Taking the waste out of trash removal: by rethinking its waste management system, JMG Realty realized a net savings of $116,000 in one year for a test segment of its portfolio.
Headquartered in Atlanta. Ga., JMG Realty is a management, redevelopment and financial services company with a portfolio of 80 communities representing 25,000 apartment homes. The company prides itself on running a tight, well-organized operation and places great emphasis on maintaining best value services at its communities.
"We were constantly evaluating our service needs, carefully contracting our hauling and equipment vendors and implementing protective measures to monitor spending," said Terri Tomlinson, JMG Realty's Director of Innovations.
But the waste costs kept rising.
"Looking at the problem from a bird's-eye view across our entire portfolio, I realized that there is great inconsistency in the waste service industry," she said, "Every market has its own complex set of regulations, fees, taxes and service providers. We were spending a lot of time and resources to get the best deal, but that didn't solve the problem."
In 2001, Tomlinson decided to look outside the organization for companies that specialize in managing waste expenses. "Our goals were to save money and to reduce headaches." Tomlinson said.
Companies that specialize in waste expense reduction focus on optimizing value by closely managing the relationship between customers and waste service providers. These consultants do not provide hauling services or sell equipment, so there is no conflict of interest in representing the customer.
After researching options. Tomlinson engaged a national waste expense management company for a pilot test. "We began cautiously with our central Florida properties," Tomlinson said. "There was some healthy skepticism about the program across our organization, but it dissolved quickly. We finally had a clear and detailed picture of our waste services and just one number for anyone within the company to call with questions. Of course, seeing our trash invoices shrink in excess of 30 percent at several communities boosted internal support as well."
In a one-year period, those properties participating in the program yielded a net savings--after fees paid to the expense management company--of $116,000. Based on the ongoing savings, JMG Realty now has its entire portfolio in the expense management program.
"The durable, hard-dollar savings alone amazes us every year," Tomlinson said. "It was the smartest move we could have made to control costs."
How to Scrutinize Expenses
JMG Realty's struggle with waste expenses is not an uncommon story. Businesses of all sizes and in all industries are seeing waste disposal prices accelerate at an alarming rate. The waste industry has seen increases in some key operating cost areas and. in some cases, those increased costs can justify reasonable price adjustments for garbage pickup.
The most popular and highly publicized cost factor hauling service providers use today as a reason for price increases is fuel. Fuel surcharges are appearing in customer invoices, often without contractual agreement, with the justification that it is an uncontrollable expense for the hauling vendor. Factors, such as environmental compliance and labor and insurance costs, are part of the cost-of-service equation for hauling and equipment companies and sometimes support a reasonable price adjustment. The operative word is "reasonable." and therein lies the never-ending challenge for waste service customers to effectively manage waste expenses.
Waste hauling vendors find ways to consistently increase already enviable profit margins. By design, the typical customer-vendor relationship makes it hard for customers to establish the most efficient, cost-effective service plans. Waste service providers enjoy a largely unregulated pricing environment, and their customers lack the industry-specific information needed to analyze pricing and evaluate the best service options.
An even greater challenge facing waste customers is managing the vendor relationship to control prices over time. Maintaining an efficient service plan and ensuring the service provider is meeting obligations requires a comprehensive system of checks and balances and dedicated personnel to carefully monitor services, oversee necessary adjustments and ensure billing accuracy.
As a case study, JMG Realty offers a strong example of the results achieved through an effective waste expense management program. The case study highlights each of the five expense management focus areas before and after JMG Realty began its program.
Area 1: Contract management
Previous Approach: Waste service provider contracts were submitted to the community manager and then to regional managers for final approval. Paperwork was coordinated between community managers, waste service providers and regional office staff, and the final copy typically was archived at the regional office. Community managers were responsible for monitoring contract terms and conditions--such as renewals and agreed pricing adjustments--and for auditing monthly service invoices to confirm contract compliance.
Previous Results: Managers had difficulty maintaining contract paperwork. There were frequent issues with incomplete, misplaced and unintentionally auto-renewing contracts. Managing terms and conditions and resolving billing discrepancies were both time-consuming and error-prone.
Current Approach: Now there is a standardized contract form for all service agreements. Any revisions are negotiated by the consulting company and reviewed with JMG Realty for final approval. Detailed contract information and scanned copies of executed contracts are loaded into a proprietary software application. A consultant monitors contracts and manages all associated communications between JMG Realty and waste vendors.
