Attention Retailers & FM Professionals: We Found $20 Billion And It’s Yours

by Tom Buiocchi   Oct 03, 2017

Facilities Management

Are you a retail executive or facilities professional?  If so, we have something for you.

We know there's a lot of buzz about the retail and related sectors, and you’re working to transform your company to compete for the future.  We’d like to help – in fact, we recently found $20 billion and want to help you get your fair share (as I also highlighted recently in a LinkedIn post).

Joke?  No?  Tongue-in-cheek?  Not really.  Nope, this is real.  

In this post, we’ll try to outline our assumptions and the math behind this, let you know where “not” to look to find the money and suggest how you can ensure that you get yours.

$20 Billion?!  Where’s That Coming From?

Well, to be fair, the $20 billion number is from more than just traditional retailers – it’s actually for retailers, restaurants, and other ‘chain-like’ multi-location enterprises (e.g. grocery stores, banks, urgent care and dental units, franchises, storage units, etc.), all of whom manage multiple, distributed facilities.

Retail locationsThere are well over 2 million of these physical locations in the U.S. And these locations utilize external, independent contracting firms and service providers for the vast majority of the repair and maintenance (R&M) work at their facilities (from everyday cleaning and routine tasks to highly specialized equipment work and emergencies).  

What does all this cost?  These 2 million-plus locations spend over $100 billion per year on maintenance and repair.

Ok, how do we know THAT?  Well, we are fortunate enough to serve over 200,000 of those locations - and have some insight into this aggregate R&M spend via a relatively large and reliable sample size.   

So, with a little bit of statistics, we came up with a very accurate estimate of the total R&M spend among these 2 million-plus locations.  It’s about $100 billion a year.

And, that $100 billion is spent highly inefficiently.

Outsourcing Rarely Works for You

It turns out that sourcing and managing hundreds of thousands of commercial contractors who do this $100 billion of work is highly inefficient.  Historically, it’s been done either manually (via phone calls and a rolodex), with spreadsheets (this works to a point), or by relying on outsourcing (I’ll let somebody else try to figure this out; check out other industries for the long term success of this approach).

Regardless of legacy method, the results fall roughly in the same category – underwhelming, and typically disappointing.  

What I am about to say is not a secret – it’s just not talked about that openly in our industry.  

None of these legacy approaches are capable of driving long-term improvements - they are typically reactive and fail to gather and analyze the level of data that you need to proactively identify and quantify inefficiencies, or to build continuous improvement programs.

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Simple Math Shows Too Much Fat

We know that this $100 billion “services supply chain” is rife with middlemen and “cost-adding” layers – brokers, outsourcers, and hybrid companies relying on a thin ‘technology layer’ to obscure the fact that they are in fact middlemen themselves.

It’s not uncommon for there to be multiple layers stacking incremental cost(s) on top of R&M services, so that the price that the customer eventually pays is often several TIMES the cost of the actual work performed by the contractor.

We know the economics of brokers and outsourcers, so the math is not that hard to approximate.  Also, many industry veterans can specify the level of manual effort, re-work, and errors that are associated with legacy processes.

Let’s look a bit more at the economics of “outsourcers.”  We know their cost structure and you know their cost structure.  They have hundreds to thousands of people in the background managing your and their other clients’ repair and maintenance requests.  Often, their contracts actually incent them to not save you money – they actually don’t want to lower costs and headcount on your account because your contract specifies that they then need to pass those savings to you (which lowers their gross revenue).  They are built to be inefficient, and they do a great job of it; yet, sadly, many organizations still look to them for just the opposite effect.

Working with brokers to get work done is another incremental layer that adds costs to the process.  Remember what it used to cost to buy things “via a broker” or a middleman before the internet existed and we could get anything we wanted directly from the seller on eBay or Amazon?  Remember what it used to cost for a black car or limo service that was dispatched to you by Boston Coach, before Uber and Lyft came along?  Remember paying your “travel agent” (i.e., another middleman) fees before Expedia, Kayak and other travel and hotel marketplaces came online? Was this model ever cost-effective?

So not surprisingly, relying on outsourcers and brokers add a big chunk of extra costs to your R&M spend.  But that’s not all.  Too many companies and their facilities departments are tied to manual methods of managing all the work that’s needed regularly, whether planned, on-demand or emergency.

Without taking a modern approach, you’re likely incurring inefficiency and extra costs from manual errors, being subject to excess pricing because you simply don’t know what you’re paying for and getting taking advantage of due to lack of visibility and transparency (e.g., paying for four repair trips when in actuality there were only three).

When you combine all of this information, it’s not hard to come up with the (very solid) estimate that there is AT LEAST 20% of fat in the system.  That’s your $20 billion!  (We’ve tested this estimate with a number of industry experts and the feedback is that that figure is extremely conservative, but we will go with it for now).

OK, Now How Do I Get My Share?

It’s actually not that hard.  The first thing to know is that you won’t get it by working with an inefficient, people-intensive partner, broker or traditional outsourcer.  Think about it for a minute – if you want to drive efficiency and cost savings, do you usually get that by outsourcing facilities management to a company that is less efficient than you are, has no real transparent benchmark data to drive ongoing results, and is often blind to the details of an individual service request and transaction?  

The FIrst Step to Your $20 Billion

Your piece of the $20 billion is right there for the taking.  But first you need to be able to get the transparent and objective data that will allow you to cut out all the layered costs with confidence.  With that you can begin your own improvement program and take control of the cost and quality that your company deserves and needs.   

How do you do that?  You’ll need just two things - modern technology and an organizational will to use that technology to unlock the hidden cost and quality benefits.  IoT, artificial intelligence, machine learning, and marketplace economics are not just buzzwords; they are just a few keys that will unlock the $20 billion treasure chest.  

You’re likely already investing in all of these technologies in the front of the house - for customer-facing activities and merchandising - but it might be that the more immediate benefits and savings are literally “in the building itself.”  You just need to take the first steps to move away from historical models of facilities management inefficiency, and move to systems and processes based on proven, state-of-the-art tech.

There are solutions out there – and yes, ServiceChannel is one of them – but this isn’t about us.  For too long we’ve seen millions, (make that billions) of dollars wasted due to historical models of inefficiency and waste.

Our customers’ businesses are evolving and have an urgent need to be more competitive.  Whether you’re a retailer or in other adjacent industries, we know you are looking for answers and deserve thoughtful, modern, and progressive ideas and responses.

Agree or not, I’d love to hear your thoughts and comments.

Thanks,

Tom

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