The front office of a property receives a lot of attention and priority from the corporate office, and for good reason. This is where leasing takes place and rent is collected. Obviously this is important for revenue and cash flow purposes. However, the back office deserves appropriate attention too, for this is where a property really makes it or breaks it. How the property is maintained affects “curb appeal” and MRO expenses (which impact the top line and bottom line respectively).
Maintenance, repair and operational (MRO) products needed for the upkeep and beautification of a building are the largest controllable expense for a real estate company and making intelligent decisions on where these property management supplies are purchased can have a meaningful positive impact on NOI. Piecing together a procurement strategy for apartment management supplies can be an overwhelming task. Below we look at 3 questions that will help you put a framework to buying MRO supplies in order to drive efficiencies and improve spend management.
How quickly are the MRO products needed?
The first step when searching for where to find property management supplies is to identify the urgency of the need. Did a water line break and new pipes are needed asap? Is a new security system going to be installed next week? Is the weather going to cooperate in the next few days to complete the curb painting?
If products are needed same day, big box stores offer convenience in their broad inventory and large footprint around the country. They are also setup to be more efficient for bulky items that are relatively low cost. The downside is someone must drive to the store to shop for and buy the items, meaning that person is away from the property and consuming gas driving around. In addition to paying a premium for convenience, shopping big box stores for all purchases may lead to lower productivity and higher travel expenses.
If urgency is not immediate, say products are needed in the next day or two, MRO distributors specific to property management offer more relevant products at competitive prices. Products are shipped via UPS or FedEx and typically arrive within a day or two. Many MRO distributors offer pricing discounts for repeat customers and free shipping to the door of the property, saving on those off property travel costs. If you can wait, you can often find better values on MRO supplies through a distributor.
Do you have group buying power for MRO supplies?
If a property has enough volume of purchases or a portfolio has grown to several locations, often you can negotiate with vendors to receive discounted pricing based on a company’s combined buying power. For example, if 10 properties are buying from the same paint company, a master contract can be put in place so each property that buys paint from that company pays the negotiated price. Whether it’s called a pro, professional, commercial, or contractor discount, negotiated vendor contracts are a great way to save on MRO products like paint, janitorial, electrical, plumbing, flooring, appliances and office supplies.
While negotiated MRO supply contracts may save money, they open a new set of challenges. Negotiating with multiple vendors and then managing the various contracts takes time and additional resources (think legal review). Compliance also becomes an issue at the property level. The local managers need to be trained on the different contracts and which MRO products should be purchased from where. This creates a shopping mall type of environment where you have to go to multiple stores to checkout the best prices. It can be a hassle for stressed property and facility managers, and they may just return to buying MRO supplies where it is convenient (and more expensive).
Joining a group purchasing organization (GPO) may be a faster way to access discounted pricing with multiple MRO supply distributors. A GPO negotiates with each MRO vendor based on the buying power of the group and then creates a master account; each member of the GPO then has access to the discounted pricing in their respective sub-account. Some GPOs charge a membership fee, while others make money through a referral agreement with the vendors. There may also be additional negotiations for the property management company to iron out payment terms directly with the MRO supply companies. In addition, facility managers still face the shopping mall procurement experience where they must go to each MRO distributor individually.
If you don’t want the hassle of negotiating MRO vendor contracts, a third option is a hybrid model that Purchasing Platform created in 2012. We negotiate all the contracts with MRO suppliers, manage them to ensure price compliance, and make it easy to implement across properties by centralizing the ecatalogs into one website and one checkout experience. To learn more how property managers can quickly start buying MRO supplies at discounted prices, contact us.
What internal controls and reporting are required to buy property management supplies?
Many property managers and facilities staff are handed a budget for maintenance, repairs, and operations and then trusted to buy the MRO products as needed. This “hands-off” approach places significant trust with employees to make the best decisions appropriate for the building or property. While they may have local knowledge or category expertise, the decisions they make may not fit the budget or corporate strategy, resulting in higher expenses and lower NOI.
Visibility into what is being spent and where is not a specialty for MRO supply distributors. True, they may have some reporting capabilities, but their main businesses is supplying MRO products. This is where an eprocurement or esupply platform helps. This technology enables automated workflows that send alerts to supervisors in real time. This means you can see spend before it actually happens. Being able to approve or deny an order before a purchase is extremely valuable and saves a lot of headaches when trying to sort out maverick spending after the fact. In addition, a regional manager or supervisor can ensure the right products and in the right amounts are being purchased for certain jobs.
E-procurement or e-supply technology also offers enhanced reporting. The data around each property management supply purchase is captured in the system and with the right reporting tools can offer a holistic view of MRO purchases across locations. This ‘eprocurement for property management’ software allows greater insight into and reporting of MRO supply purchases throughout the portfolio, enabling asset managers and the corporate office to gain more analytics and control over spend management. Drilling in to expenses by property and by manager is simple with this technology.
In the end, where to buy property management supplies depends on the size of the portfolio and the urgency in which the MRO products are needed. Starting with these 3 questions helps narrow down the choices that are available in the market. To discuss these questions with a procurement specialist, reach out to Purchasing Platform today.