Feature Story

HOW PURCHASING DECISIONS CAN IMPACT A COMPANY'S RELOCATION POLICIES

With the economy still sputtering in many sectors, companies are watching their bottom lines very carefully. Yet a number of relocation industry trends that have emerged over the past five years evoke that old adage, 'penny wise and pound foolish.'

A majority of relocation decisions today are frequently being made by a company's purchasing and/or procurement committee, rather than the Human Resources department, as was historically done. There is also a proliferation of online 'reverse auctions' that is being driven primarily by price. While the goal of reduced costs is a reasonable objective, it should be done within the context of the bigger picture since the relocation company's service fee is only a small portion of the total cost of a relocation.

Since service industries don't typically provide the 'touch' or 'see' factor like furniture or paper, this presents unique challenges for the service provider and the purchasing/procurement committee. When bidding in an online or procurement environment, it's difficult for suppliers to differentiate themselves based on other attributes of their service and organization - it boils down to price. That becomes a chief concern if the purchaser of these services is not fully knowledgeable about the industry or the attributes of the potential suppliers. The purchaser in effect is lumping all suppliers into a pricing grid or matrix, assuming all suppliers are equal - but they are not. This can result in a selection skewed too heavily towards price and doesn't take into account other important variables, including the ability of the supplier to actually deliver what they are promising.

Decisions made purely on price can come back to haunt the purchaser. Companies that switch service providers frequently, solely for pricing reasons, may be doing their employees a disservice. They don't get quality service because service providers know they may lose the business as soon as another competitor comes along with a lower price (and some well-qualified suppliers may not even want to submit a bid!).

So what's the solution? Purchasers should do their 'due diligence' and make sure they understand the relocation business as there are considerable differences in quality levels and service delivery capabilities amongst suppliers. There is nothing wrong with utilizing a procurement approach or using an online reverse auction to retain a service provider, as long as it's only one component of the decision making process.

This is critical because in the relocation business, the price a company pays a service provider is a very small percentage of the overall cost of relocating an employee - usually less than five percent. A typical relocation can easily run into six figures when taking into account the cost of selling the employee's home, buying a new property, transporting goods, factoring in mortgage allowances, and more.

The service provider can play a pivotal role in influencing the total cost of a relocation. A properly orchestrated relocation policy can often save as much as 20 percent of the total price tag. If a company just looks at pricing, they will miss out on the opportunity to partner with a service provider that can successfully align a relocation policy with a company's purchasing, procurement and HR objectives.

Constructing a relocation policy that makes economic sense and meets the needs of transferring employees benefits everyone - the employee, the transferring family, and the service provider.

Return to: 2003 Feature Stories