Are you averaging 13% to 17% savings in furniture procurement? If not, read on because I have a process that will help you drive more savings in this area.
Sourcing Furniture is much more difficult process than you might think. It's not a simple as needing an office chair that rolls and then buying one. Instead, defining furniture specifications is a complicated endeavor and a manufacturer name and product part number doesn't always ensure apples to apples comparisons. A specific office chair with a single part # may have 10 or more configurations that impact cost and functionality. But even more complicated than defining specifications, is developing a competitive market to ensure you are getting the best prices.
There are many reasons why you may not be getting competitive prices when buying furniture, but before I go into that, I am going to briefly describe how the typical furniture procurement process works.
There are two types of furniture purchases; Transactional Furniture and One-Time Furniture.
- Transactional Furniture is establishing a contract that covers furniture procurement over time. This is usually a multi-year contract that addresses your day to day furniture needs. A chair breaks, you replace it. A new person is hired, you buy them a file cabinet and other related furniture needs. We also refer to this category as "Daily Furniture", because you've established a contract where you buy furniture on a routine or daily basis to address your changing needs.
- One-Time Furniture is the bulk purchase of several furniture types for specific needs such as a new construction project or renovation of a building or wing. Under this scenario, an organization is buying a lot of furniture to outfit a big area and that big area could even be an entire hospital.
The concepts behind establishing a competitive market in furniture applies to both furniture procurement scenarios described above.
Now, the big problem with furniture procurement is the concept of OPEN vs CLOSED manufacturer lines.
- An Open Line is when a manufacturer works with several dealers (or resellers), and you have the option of procuring a specific manufacturer's product through your preferred choice of all the dealers allowed to sell that product.
- A Closed Line is when a manufacturer only works with one specific dealer, and if you want to buy that manufacturer's product, you are forced to work with the dealer of their choice.
Here is where things get a bit convoluted. When you want to purchase a major one-time need; let's say your organization is constructing a whole new building, you would work with Architects and Interior Designers to identify the layout and the proposed types of furniture in the space that fits within your organization's culture. When these interior designers create the spec list for all proposed furniture products, many times they will spec out a closed furniture line.
Why would they do that? Well, many times a closed manufacturer line is the preferred product. Closed line manufacturers are many times "cream of the crop products" that everyone wants. Perhaps the organization already has a lot of that manufacturer's products in their other facilities, and they want to create uniformity/standardization. Unfortunately, the interior designer often has preferred relationships with closed line manufacturers and specs these products out for their own benefit. Interior designers often have separate, contractual relationships with manufacturers whereby the manufacturer rewards the designer, financially, if that designer's client ends up procuring that manufacturer's furniture line for the designer's project.
You need to address these types of relationships up-front, prior to hiring an interior designer and certainly before that designer starts developing any type of base specifications. When a closed line is chosen, this creates a problem because the manufacturer, and their preferred dealer, know they are the providers of choice and thus, they are in the driver's seat of the negotiation. Why would the dealer or manufacturer offer you discounts if they know you are going to buy from them no matter what? To avoid this, you need to create a competitive environment where the dealers or manufacturers compete against each other to leverage your ability to get the best prices.
To begin, if you are going to negotiate a contract for either transactional furniture or one-time furniture, we recommend that you execute a Request for Proposal process and follow these steps:
- Communicate with your architects and interior designers up front, that way you will be conducting a competitive bid for the furniture procurement.
- Prior to specifying manufacturer lines, make sure your interior designers know that for each product type you would like at least one open line specified; in addition to any closed line products being considered. This ensures you have a competitive space identified for every product.
- Manufacturers will be competing against manufacturers
- Dealers will be competing against dealers
The biggest thing to avoid is to not just have a closed line specified for the product. However, if you find yourself in this position, or if the product types only have closed lines listed, you can and should still open the bidding even if a clear cut alternate has not been formally specified.
To do this, you should:
- Research other dealers in your area and invite them into your competitive bid.
- Instruct those dealers that even if they do not carry a specified lien of products, you are open to evaluate functionally equivalent alternatives.
- Allow the dealer to take your spec, and propose a product that they believe would meet your needs even if it is not the manufacturer already listed. At the very least, you will have alternate products you could evaluate, and the closed line manufacturer and dealer know you are looking at those alternatives.
The whole idea here is to avoid the situation where a closed line manufacturer knows they are the only choice, or you will lose your ability to negotiate better prices.
With furniture, it's all about opening up the bidding process so closed lines are not the sole option of procurement. This process can work for both furniture procurement types, and it will save you lots of dollars in the long run; and the best part is - you can still buy what you want, just at a better price!
To expedite the RFP process and accelerate the speed of your savings in furniture procurement, contact Conductiv. Our average cost savings in furniture procurement ranges from 13% to 17%, and our revolutionary process that combines technology with analytics and benchmarking can accelerate your time to savings by 40%.