms:-– network sourcing, supply pipeline

management, value chain management and value stream management;

are among the synonyms that lead to confusion due to overlapping in its meaning

– Difficulty to agree upon a single definition of SCM due to the multidisciplinary origin and evolution of the concept from different point of view in different body of literature (Croom, Romano et al., 2000)

Type of SCM Viewpoint

Description

Functional Companies SCM are formed based on a separate functional paradigm of individual departments. No interdepartmental link is established within each functional section.

Procurement Focus on the context of supply in supply chain. Initiative on relationship with supplier is critical as part of company’s sourcing initiatives.

Logistics In this context SCM deals with movements of physical products from productions to end users involving transportation and warehousing management.

Information System The focal point in information system is sourcing a better interfacing of SCM mechanisms between internal-external links via the application of information technology.

“BPR” and Operations Innovation

BPR focuses on waste elimination and quality improvement process This viewpoint of SCM underpin BPR to be adopted across multiple companies within the SCM as an effort to maintain competitive advantage.

Strategic This viewpoint pursues SCM as holistic approach and vital strategy for organisation sustainability.

(Ayers,2006)

• Chen and Paulraj (2004) provides a comprehensive analysis of multi-disciplinary, wide-ranging research on SCM through examination and consolidation of more than 400 400 articles articles from diverse disciplines.

• They develop a theoretical framework that focussed on the problem and opportunities associated with SCM.

Mohd Nazali Mohd Noor

SCM in FM

• Perceived as system used in the delivery of services to support business objectives of an organisation.

• Involves the entire FM stakeholders (Nelson, 2004)

• The FM buyer-seller supply chain or relationship network as described by is coined from the functional units and their suppliers through the core business and its customers (Barret, 2000)

• SCM are known as relationship network (Barret, 2000) or collaborative relationships (Lehtonen, 2006) in the field of FM.

Innovation in FM SCM• Vertical integration and shift

of key players’ roles in the supply chain hierarchy will largely depend on the function of FM in an organisation.

• The level of innovation through the FM supply chain is becoming more apparent and vital as the role of partners moves from non-core FM functions (Level 1) towards the strategic role (Level 5) in the SCM relationship

Source: Barret (2000)Figure 2: Hierarchy of FM Relationship

Strategic Purchasing – The FM Dilemma

• Unlike other sectors, Then (1999) argues that the likelihood of companies to embody real estates and facilities services as a strategic or corporate resources are still lacking.

• FM is seen as support service without any strategic importance (Salonen, 2004)

• FM services provided as standardised, easily available and replaceable in the marketplace and lack of competitive advantage from the aspect of technical

differentiation (Lehtonen, 2006)

• Varcoe (1993) views contradict to Salonen (2004) and Lehtonen (2006) since FM act as enabler that critically contributes to a success of any organisation.

• Facilities related costs are substantial and must be managed effectively thus justifies the importance of strategic purchasing implementation for procurement of facilities related services.

• Then (1999) suggests that organisation needs to reflect the facilities dimension in its strategic business plan and further suggested three FM requirements in any organisation setting.

Strategic Purchasing – The FM Dilemma

Then (1999) FM Strategic Purchasing Dimension

Description

1 The requirement for an appropriate linking mechanism for

considering facilities implications of business decisions by promoting meaningful dialogue between business corporate planners and real estate/facilities personnel.

2 The requirement for management processes to continuously monitor the strategic relevance of facilities provision and operational requirements, and monitoring their performance over time.

3 The requirement of appropriate skills and competencies within the real estate/facilities function to monitor and continuously review procurement strategies to take advantage of advances in technological development and market offerings on the supply side.

Source: Barret (2000)

Supply Management in FM

• Communication• Supplier Based

Reduction• Long Term Relation• Supplier Selection• Supplier Certification• Supplier Involvement• Cross-functional team• Trust and Commitment

Communication

• Poor communication hampered supplier performance• Information chain must be translucent• Two way information sharing to ensure effectiveness in

FM service delivery.• Partners must defined types of information to be shared,

parties that are responsible for data gathering, which organisation level attend relevant meeting and frequency of discussions.

• Discovery of new ideas during interaction must be propelled towards mutual benefits to develop efficient FM services concept to achieve cost savings and value for money (Lehtonen, 2006)

Supplier Base Reduction

• Supplier reduction is an effort to reduce administrative and transaction costs associated with management of numerous suppliers

• The level of relationship between buyer and seller is determined by the significant value or cost saving that can be obtained in reducing the frequency of transactions to occur,

• Traditional sourcing strategy evidenced that FM services are procured from individual service specialist being price as the critical factor for vendor selection.

