Last modified on October 28th, 2021
By Rae Parker
It’s no secret that maintaining and upgrading your properties can be a labor intensive, stressful, and costly process. Proper maintenance means regularly incurring hard costs, including people, time, and materials. But it can be difficult for your team to accurately anticipate these costs and take the steps needed to streamline where possible. And as all property owners and operators alike know, maintenance expenses can prove to be the most difficult to control. That’s why it’s important to implement a spend management strategy for the sake of your staff and your bottomline.
Think of your spend management strategy as a safety net
A safety net is defined as a safeguard against possible hardship or adversity. A spend management strategy acts in the same function for your business to help minimize errors, spot savings opportunities, eliminate out of compliant spending, and ensure policy compliance. This strategy can consist of something small, like having a list of approved suppliers or items for your team to purchase from, or more of a robust program, like property management software with features that allow you to manage your spend management process digitally.
Whichever direction you choose, it’s important to first understand that there’s a relationship between maintenance and your net operating income (NOI). In an episode of AppFolio’s Top Floor Podcast episode, “How optimizing maintenance boosts NOI,” Melissa Palmer of Grace Hill gave her thoughts on maintenance and how not properly preparing can end up costing you big later on. Drawing from knowledge gained in over 25 years of property management experience, along with previously owning and operating a national procurement company, Melissa says, “If you don’t have any kind of preventive maintenance program in place, you’re going to end up spending more dollars on replacements and other costs in repairs that could have easily been avoided if they would have checked those units periodically.”
Procurement: More value for your buck
If you aren’t implementing some type of strategy for procurement, what are you waiting for? Having a procurement strategy can give you and your team accountability, boost efficiency, manage spend, ensure compliance, and consolidate your total spend.
The goal of your procurement strategy is to help your team understand what’s budgeted versus what’s not, or what constitutes an emergency. In a webinar hosted by AppFolio and Grace Hill, Stephanie Anderson (Grace Hill) encourages property managers to sit down with their maintenance teams and explain that everything they do on a daily basis not only has an effect on the community, but the financial health of their business. By taking a closer look and communicating with your teams, you’ll start to see how much time they spend away from the property making one-off purchases versus having items on-hand to make things like unit turns go by faster.
Designing your strategy
When developing a procurement strategy to complement your spend management processes, there are a few things you should consider:
1.) Determine your business needs
In order to design a robust procurement strategy that will be successful for your business, it’s important that you understand your organization’s needs clearly. The first step is to think of any inefficiencies or buying processes that could be automated, such as using lists for standard products your property needs. This could be quantifying the time your maintenance team spends completing a new request from start to finish, or the amount of manual processes your accounting team has to do in order to approve invoices for materials and your vendors.
Next, you need to determine what type of solution will work best for your organization. This can be something as simple as having a binder of preferred vendors and supplies needed for your community, or using a robust procurement software. This is something Melissa Palmer stresses in the joint ebook, Unlock hidden revenue and drive NOI, by AppFolio and Grace Hill. Palmer says, “If your company does not have the dollars or oversight for technology, you should at least have a Purchasing Guide or some kind of policy manual that shows what the requirements, preferred providers, and other standards and expectations are for the company.”
2.) Analyze your spend
The next step of developing a procurement strategy is analyzing your maintenance spend. This may take additional time and effort to do, since you’ll need to obtain data from suppliers, stakeholders, and other persons involved when it comes to purchasing your suppliers. In a recent webinar hosted by AppFolio and Grace Hill on the subject of maintenance and NOI, Stephanie Anderson explained that when your team understands the overall financial impact they have when performing tasks, they start to understand: “… what’s budgeted versus what’s not, or what constitutes an emergency, so that you’re not going over budget and they’re not being overworked,” says Stephanie.
When it comes time to look for software, it’s important to find a solution that provides instant visibility into exactly what you’re spending and includes detailed line item descriptions that are automatically populated in your purchase orders. This will allow for you to be in line with the budget that has been set and eliminate “rogue” spending on products that are not pre-approved. It’s not just about being held accountable with your spending; it provides you with the knowledge to make data-driven decisions, or the ability to benchmark your buildings against one another or against your peers to help you quickly determine if there’s any room for improvement.
3.) Finding the right software solution
This particular step may seem to be the most difficult, but finding a software solution that checks all of the boxes for your organization is the most important. The goal of property management software is to automate all of the manual processes you’ve been doing, reduce the amount of human errors or delays, and make the procurement process easy, enjoyable, and operationally efficient for your teams. As you’re browsing software solutions, make sure you look for the following:
- Direct integration with your supplier: this allows for your team to easily access and request purchases from a list of approved materials available through your supplier.
- Automatically generate purchase orders: once you’re ready to purchase your supplies, your team should be able to submit the items for approval and review, ensuring that they stay within budget, and purchase only approved products. This purchase order should include item descriptions, quantities, and costs.
- Electronically submit approved purchase orders: once your purchase order is approved through your internal approval process, your team should be able to electronically submit the order for fulfillment directly from within.
- Electronic invoice processing: once everything has been purchased and your team has procured the supplies, make sure that invoices can be electronically processed. The software should be able to automatically generate billable line items from the order, reducing paper waste, minimizing errors, and ensuring all documents are electronically accessible at all times.
4.) Set clear objectives and policies
Once the business needs are outlined, budgets are identified, and software is chosen, the final step is to set clear policies and procedures. Having the proper procedures in place makes a huge difference in terms of how smooth your daily operations are and how equipped your staff is to do their job. As mentioned, it’s important that your strategy includes a standardized list of approved products and vendors. By standardizing your products, you reduce the risk of having unnecessary inventory, reduce budget waste, and are able to buy things you need in bulk (with the possibility of a discount).
Your policies shouldn’t stop with the products. Your team should have the proper training and understanding of how your procurement strategy works. Having an on-boarding plan is helpful for those new people who come in so they don’t have to reinvent the wheel.
When implemented well, your business can find great success and peace of mind from having a procurement strategy and software.