Trimming a $2 million annual cleaning bill spread across 120 sites and 30 service providers sounds tough. Add a hostile and very public takeover to the mix, and you have what appears to be an insurmountable challenge – one that many organisations would consign to the 'too hard basket'. But by turning to outside help, Patrick Corporation was able to pocket savings on cleaning of over $400,000 – without compromising on quality.
Patrick Corporation needs little introduction. The company has developed an integrated network of freight logistics operations delivering efficient transport solutions across all modes – rail, road, sea and air. With a turnover over $1.2 billion and a workforce exceeding 5,500, Patrick can lay claim to being one of Australia's largest and most successful businesses.
However like many companies that have grown rapidly through a process of mergers and acquisitions, Patrick risked becoming a victim of its own success. Embarking on a process of centralised procurement, the company faced a mammoth task when it turned its attentions to the corporate cleaning bill.
Pinpointing an exact cleaning cost was a challenge in itself. No accurate data was available because as Patrick's National Procurement Manager – Richard Jones –explains, "The process of recording cleaning costs was fragmented. Different cost codings were applied to cleaning – something that's common in large organisations that haven't embraced procurement on a group basis." The company was being serviced by over 30 different contractors, thereby cutting short any potential economies of scale.
The multi-site nature of Patrick's operations made their cost reduction project an onerous one, potentially draining staff time and resources. Moreover, Richard Jones says, "Each one of Patrick's premises has unique cleaning requirements. Discoveringand documenting those requirements was extremely involved."
On top of the logistics involved, tidying up such a massive cleaning bill called for delicate footwork. Again, Richard Jones elaborates, "The rewards are there, but cleaning is a challenging area because of the emotional element. Different sites get to like their cleaners and often show a real resistance to change. There are implementation issues too. If service is not what it was in the past and your people aren't happy, cost concerns can go out the window immediately."
A key to reducing cleaning costs is aggregating requirements to access discounts associated with bulk buying. As Richard Jones points out, "A tender for a $1 million contract will elicit a different response from a tender offering $10,000 worth of business." A vital first step is understanding the nature of an organisation's cleaning needs, providing a clear picture of the services up for tender.
Faced with such an enormous task, it made sense for Patrick's to outsource the project. Richard Jones says the company simply didn't have the resources to facilitate such a major undertaking, and the services of
Expense Reduction Analysts (ERA) were called upon.
ERA's National team consisted of Pamela Mason (Client Manager), Robin Dunlop (Project Manager), Colin Rymer, Brad West and Avo Carreira (Category Specialists). Visiting over 70 sites, the process ranged from identification of current practices, development of tender specifications, compilation of final cleaning contracts and ongoing
implementation management.
Following ERA's analysis of Patrick's cleaning expenses, the company moved from using 30 different cleaning organisations to six, a culling that has been instrumental in achieving economies of scale. Patrick slashed its cleaning bill by 24%, adding $426,000 annually to the company's bottom line.
Even better, the reduction in costs was made without a corresponding cut in service quality – an important consideration given the sensitive nature of cleaning.
Richard Jones says, "Cutting cost doesn't have to mean cutting quality. Some of Patrick's sites were paying high margins relative to market rate and in other cases sites were over-serviced."
The experience of Patrick Corporation confirms that significant cost reduction is achievable even when corporate resources suggest otherwise. What's more, in a potentially emotive expense category, it can be done in such a way that all stakeholders reap the benefits.
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20-Aug-2007