• This approach lead to fierce competition among the FM suppliers resulting negative impact to the service quality (Lehtonen, 2006(a)).

Supplier Base Reduction

Varcoe (1993) states that FM supply base originates from three broad supplier categories known as:-

• Total FM suppliers• FM companies and • Services suppliers.

• Consolidation of supplier based in the delivery of FM related services through total facilities management is achieved through three modes of bundling mechanisms.

• a. By bundling the range of several FM services in a single site,

• b. To bundle single FM service to several sites owned by the clients (Ventovuori, 2006) or

• c. combination of both bundling strategies

Long-term Relationships

• One of the most important criterions in the SCM

• As the supplier becomes more familiar with the vision and culture of the client’s, effective lasting effect will be translated through producing impetus value creation in the SCM.

• How long?• In FM context, a strategic FM

relationship should exceeds the operational partnering that normally set to three to five years length.

FM Long-term Relationships

Relationship type Descriptive characteristicsArm’s length relation Short term purchasing

Non-strategic and standardized serviceMultiple service providersSelection of service provider is mainly based on priceSmall or diversified real estate portfolioNo mutual goals or relationship development activitiesInteraction occurs on the operational level and is mostly problem-driven

Operational partnering Bundling of sites or servicesService is technically demanding3-5 (preferred) service providersCompetitive bidding with multiple selection criteriaHomogeneous or clustered real estate portfolioMutually agreed goalsSystematic interaction between different organizational levelsContinuous development

Strategic partnering Service package includes management servicesStrategic importance of purchase is highLong-term co-operation and loyalty1-2 service providersClose negotiations to select service provider and define specificationsShared vision and mutual strategic goals for relationshipExtensive information sharing also including strategic information

Client’s core business is usually real estate related

Supplier Selection

• Supplier selection process plays a significant role in the SCM since their performance has a direct financial or operational impact to the client’s business (Chen and Paulraj, 2004).

• The client’s decision on duration of contract to be awarded to FM supplier is also known as an important element in the selection process. In shorter contract duration, the buyer tends to be influenced by factors such as value for money, change in client organisation, vendors past performances, technological changes and FM supply market dynamics.

Supplier Selection (cont’d)

Characteristics Pointer to shorter contract duration

Pointer to longer contract duration

Range of services Narrow Wide

Number of locations Few Many

Number of services Simple Complex

Risks Low High

In-house team Large Small

Specification type Activity Performance

Total cost Low High

Supplier role ‘Contractor’ ‘Business Partner’

Source: Burstow (1994)

Supplier Certification

• It represents the vendors abilities to achieve accreditation by delivering its product or services through a buyer assessment process, in terms of quality and cost reduction. (Chen and Paulraj, 2004) .

• International standards such as ISO 9000 or 14001, drive the FM companies to improve their quality of services, in order to achieve these as well as to position themselves in competitive market.

Supplier Involvement

• This process provides an improvement in terms of cost and time reduction and quality of products. This process should be implemented in FM area within operational and strategic partnering contexts.

• The longer of contractual duration enable FM providers to be cooperatively involved throughout the overall business operation. (Lehtonen, 2006).

Cross-functional Teams

• The interactions amongst each stakeholders in the whole supply chain scheme (Chen and Paulraj, 2004).

• Cross-functional teams shall interact either at the strategic, tactical or operational level of FM deliverables, those must also correspond to the needs of the clients (Nelson, 2004).

• A success in managing cross-functional teams within the SCM will assure that the FM services are delivered in the most cost effective, value for money and ensure that clients obtain optimum benefits.

Trust and Commitment

• Effective SCM rests on the establishment of a virtual organisation that is formed from several entities that compliment each other to achieve common objectives.

• The success of the FM alliances must be founded with high level of trust and commitment between all parties in the SCM, in order to maintain their relationships. (Chen and Paulraj, 2004; Lehtonen, 2004).

Conclusions

• Supply Chain Management (SCM) in Facility Management (FM) shall be implemented, because of:

– It help the organisations to formulate the sustainable purchasing strategy

– It contribute more effectiveness to the organisational supply chain

• There is important to bridge the gap between the demand and supply of FM service delivery through innovative partnership approach.

• It is recommended to address more studying of SCM in FM, whether quantitative or qualitative in the future.