Procurement - that murky phase between budgeting and building – is somehow still the red-headed stepchild of the real estate process. While real estate owners and operators have modernized their leasing, fundraising, and marketing strategies with technologies like VTS, Hightower, Fundrise and Floored, they are just beginning to address inefficiencies in the vendor management and bid management processes.
The good news is those efforts will be well rewarded since, according to CBRE:
“80% of savings result from stages prior to construction.”
Why haven’t real estate pros rushed to revamp their procurement already in light of the cost savings that can be uncovered? Probably because procurement practices are rarely standardized within an organization and it’s difficult to know where to start. Methods vary from building to building and from one project manager to another.
Even for large, vertically integrated owners, ‘ad hoc’ often best describes their procurement strategy. An informal process quickly leads to redundant activities and siloed data. At its worst, it’s costly and potentially risky.
There are steps your organization can take to move from unsystematic and cumbersome to scalable and replicable. Read on for the five most impactful things you can do to streamline your procurement process.
#1: Automate your bid leveling workflow
Oh, bid leveling. You really deserve your unfavorable reputation.
From eating up hours merging multiple spreadsheets to triggering migraines trying to figure out which cell has an incorrect formula, bid leveling can be a nightmare. Project managers are turned into data entry drudges and sidelined from driving value-add activities. Additionally, teams that manually level bids are dis-incentivized from triple-bidding projects, a proven path to cost reduction.
There is light at the end of the tunnel, and it’s powered by modern technology. An automated bid leveling tool can manage the administrative work of aggregating, organizing and, to some degree, analyzing data input by vendors.
With an automated bid leveling tool, your cost-savings goals will align with the limited capacity that your team has to manage the process.
You will want:
- The ability to create and save custom bid leveling templates.
- A ‘smart’ system that highlights deviances across bid entries.
#2: Consistently triple-bid your projects
According to a study published in Journal of Construction Engineering and Management, triple-bidding results in an 8% reduction in the “bid low price.” This cost reduction increases as the number of participating bidders increases.
Competitive bidding will push your vendors to be diligent with their quotes, negotiate better costs with their suppliers, and continuously modernize their operations to be as efficient as possible. The goal isn’t to squeeze vendors for the lowest price but to reinforce diligence.
Regularly inviting new-to-you vendors will also deepen your bid list so you’re never caught without a qualified team to take on your new project.
You will want:
- Access to a comprehensive pool of relevant experienced vendors.
#3: Ensure easy visibility into the whole process
Real estate cycles are long, but many project-related decisions need to happen fast. If you wait for weekly reports from your project managers or track them down by phone to get bidding updates, you’re losing valuable time.
With top-down transparency, a number of important goals are accomplished:
- Upper management has complete visibility into the status of all projects at all times, from a birds-eye view to bid-specific details.
- Regional managers can easily identify pricing trends, workflow cycles and vendor talent gaps.
- Property managers are able to efficiently communicate with vendors and manage relationships.
- The accounting team can quickly track and report on capital spending and verify that projects were competitively bid according to company policies.
The ideal scenario allows users to easily drill down from the macro view of projects into specific bid documentation, team conversation, internal vendor reviews and more.
You will want:
- A tool that gives quick access to data points across your portfolio, including bids received, bid delta from budget, key delivery dates and insight into project manager workload.
#4: Centralize your document and messages
The cornerstone to a robust procurement process is an easily accessible, central location to disseminate documents and track relevant conversations. Here’s why:
- Using one repository helps guard against multiple versions of the same document being generated unintentionally.
- A tool that integrates email communication functions as a system of record that the whole team can mine for important information.
- If a project manager leaves, the vendor contact information, pricing data, and project history he accrued do not leave with him.
A word to the wise - don’t centralize the process on a project manager’s laptop that could get lost at JFK airport. (Yes, that happened. No, we’re not naming names.) Look to a cloud-based solution that provides redundant data back-ups and access from any device.
You will want:
- Email integration that keeps track of related messaging.
- An interface that is as easy to use on your mobile phone as it is on your desktop computer.
#5: Harness historical data to inform current decisions
If you can’t measure it, you can’t manage it. We all know that rule. Here’s another one that everyone in real estate intrinsically knows: If you can’t find it, you can’t use it.
Spreadsheets are robust at an individual file level and cumbersome at a macro level. To uncover meaningful procurement intelligence, lots of data points need to be compiled and aggregated. Spreadsheets strip data of its power by isolating it into digital silos.
You will want:
- A dashboard that surfaces high-level trends.
- The ability to categorize, sort, and filter buckets of data points.
Ready to take your organization’s procurement process from unsystematic and cumbersome to scalable and replicable? Use this worksheet to compare tools that support practices proven to lead to success.