Current Results: Contract information is organized, accurate and easily accessible. Terms and conditions are tightly managed and require minimal attention and time from JMG Realty staff. Contract compliance is strictly enforced through the consultant's ability to link contract-specific terms and conditions to monthly service invoice charges.
Area 2: Invoice Accuracy
Previous Approach: Community managers were responsible for confirming waste invoice accuracy, notifying the corporate accounts payable department of discrepancies and for resolving discrepancies with local vendor offices.
Previous Results: Identifying and validating billing errors from contractually allowable price increases was confusing and labor-intensive because of inefficient access to contracts and a lack of industry-specific knowledge of fee regulations and vendor cost factors, which resulted in unidentified, recurrent billing errors.
Current Approach: A consultant handles invoice auditing and error correction. The consultant's auditing system links each invoice line item with its associated service contract terms and conditions and errors are identified immediately and addressed with designated vendor contacts via error reports. Short payment letters are provided to JMG Realty as back up.
Current Results: JMG Realty pays only for charges in compliance with contracts and does not spend time trying to validate fees and obtain credits from vendors.
Area 3: Rate Negotiation
Previous Approach: Community managers were solicited and they reviewed proposals when they identified service contract expirations or when regular service problems occurred with a vendor in an expired contract. Community managers--and sometimes regional managers--performed negotiations. Price competitiveness was measured by comparison of local vendor proposals.
Previous Results: Irregular and labor-intensive pricing reviews made it difficult to validate the true price value. There was inconsistent pricing among communities with similar services and market cost factors.
Current Approach: The consultant evaluates price value, regardless of remaining contract term, based on system-driven, comparative rate and cost-of-service analysis. The consultant often aggregates locations from multiple clients and regions to negotiate new or existing contract pricing.
Current Results: Now there is a constant focus on price value, without taxing JMG Realty's internal personnel resources, and an efficient execution of opportunities to reduce and protect rates.
Area 4: Service Efficiency
Previous Approach: Community managers analyzed service plan efficiency, evaluated equipment and collection options and implemented service changes. Service inefficiencies primarily were identified from overflow issues and, in the case of compactors, excessive pickup frequency. Community managers were also responsible for evaluating, coordinating and negotiating pricing for temporary service needs.
Previous Results: Managers experienced many instances of containers with extraneous capacity and compactors operating below performance specifications. The net rate of service (rate per cubic yard) commonly increased with service plan adjustments.
Current Approach: The consultant analyzes service efficiency and equipment performance through pickup frequency and waste volume data, which is captured from invoice auditing, waste volume and plan ergonomics. This is from direct communication with site staff and hauling vendors and a statistical analysis of overall waste generation. The consultant is responsible for all aspects of service plan adjustments and temporary service needs, including price negotiation and contract modification.
Current Results: The consultant quickly identifies and implements opportunities to improve plan efficiency with an application of handling equipment, which minimizes expense and overflow issues. Net service rates are maintained with service plan adjustments.
Area 5: Service Quality
Previous Approach: Community managers were responsible for addressing service quality issues with service providers and quality reviews usually resulted from addressing hot service issues. A service provider's quality was measured on a per-property basis, and chronic issues sometimes escalated to involve assistance from regional community managers.
Previous Results: That approach was resource intensive and made it difficult to measure a service provider's performance because there were no well-defined, service-specific quality standards. Managers were forced to take a reactive approach to ensure quality and had durable results on actions taken to address poor performance.
Current Approach: Community managers direct all service requests and issues to the consultant, and service provider performance is measured by comparing actual data against clearly defined vendor quality assurance criteria.
Current Results: Managers have an improved service quality with fewer service issues and an enhanced curb appeal for communities. Community managers can spend more time focusing on current and prospective residents.
Savings and Efficiency
The JMG Realty case study reveals two important benefits from an effective waste expense management program: cost savings and improved business performance.
Cost savings are achieved through employing a company that understands industry-specific cost factors, has strong buying leverage and dedicated business systems to measure and manage services. As a result, direct service expenses maintain optimum value. Improved business performance results from liberating time and resources for the management company to focus on core business priorities.
"We have a strong relationship with our expense management company," Tomlinson said. "It provides JMG Realty tremendous cost savings, high-quality service and more time to focus on what we do best."
Waste Expenses 5 Vital Areas
There are five vital areas customers must persistently scrutinize to control waste expenses:
1. Contract management 2. Invoice accuracy 3. Rate negotiation 4. Service efficiency 5. Service quality
Bryce Kaspar is CEO for Waste Reduction Consultants Inc., a national waste expense management company. For information, visit www.wasteconsultants.com.
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|Date:||Oct 1, 2006|
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