This article is a brief synopsis of a lively panel discussion held at a recent CoreNet Global New England workshop. We discussed procurement’s new role and how it is becoming more integrated with the business and support functions such as corporate real estate in order to protect the brand and achieve the corporate goals.

1. January 2012
Changing Corporate Procurement Practices and their Impact on CRE
Kurt Ochalla – Expense Management Solutions
In a recent CoreNet Global New England Real Advantage workshop, Michele Flynn, President of Expense
Management Solutions, Karen Pritchard, Vice President and Director of Real Estate for Wellington
Management Company and Don Conover, Executive Vice President of Global Site Strategy, Operations
and Global Procurement Services led a discussion on major changes in corporate procurement practices
and their impact on real estate services delivery. The following is a brief synopsis of the discussion.
In the “new economy” we see more headlines highlighting economic, social or geographic crises in a
thirty day period than we would have historically seen in several years. Government regulators,
shareholders, financial auditors and customers are holding companies accountable for their own
behavior, as well as that of their supply chain to a degree never before seen. As a result, the role of
procurement has changed significantly. Historically, procurement was responsible for supporting the
acquisition of goods and services at an acceptable price in support of business needs. Today,
procurement plays a far greater role.
According to a survey by the World Economic Forum and Fleishman-Hillard, 60% of chief executives said
they believed corporate brand and reputation represented more than 40% of their company's market
capitalization. In reality any issues that arise with a company’s service providers are a reflection of the
company and affect their reputation in the market, and therefore their market capitalization. For many
procurement departments their role is to “protect the brand” through effective management of the
supply chain and to potentially contribute to the top line profitability of the firm by ensuring
optimization of capital flows and integrating suppliers effectively into the revenue generation activities
of the firm.
How does this impact real estate?
For most real estate organizations,
the old way of procuring services was
relatively straightforward. The real
estate team would determine the
volume of goods or services needed,
who the potential suppliers were and
either direct procurement to issue a
bid, or negotiate the arrangement
themselves with limited procurement
involvement. Decisions were based
on a combination of cost and relationships and the CRE executive was the primary decision maker.
In the new economy, every aspect of an organization is under significant scrutiny. As a result, the sheer
number of internal stakeholders involved in selecting outsourced service providers has increased to
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2. satisfy heightened compliance requirements and mitigate risks. No longer are decisions made solely by
CRE, as Finance, IT, Compliance, Risk Management, HR and others now have a seat at the table.
Second, there are implications beyond just cost. Nowhere is this more evident than in the $11 million
fine paid by Wal-Mart in the federal probe into their contractors’ practice of using illegal immigrants as
janitors. The four-year long Department of Justice investigation followed an October 2003 raid spanning
21 states and 60 stores that led to the arrest of 245 allegedly illegal immigrants among the company’s
floor-cleaning contractors. In addition, 12 companies that provided janitorial services to Wal-Mart paid
$4 million in fines and pled guilty to criminal immigration charges.
This is a classic example of how ineffective 3rd party management can generate significant financial pain
and cause substantial damage to a company’s brand. One can easily see the overall impact on the real
estate industry is significant as more and more organizations outsource both non-core and core real
estate functions to third parties.
Procurement’s New Role
Today, procurement by definition must be more fully integrated with the business and support functions
such as real estate in order to protect the brand and achieve the corporate goals. A key strategy for
many is to provide a strong central core team that ensures process, tools, skills, relationships, and
metrics are in place to enable the operating teams to manage third parties effectively.
As noted in Image 2,
historically, the goals and
objectives of real estate and
procurement may not have
always been aligned. Moving
forward the two groups need to
work collaboratively to procure
real estate services that will
satisfy the needs of the real
estate team, and enable
procurement to satisfy the
critical requirements for
managing and mitigating risks
raised by the use of third
parties.
Implications Going Forward
The implications of this new order impact more than just the internal real estate teams. The rules have
changed for service providers as well. Both sides need to respect the procurement process and be
disciplined about their interactions. Service Providers must understand all the players at the table, and
strive to satisfy their various needs. CREs need to work within the framework, own the decision and
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3. educate procurement relative to the unique aspects of real estate services. Other important things to
consider are:
Service Providers Corporate Real Estate
Extend your network beyond real estate Behave like the “client” – not a sibling
Follow the defined process for becoming Educate your procurement partners re:
an approved supplier what is important to you - SME
If invited to participate – understand all Understand what procurement needs to
the players and their goals do and support them in that
Maintain an appropriate distance Do NOT walk away and let procurement
own the decision
Follow the rules of the procurement Follow the rules of the procurement
process process
Professionalism is rewarded
The Bottom Line
The recent economic crisis has elevated awareness of the risks and challenges of managing third parties
to senior management in the organization. Given that real estate is often the second or third largest
spend in an organization and a heavy user of third parties to deliver services, CRE and Procurement
teams will need to be well integrated and collaborate effectively to achieve desired outcomes. Teams
should develop shared goals and objectives and be open to suggestions that will optimize both cost and
service delivery. Each should contribute and value their respective strengths in the process. Service
providers must become aware of the new players involved in the decision-making and expect more
stringent requirements during the procurement process. The bottom line is:
Procurement is here to stay – collaboration = success!
Kurt Ochalla is the director for Expense Management Solutions’ real estate practice. He specializes in
operational assessments, sourcing initiatives and contract reviews with a focus on business process
improvement, enterprise cost reduction, 3rd party performance management, and CRE organization
design. Kurt can be reached at Ochalla@expensemanagement.com.
Expense Management Solutions is a global leader in the “next generation” of management strategies
and solutions for procurement, 3rd party management and corporate real estate functions. EMS
partners with our clients to define, design and deliver business solutions to address complex business
issues, provide value beyond cost savings and maximize the value of 3rd party relationships. We have
worked with over 90 of the world’s largest organizations such as Microsoft, CIGNA, Kimberly-Clark, State
Street, Ericsson and the Federal Reserve Bank to deliver more than $1 Billion dollars in savings. To learn
more please contact us today at (508) 460-7014 or solutions@expensemanagement.com
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