Fortune 100 retailer Target contracted with us to manage their aging portfolio. Despite the fact this company had already devoted significant resources to the management of repair events in terms of manpower, technology infrastructure, and money, several trouble spots were quickly identified.
Their current system data platform only allowed them to track asset events by location and not by each individual unit. Their focus was managing vendors to hourly cost controls and not to per event costs. Their consolidated vendor base could not meet the demand caused by the seasonality of the work. On-site managers had little information available on status of work orders and the process for “resolves.”
Through our Portfolio Planning and Asset Management Program, Target witnessed immediate, bottom line impact as well as realize sustained, residual value through implementing the recommended process improvements.
Our platform allowed them to not only track events by individual unit, but to utilize the 10+ years of cumulative intelligence we had acquired from managing the systems of many other companies. Thus, we could provide them with substantive information on which system had the highest likelihood of failure and what the collateral impact of that failure is likely to be.
Due to mounting financial pressure placed on the facility team by senior financial decision makers, Target made the decision to impose hourly cost controls on their vendors. The net result of this initiative was the opposite of what the team hoped for. Since the only benchmark was “hourly rate,” the vendors simply adjusted repair times and added other ancillary costs. Target’s “per event costs” increased because of this program.
Target believed a reduction in the number of service partners would allow for greater leverage and control. Neither proved to be true. The consolidation strategy did not control event costs. The perceived increase in leverage and buying power only had short term gain as the quality of work and integrity of data began to suffer due to a loss of system checks and balances. In addition, variables around seasonality and system environments were not considered. The vendor base was not able to meet the service requirements of high demand seasons and were required to carry additional “just in case” staff during low demand seasons.
The results of our Portfolio Planning and Asset Management Program can be quantified in many ways. But at the highest level, only a few really matter.
Did we reduce their overall cost of ownership?
Did we help them create a situation where they are better able to focus themselves on the core competencies?
The answer was a resounding YES! In one year, we reduced the Fortune 100 retailer’s average per event cost by 19%. In addition, we created an environment that enabled them to reallocate millions of dollars in resources to revenue generating activities.
Sometimes things are not as they appear to be. The facility leaders at a Fortune 100, big box retailer reported to their financial counterparts that a recently launched preventative maintenance program was a huge success. The facility department claimed repair events were reduced by 8% and they saved the company more than $1.2 million. At first glance, the financial leaders were elated. “Finally, our facility team gets it. We need to have an ongoing program for reducing expenses related to non-core, operating parts of the business.” So why were overall expenses continuing to increase?
It is common for finance and facility departments to be divided over the value of preventative maintenance programs, and for many of our portfolio planning and asset management clients we end up playing the role of interpreter and liaison.
This client was no different.
We had to ask difficult questions. How much did it cost to launch this program? What is the real ROI associated with preventative maintenance? Is this program lowering the overall cost of ownership of systems or is it a feel-good program designed to make the facility team appear proactive?
The challenge was to measure the true effectiveness of a preventative maintenance program the client had launched the year prior to their engagement with us. In addition to the significant amount of resources the client had invested in terms of dollars (nearly $10 million), manpower, and software systems, a lot of emotions and pride of ownership were attached to this program making the evaluation even greater.
The bottom line… the program was a disaster! Stores participating in the preventative maintenance program experienced 83% higher per year spend on maintenance and reactive repairs. In final analysis, it cost the company nearly $8 million per year to save $1.2 million per year. Upon our recommendation, the preventative maintenance program was immediately shut down.
This case study represents a situation that is less the exception and more the rule. This client was, and is today, considered a progressive, best-of-breed company when it comes to the management of their facilities. This was not a case of bad intentions or incompetent people. It is simply that the facility management programs in action today are not designed to measure what matters. Cookie-cutter preventative maintenance programs leave systems under-serviced or over-serviced, with no accounting for the overall cost of system ownership and return on system investment. In our client’s case, by advising them to pull the plug on their program, we effectively saved them nearly $6 million per year in wasted spend.