Purchasing Power

From centralized to decentralized, companies embrace wide options for structuring procurement systems for supplies and services.

By Bryan Ochalla

Supplies. Services. Equipment. Every assisted living community needs them. But procurement methods vary widely.

Many smaller companies handle the process any way they can—the guy or gal sitting in the corner office is just as likely to be in charge of supplies, services and equipment as someone further down the so-called corporate ladder. Larger companies may have a full-time staffer—or even an entire department or team—dedicated to those same tasks.

Two years ago, Chicago-based Brookdale Senior Living moved to a dedicated purchasing function when it named Jeff Patton as vice president of procurement. Before that, many different employees handled purchasing for Brookdale, which currently operates 540 properties.

“The feeling [among management] was that they’d rather have the human resources people doing human resources stuff and the marketing people doing marketing stuff than having them handle the procurement work too,” says Patton, who worked for Kraft Foods for nearly 20 years before joining Brookdale.

The staffers who handled procurement before Patton’s presence have since gone back to focusing on their areas of expertise. “It’s not like they didn’t have anything else to do,” he says with a chuckle. “I’m sure they were more than happy to have someone else handle the purchasing function.”

Beyond the Basics
Patton’s no longer a one-man department, though. Fourteen employees are now in charge of filling the company’s purchasing and procurement needs. “Part of our responsibility is to centralize and source any significant spend,” Patton explains. “So, in addition to dealing with the more traditional aspects of purchasing, such as food, medical supplies and even furniture and fleet, we’re involved in electric and gas contracts, we write the Yellow Pages contracts for the marketing group and we just wrote the contracts for criminal background and drug testing in the communities on behalf of our human resources department.”

Kurt Krummel found himself in a similar situation in late 2000 when Sunrise Senior Living of McLean, Virginia, hired him as vice president of purchasing. He and his team purchase all supplies, services and equipment except for two categories: furniture, fixtures and equipment (purchased though Sunrise’s design subsidiary) and IT equipment and technical products.

“I was an army of one when I came on board,” Krummel recalls. Today, a team of purchasing agents and support staff help him achieve economies of scale for Sunrise, which operates 440 properties. “We’ve gone from managing a very small amount of spend—I can’t even quantify it—to managing approximately $215 million in spend under management, which is spread across 72 agreements,” he says.

Krummel surmises the increased activity in his department is, in part, related to Sunrise’s overall growth. He adds, however, that most of it came as a result of “the team’s ability to show it can save money for Sunrise and senior management coming to us and asking us to help with additional areas of spend.”

Web-Based Maintenance
Linda Martin, president/chief operating officer and a founder of Signature Senior Living in Irving, Texas, doesn’t have the luxury of being able to call on a VP/procurement for advice or assistance. For all intents and purposes, Martin herself is the fledgling company’s head of procurement.

Martin’s no pretender to the throne, though. Before she and CEO Steven Vick formed Signature in 2005, Martin gained plenty of purchasing and procurement experience working for Alterra Healthcare Corp. and Assisted Living Concepts in the past decade.

“We’re in a bit of a different position than some because even though we’re a small company, we’ve run some of the largest companies in the country,” Martin says. At Alterra, for instance, Martin worked with an entire department that handled procurement, not unlike the teams in place at Brookdale and Sunrise.

“That definitely put us at an advantage—and gave us a nice perspective—when we started Signature,” the 30-year industry veteran adds. “We knew which companies provided appropriate pricing as well as service, which is especially important when you’re looking at a start-up scenario.’

Martin isn’t entirely on her own. She sometimes calls on Direct Supply Inc., an equipment and e-commerce systems supplier based in Milwaukee, Wis. Its Web-based purchasing system (called DSSI) includes relationships with the 60 largest companies in the long-term care industry, says Travis Parkinson, marketing manager.

DSSI’s customized procurement and reporting system links assisted-living companies to their supply-chain networks. It also streamlines the purchasing process, increases compliance and reduces costs, according to Parkinson. The system covers a wide range of offerings, he adds—“about 75 percent of all the spend that goes through an organization: supplies and equipment, broad-line food and dairy, as well as some services.”

Direct Supply hopes to expand those offerings in the future. “We’d like to develop relationships with local vendors and suppliers that can only serve one or two of a company’s facilities,” Parkinson shares.

The Group Buy
Another option for assisted living companies that don’t have the resources to support an on-staff procurement officer or team is to get involved with a purchasing group, suggests Martin. A lot of smaller companies aren’t aware of what’s out there and what’s available to them, she adds. “As a small company, you don’t have the buying power a larger company may have,” Martin says, adding that purchasing groups can help minimize that discrepancy.

“Purchasing groups also can help beyond cutting costs,” she shares. “They can help companies come up with a list of supplies that are needed at their communities, and they can help direct companies to where they need to go for specialty products.”

Another advantage of aligning your company with a purchasing group: Most are on top of state and federal regulatory requirements and many will track warranty service. “They can help you track the warranty service work and purchase agreements on all your equipment,” Martin says, “Which is something smaller companies can have a hard time managing.”

One such purchasing group, Irvine, California-based HPSI Purchasing Services, recently partnered with the Assisted Living Federation of America to offer ALFA members group buying rates on a wide range of contracted products and services, including grocery distributors; housekeeping, linen, pest control, maintenance and interior design services; forms/charting supplies; medical and office supplies; laundry and kitchen chemicals; capital equipment; and Web-based menu services.

HPSI also provides companies with cost analyses to identify potential areas of cost savings, and each month provides a detailed report of purchases to help providers control costs and forecast for future budgets.

“We act as their part-time purchasing department,” says Dick MacFarlane, vice president of national accounts at HPSI. “Many companies can’t do this themselves—or at least not effectively. This is part of the business that can be outsourced so they can concentrate on other areas of importance.”

For companies that hesitate to join existing purchasing groups, Martin suggests talking “to other companies about forming your own purchasing group of sorts. You’ll still benefit from increased buying power.”

Involving Operations
Martin offers another piece of advice, which may not boost your buying power but will likely save you some dough: Ensure the purchasing process—whatever it is—collaborative.

“Make sure your company’s operations team—the people who really understand the operations of your communities—are involved in the process,” Martin suggests. Operational leaders will look at price like a procurement expert, but they’ll also make sure what you’re getting is effective and efficient.

Krummel agrees that companies should involve leaders in the process—especially on the front end. “If you’re going to do it, do it right,” he says. “It has to be a priority, right up to the highest levels of senior management. Organizational commitment is a must.”

Even though Brookdale has a sizeable team solely dedicated t purchasing and procurement, collaboration still plays a key role. “When it comes to food, my department works with the dining services team,” Patton says. “And when it comes to furniture, carpet or fleet, we partner with the facilities management team.”

Patton firmly believes in having someone knowledgeable about purchasing and procurement head up those collaborative relationships, if at all possible.

“When you’re a small company and looking at maybe one contract with one supplier, it makes sense to have your HR director handle it instead of hiring someone or creating a purchasing department,” he says. “But if you quadruple the spend for that particular service or commodity and have to deal with many more contracts and suppliers, it’s better to have someone come in who can negotiate contracts, implement new programs and more.”

(Assisted Living Executive, Sep. 2007)

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