MOHD NAZALI MOHD NOOR
SUKULPAT KHUMPAISAL
Liverpool John Moores University
What is this paper
about?
FM and SCM?
Why Chen and
Paulraj (2004)
SCM theoretical
framework?
Conclusion and
Q&A
How does it relates
to FM service
delivery?
• 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% 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 for
as much as 15% of an organisation turnover,
this would imply that 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.
Strategic level: Developing
• Objectives and policies for the SC to achieve superiority
• The physical components of the SC
• Customer charter
• Organisational structure capable of bridging functional
barrier to achieve integration
Tactical Level:
• Focus on the mechanisms to achieve strategic
objectives
• i.e. Identification of necessary resources
Operational Level:
Efficient operation of the SC
• Systems
• Control
• Performance Measures
Clients
FM Planners & Providers
• Financial stakeholders i.e. Clientowner and client-occupier
• Users of the facilities – employees or
visitors
• Neighbours and community at large
using or affected by the facility
• In-house, outsourced and managing
agents
Supplier of Goods and
Services
Regulatory Authorities
• Suppliers of all goods and services to
the organisation.
• Includes contractors, utility suppliers
and outsourced service suppliers
• Includes local or other government
agencies that play direct or indirect
role in FM.
• This roles includes – Health and safety
and planning regulations.
Insurers
• Insure not only physical facilities but
also the risks associated with the
facilities
• Involved with each supplier to the FM
service and client organisation
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
Functional
Procurement
Logistics
Information System
Description
Companies SCM are formed based on a separate functional
paradigm of individual departments. No interdepartmental
link is established within each functional section.
Focus on the context of supply in supply chain. Initiative on
relationship with supplier is critical as part of company’s
sourcing initiatives.
In this context SCM deals with movements of physical
products from productions to end users involving
transportation and warehousing management.
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 multidisciplinary, wide-ranging research on
SCM through examination and
consolidation of more than 400
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
Source: Barret (2000)
Figure 2: Hierarchy of FM Relationship
• 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
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)
Strategic Purchasing – The FM Dilemma
• 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.
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
Arm’s length relation
Operational partnering
Strategic partnering
Descriptive characteristics
Short term purchasing
Non-strategic and standardized service
Multiple service providers
Selection of service provider is mainly based on price
Small or diversified real estate portfolio
No mutual goals or relationship development activities
Interaction occurs on the operational level and is mostly problem-driven
Bundling of sites or services
Service is technically demanding
3-5 (preferred) service providers
Competitive bidding with multiple selection criteria
Homogeneous or clustered real estate portfolio
Mutually agreed goals
Systematic interaction between different organizational levels
Continuous development
Service package includes management services
Strategic importance of purchase is high
Long-term co-operation and loyalty
1-2 service providers
Close negotiations to select service provider and define specifications
Shared vision and mutual strategic goals for relationship
Extensive 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.