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Strategies for Creating the Right Budget Now and in the Future

This blog describes several different methods of creating budgets, their pros and cons, and how to prepare for implement such methods in the future.

The Value of Setting Standards on Products, Services and GL Coding

The Value of Setting Standards on Products, Services and GL Coding

 

Setting standards on products, services, approval processes, and GL codes not only makes your process more efficient, but also saves you money and makes costs (and budgets) more predictable.  When paired with software to elevate visibility and enforce controls, your organization can more easily get the right things done, and eliminate time spent wondering what to do and/or what happened.

 

Product and service standards, approvals and GL coding all have common attributes.  They are necessary in order to operate profitably and to provide your residents with high quality service, and yet there are too many choices.

 

What are Product and Service Standards?

Defining what products and services to use for a given class of property or region is what I mean by product and service standards.  For example, there may be a certain carpet spec and color used in your class A properties, and specific appliances used in your class B properties.  You may have regional differences in what you decide to specify, for example you may want to use an eggshell paint in more humid areas, and flat paint in temperate areas.

 

Some of the categories in which companies often enforce standards include:

 

Floor Covering

Carpet Cleaning

Appliances

HVAC

Water Heaters

Paint

Paint Services

Landscape Services

Plumbing Fixtures

Lighting Fixtures

Fire and Security Equipment

Window Coverings

 

If you don’t provide guidance on standards, your staff may have too many choices of what to buy, who to buy from, and what to pay.  As you can see, the amount of choices available to your staff can become large,complex, and overwhelming.  If you don’t have a quick and easy process to follow, or software to guide your staff through the process, enforcement of such standards is next to impossible.

 

 

What are the benefits of Product and Service Standards?

 

Southwest Airlines famously flies only 737s; focusing  their staff on maintaining one type of plane, and on negotiating better pricing with their suppliers.  While your maintenance staff doesn’t need to work on anything as complex as an airplane, they are certainly more efficient if they work on a smaller set of appliances, HVAC systems  or other equipment.  This approach also allows them to become more proficient at knowing who to contact for help and how to resolve issues.

 

Standardization helps in several areas: up-front costs, maintenance costs, inventory management, and efficiency.  Your suppliers will provide better discounts for larger purchase volumes of a specific item, as it helps them reduce inventory types.  Maintenance costs are lower because staff is more familiar with operating and repairing standard items.  Finally, when replacing an item, they can order what they need without much effort, because they don’t have to think about what to buy, who to buy it from, and how much it costs.  They just go with the standard and get their work done. 

 

The benefits of product and service standards are immense, but it takes a little work to put them together. Here are a few tips in figuring out what to do:

1.       Work with your staff and suppliers to determine the right product, price range, and durability suitable for what you are looking for

2.       Document your product and service standards

3.       Use software or create a system to provide visibility into your standards

4.       Make the purchasing of the standard products and services a part of the overall unit turn or operations process.  For example, at FacilGo® we incorporate what you buy into the inspection and work order process, so your staff is presented with the correct products from the correct suppliers at your prices based upon the problems they have encountered.

 

What are GL Coding Standards and how do I enforce them?

 

 

To help with accounting, it is important to make sure that the correct GL codes are utilized.  This helps the company understand how the property is performing against budget and where its money is being spent.  Plus, the accounting staff doesn’t have to spend a lot of time re-coding invoices to ensure that they are adhering to the standards.  Thus, setting and enforcing GL coding standards will help you improve your budgeting process moving forward (please check out our article on Strategies for Creating the right Budget Now and in the Future). 

To set the standards, your accounting staff must document the situations in which various GL codes should be used.  It is most important to document when capex codes are used versus expense codes.  In conjunction with product and service standards, the accounting staff should document what GL codes map to what product and service standards.  Then, those GL coding standards can be shared with the rest of the company. If you are using a software solution to support your staff’s procurement activity, you should be able to set the GL code that is used when purchasing a specific item or items from a given category or supplier.  Not all solutions support all of these methods for ensuring the right GL code is used, but all solutions have some degree of support for this.  Otherwise, reports will need to be run regularly to ensure that the right GL codes are being used, and to provide feedback to those personnel who are not coding items correctly.

 

How do you communicate your Product Standards to your staff?

 

Once you have created your standards, not only do you need to communicate them, you need to get your staff to incorporate them into their regular processes.  Plus, you need to be able to check and ensure that your standards are being adhered to.  How do you do that?

 

o   Create a process in which the right product is presented to the staff member when they need to buy such an item.  Needs to be flexible to account for times when the standard cannot be adhered to. 

o   Analyze whether personnel are adhering to standards or not.  Procurement software should provide reports that have this information.

o   Reward, within reason, based upon their adherence to standards.

o   Check to make sure that the suppliers are adhering to SLAs and performing the services to your staff’s level of satisfaction (supplier ratings)

o   Implement a software solution to make the above process easier for your on-site staff to execute as well as those personnel who define and implement the process.

 Now that you have created your standards and rolled them out to your team, you’ll need to work with your suppliers to get their pricing. You can secure significantly better pricing with higher volumepurchases for your specific products, compared to not having standards.

 

 

How do you negotiate pricing and service level agreements?

 

In addition to setting pricing and early payment terms, make sure you negotiate with your suppliers the level of service that they need to provide.  If you have great pricing but products aren’t delivered on time, warranties don’t exist, and billing isn’t accurate, you may regret working with that supplier.  After all, even a 25% discount isn’t worth it, if the delay in service or delivery prevents a new resident from moving in!

 

In your service level agreement, define what you need, as well as what happens if either party doesn’t meet the standards in the agreement.  These agreements need to be both ways, since the supplier will want to also know that you will be reliable.

 

How do you negotiate with your suppliers once you’ve set your standards?

o   The higher the guaranteed spend with a supplier, the better the pricing

o   In addition to pricing, think about service too: delivery, warranties, early payment terms, supplier ratings, billing accuracy (and timeliness), and their past level of service and helpfulness.

o   Leverage supplier rating scores to communicate to supplier their performance and comparison to agreed upon rating levels.

 

Once you have your contract with service level agreement in place, make sure that your staff is aware of the new agreement.  Make sure that utilizing the agreement is part of their regular process, and  that adherence to the process, usage of the contract, and items negotiated within the service level agreement will be proactively measured.

 

 

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  • From someone that works with a third party service provider I'd add that it makes things easier, faster, and more efficient on our end when there are standards across a company or client. It means we can give you what you need with little to no effort on your part.

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