There are many expenses buried in an organization’s overhead that are left untouched yet represent savings opportunities. One such cost is Cleaning, sometimes known as Janitorial & Sanitation. We have had many successes in attacking this cost.
Our method to uncover the fat in these types of overhead costs is a two-step approach. The first step is to focus on the use of the service.
The Use of the Service
In this case study, the client had a chain of 40 stores. In analyzing the use of the cleaning services, it would seem logical to compare cleaning costs on square footage or sales, but experience has shown that this is not the best driver. Instead, customer traffic was found to be the best measure and driver of cleaning frequency required.
On that basis, our review identified quite a sizable range. The ratio used was the number of weekly cleanings per 100,000 customer count. The analysis showed quite a significant range from a low of .5 to a high of 1.5. Essentially the 1.5 stores were getting cleanings 3 X per week versus similar traffic stores at 2X per week. Upon further inquiry, the level of store cleanliness was not much different when stores were cleaned 2X per week versus 3X per week. This set the stage for a reduction in number of cleanings by 20%.
The Cost of the Service
The second step is to center on the cost of the service. Here we needed to examine the number of vendors and the typical basis of the charge – floor area square footage.
In the same case, the data revealed 15 vendors across the 40 stores and one store conducting the service on their own (not cost efficient). Such a large number of vendors indicates a decentralized approach with a wide range in services and costs. The analysis bore this out with the most costly store paying more than 3X the cost per square foot of the least costly store.
With this in mind, our experience has shown that the best way to streamline this cost is to conduct an on-line bidding event. For those that may not be familiar:
- On-line Bidding (also known as a Reverse Auction) is an internet based process whereby a company entertains bids for a product or service from a pre-screened group of qualified suppliers. The auction is conducted with all participating vendors collectively, in real-time, and typically lasts approximately 30 minutes.
- Before and during the auction event, buyers can see all responses from suppliers, information about each supplier, product specifications, notes from suppliers, and any other pertinent information that may factor into the decision. Suppliers cannot see the bids of other suppliers, but if they are not flagged as being the lowest bid, they have the opportunity to better their price at any time during the auction.
- This encourages an active and aggressive bidding process.
- Upon conclusion of the auction, the buyer is provided with a summary showing the different price/quality scenarios and other relevant information for review and evaluation. They can then award their business to the selected supplier or suppliers.
In this particular case, the on-line bidding process attracted 13 qualified vendors, 8 of which were incumbents (currently providing service). The results of the bidding ranged from a 28% savings to a 32% cost increase. Interestingly, 6 vendors bid a cost increase, 1 vendor was no change, and 6 were a cost decrease. This further indicates the importance of securing a wide range of vendors for the process.
From the results of the bidding, the selection was narrowed to 4 vendors. One vendor was new and they were given a test store. After one month of service, a survey was conducted. Two of the 4 vendors achieved the required standards across the stores they serviced and were selected for contract negotiations. This resulted in a two vendor award, –with an annual savings of 27%!
Overall, the combination of usage savings and cost savings resulted in a total cost reduction of 41%! The client was extremely pleased.
For more information on on-line bidding and other cost reduction techniques, please contact Eugene at eugene@kpmenterprises.ca or 905-891-6994.
Eugene Duynstee is President of KPM Enterprises Inc., a company focused on implementing responsible cost reduction programs in large organizations. KPM Enterprises Inc. is headquartered in Mississauga, Ontario, Canada. Further information can be obtained from our website at www.kpmenterprises.ca