Environmental Services Sourcing: A Case Study
May 21, 2010 - SCMR Editorial
Environmental services is often considered to be ill suited for an enterprise-wide procurement and management approach. The reason given: it’s too specialized and difficult to measure. Yet the following real-life example from a large client illustrates the opportunity for applying an enterprise-wide approach to such a complex service.
This category of spending covers engineering and analytical services performed to ensure that government locations and businesses comply with all federal and local environmental protection regulations and laws, such as those concerning clean air, clean water, emissions reduction, the protection of sites such as Indian burial grounds, the protection of certain animal habitats, and so forth. Many organizations do not have experts in house to perform this function, and choose to contract with environmental services providers.
The environmental services industry in the United States is highly fragmented and competitive, encompassing several thousand companies with collective revenues in excess of $125 billion. Environmental services companies range in size from one-person operations to large corporations that are often diversified into engineering and construction services. Labor (including wages, contractors, and subcontractors) is the major cost component of these services.
The Client Situation
The client is a national organization with locations throughout the United States. Typically, environmental services managers at each location purchased environmental services locally. While meeting the needs of each individual site, this approach often led to different prices being paid for essentially the same services and impeded enterprise-wide management. Local purchasers also often relied on the same set of trusted incumbents time after time, rather than engaging a broader potential vendor pool. The key challenge for the team was determining how to leverage the organization’s buying power nationally while continuing to ensure quality deliverables at the local level.
Through extensive analysis, the team developed a comprehensive commodity profile, including both a quantitative analysis of spending patterns and a qualitative description of customer needs, as well as a thorough market analysis. Subject matter experts (SMEs) and other key stakeholders participated in the analysis and development of recommendations. Common outcomes were identified with enough flexibility to account for unique local requirements. The client also had a socio-economic goal of ensuring that small businesses providing environmental services at the local level would not be excluded from the new procurement process. For implementation, the team elected to pursue national contracts for each of the main types of environmental services, with provisions put in place to encourage small business participation.
Typically, individual client sites used statements of work that specified how the work would be performed and by what type of personnel—that is, the specific qualifications required. While most locations would agree on the outcomes required, there could be differences in the statements of work that contributed to the different prices paid by various locations. In transitioning to a new procurement strategy, one of the main concerns of the SMEs and stakeholders was how to ensure quality deliverables and outcomes once the transition had been made from local to national procurement. Therefore, a key element of the procurement process would be the development of a library of performance-based work statements that would ultimately be incorporated into national contracts. Under the plan, the quality of deliverables and outcomes would be monitored at the local level.
In order to reach the broadest competitive pool of vendors for the national requirements, the implementation team encouraged small businesses to pool together to increase their geographic coverage capabilities. Throughout the development of the procurement process, the company strived to provide as much information as possible to the vendor pool to encourage participation by all qualified service providers.
As part of the performance-based procurement process, quality assessment tools and metrics have been established for each of the main categories of work to be provided. Results are assessed at the conclusion of each project, with vendor payment contingent on successful outcomes.
15 Percent Savings and More
The first projects procured under the national contract approach yielded savings of approximately 15 percent. Going forward, the client expects that enterprise-wide procurement of environmental services through national contracts will facilitate analysis and comparisons of costs across locations and will improve spending management.
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