Elements of sourcing strategies in FM services--a multiple case study.

ABSTRACT. The aim of this paper is to identify the different elements of the sourcing strategy decision-making process and to clarify what are the factors that lead to the selection of a certain sourcing strategy in FM services. The study is based on a literature review and a multiple case study, which was conducted with four organizations representing different types of FM service clients. To find the optimal sourcing strategy and understand the consequences of different sourcing options, five decision categories must be analysed: sourcing interface, organizational decision-making, the scope of service package, the geographical area of sourcing and relationship type. There are also some other elements that must be taken into account in the process of sourcing strategy development such as different elements of business in general and the prevailing market conditions. It is strongly suggested that companies could apply the presented integrated approach as a starting point for the development of sourcing strategies in FM services. In addition, this study shows that companies should view the development of sourcing strategies as an important phase of the procurement cycle.

KEYWORDS: Sourcing strategy; Strategic planning; Facilities management services; Multiple case study

SANTRAUKA

STRATEGINES ISTEKLIU SISTEMOS ELEMENTAI PASTATU UKIO PASLAUGOMS VALDYTI: KELIU ATVEJU TYRIMAS

Tomi VENTOVUORI

Siuo darbu siekiama nustatyti strategines istekliu sistemos elementus sprendimu priemimo procese ir issiaiskinti, kokie veiksniai skatina rinktis konkrecia strategine istekliu sistema teikiant pastatu ukio valdymo paslaugas. Tyrimas pagristas literaturos apzvalga ir keliu atveju tyrimu, atliktu keturiose organizacijose, kurios atstovauja skirtingiems pastatu ukio valdymo paslaugu klientu tipams. Siekiant rasti optimalia strategine istekliu sistema ir suprasti ivairiu istekliu tvarkymo variantu pasekmes, reikia isanalizuoti penkias sprendimu kategorijas: pirkimo ribas, sprendimu priemima del pirkimo, paslaugu paketus, grupavima ir santykiu tipa. Yra ir kitu elementu, i kuriuos reikia atsizvelgti, pletojant strategine istekliu sistema, tokiu kaip skirtingi verslo elementai apskritai ir vyraujancios rinkos salygos. Pabreztinai siuloma, kad imones taikytu pristatytaji integruota metoda, kuris yra atspirties taskas pletojant strategines istekliu sistemas pastatu ukio valdymo paslaugu srityje. Be to, strategines istekliu sistemos kurima imones turi laikyti svarbiu pirkimu ciklo etapu.

1. INTRODUCTION

Strategic planning of sourcing is gaining increasing attention in supply management practice and in academic research. As in other areas of supply management, a transition seems to be going on in the way companies plan and reorganize their purchases in facilities management (FM) services. While clients are changing the job description of in-house FM staff from routine purchasing tasks to more strategic tasks that support the overall goals of the company (cf. Kadefors and Brochner 2004), they are also trying to trim their supply bases in many ways. For example, while some companies are entering into closer relationships with their remaining suppliers (Incognito 2002), others are shifting from using a sole supplier to using a number of specialist partners (Usher 2004). This, among other reasons, is why the FM practitioners need to be more familiar with the expanding range of sourcing options (Smith et al. 2004).

It is also commonly suggested that effective procurement planning and management of FM services can directly affect the relative success or partial failure of an organization's business (e.g. Leifer 2003; Chotipanich 2004; Rogers 2004). The general lack of sourcing strategies revealed in the examination of FM practices, supports the fact that the outsourcing and procurement practices of FM services are still in a transformation phase (Lehtonen and Salonen, 2006). Thus, it is surprising that only few studies carried out have focused on the development and implementation of sourcing strategies (Brochner et al. 2004, Hui and Tsang 2004, Ancarani and Capaldo 2005) or the essential elements of them, such as outsourcing decisions (Usher 2004), service bundling (Barret and Baldry, 2003; Ancarani et al. 2004) and the selection of relationship type (Lehtonen, 2006). However, these studies have focused only on partial elements of sourcing strategies mostly without any efforts toward integration. They failed in recognising a relation between each other and also the consequences of such decisions. The lack of conceptual and theoretical frameworks is perhaps one reason why strategic planning of sourcing is ignored in the field of FM (Then, 2000; Koskela, 2005).

The scale of the recent changes in the FM services practice is so considerable that an analysis of sourcing strategies is of interest. In this study, besides reviewing the literature on sourcing strategy approaches and creating a theoretical framework for the development of sourcing strategies in FM services, we present real-life examples, which came up during the multiple case study. The framework is used to examine the realized sourcing strategies in the case companies. The case study was conducted to identify the elements of the sourcing strategy decision-making process and to clarify what are the factors that lead to selecting a certain sourcing strategy in FM services in practice. It is also of interest to know how the supply base can be structured.

2. A REVIEW OF SOURCING STRATEGY APPROACHES

In deciding on a sourcing strategy for particular segments of business, management has a wide range of options. The most common sourcing strategy approach deals with make or buy decisions. According to this approach, the company must make a choice between two strategic approaches: whether to concentrate its own resources on a set of core competencies or produce support functions in-house (Snyder and Ebeling, 1992, Venkatesan 1992, Barney 1995). Focusing on core competences and leveraging sourced relationships against each other enables the achievement of economies of scale, thus making it possible to provide goods and services more efficiently while improving quality through the application of specialist knowledge (Quinn and Hilmer, 1994).

Some sourcing strategies concentrate on supply base structuring. According to several authors, once make or buy analyses are carried out in favour of buy, the company is involved in such strategic decisions regarding supply base structuring (e.g. Gadde and Hakansson, 1994; Hines, 1995; de Boer et al., 1998). Supply base structuring can be seen as having two strategic aspects (Gadde and Hakansson, 1994): one has to do with the way of suppliers are organised and the other with the number of suppliers to use.

The supply base can be organised structurally in various ways. Structurally, the buying company is at the centre of all service providers in the supply base, coordinating and controlling its activities (Brochner et al., 2004). The buying company may induce working relationships among service providers (Incognito, 2002; Lehtonen, 2004), while some self-governing relationships may form among the service providers (Meneghetti and Chinese, 2002). In the supply base, not all suppliers are directly connected to the buying company. The supply base may take form of a supply network when it is constructed in the form of a hierarchical pyramid with second- and third tiered suppliers (Hines, 1995). Depending on the buying company's sourcing strategies, the supply base may include suppliers in second and third tiers (Choi and Hong, 2002).

If a company has business relationships with a number of suppliers, it is engaged in what is called multiple sourcing. In this classical approach, each of the suppliers responds to the demands and specifications defined for a particular price, and competition is often given priority (Zeng, 2000). By promoting competition among the suppliers, the client is expected to be given better control of price levels (Gadde and Hakansson, 1994). Competition should also alleviate the uncertainty of relying on one supplier (Min and Galle, 1991). On the contrary, single sourcing involves the idea of reducing the number of suppliers a company does business with (Zeng, 2000). When buying FM services, the number of service providers can be reduced either by bundling different services together or by grouping sites under one contract. Cox (1996) defines that in single sourcing, the buying company decides to have a single relationship with one preferred supplier, who is granted a relatively permanent preferential relationship including a variety of tasks. Single sourcing implies that a number of alternative suppliers is available in the market, but the buyer selects and uses only one supplier (Newman, 1988). When only one supplier is available and the buyer uses that supplier, the circumstance is called sole sourcing. According to Quayle (1998) sole sourcing is the result of the client being forced to buy from one supplier only as a result of such market factors as location, exclusive design rights, a particular customer specification and possible buyer inertia.