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That’ll Do Nicely

24 October 2007

To control costs and reduce paperwork across its dispersed organisation, the Cleaning and Facilities division of Rentokil Initial turned to a plastic solution – American Express – with successful results.

RENTOKIL INITIAL’S CLEANING AND FACILITIES division wanted a corporate purchasing solution that would enable it to streamline its procurement processes, reduce costs, deliver compliance savings and achieve economies of scale where possible. American Express’ solution fitted Rentokil’s needs because it offered not only a modern, streamlined purchasing system but also tight budgetary control. Rentokil is now saving £200,000 annually through cost and compliance savings, and expects to achieve more once additional suppliers are enrolled in the scheme. Furthermore, the Rentokil Initial Group has been so impressed with the success of the procurement card that it is now rolling it out nationally to all its divisions.

The Rentokil Initial Cleaning and Facilities division employs about 22,000 cleaners (many of whom work part-time) and 1,000 staff including supervisors, regional managers, operations managers, sales, administration, finance and senior management. As Debbie Dowling, the finance director at Rentokil Initial Cleaning and Facilities Services explained, most of the cleaning products and other materials it buys are high volume, low value goods. The problem for Rentokil, she said, was that the mechanisms in place to manage suppliers were highly manual and labour intensive. “It involved lots and lots of paper for lots and lots of small value,” said Dowling.

She wanted the organisation to simplify the processes for purchasing materials and move to an automated, electronic system. “This would help us achieve three types of savings," she explained. "Cost savings because we would not need to process invoices manually and would have greater visibility into what we are buying from suppliers; compliance savings as our district managers would have to use suppliers that we have a national agreement in place with; and finally, sourcing savings because we would have the opportunity to negotiate a better rate for materials.”

Dowling had worked in the past for companies that used a corporate purchasing solution to automate their transactions and gain visibility into spend. With this in mind, and having been approached by American Express, she decided to investigate it further. “The difference between American Express and other suppliers is that American Express is the only card that offers really tight budgetary control,” she said. “We did not want a card where managers could any supplier they wanted to.” Then came the tricky part: Dowling had to put together a business case for the project to persuade Rentokil Initial Group that it was worth the investment. This was no small endeavour: “It took a lot of effort,” she explains. “But the team at American Express were absolutely fantastic because they helped me out with the business case, were really supportive and demonstrated some great teamwork.

“Our board struggled at the time with the concept and I had to rewrite the business case five times before it received approval,” she admits. “However, if I had to do it again now I do not think we would encounter the same problems, as our top board has significantly changed and we have a new chief executive and new finance director.”

Dowling was given the go-ahead to trial American Express’ corporate purchasing solution – which Rentokil rebranded as the ‘procurement card’ – within one of its cleaning businesses to demonstrate if it could obtain the results it promised. Three months later with the savings clearly achieved, Dowling submitted her findings, the project was internally audited and she was granted group approval to roll out the procurement card to the rest of the Cleaning and Facilities division.

The company is now putting 60 per cent of transactions through the procurement card and has issued more than 250 cards to managers. The division’s next objective is to introduce more suppliers to the system, such as its stationery and capital equipment suppliers, to achieve further cost savings. “I suspect we will end up with about 20 suppliers on the system, but this will cover 80 per cent of our transaction base,” reveals Dowling.

She points out that by bringing capital equipment suppliers into the system, the company will see an additional benefit in reducing workload. “When we process a fixed asset at the moment not only does it have to be processed on the purchase ledger but it also has to be put on the fixed asset register as well,” she explains. “If we receive an electronic file from American Express, we could upload it to the purchase ledger and fixed asset register at the same time, so it would have more benefits for us in terms of headcount savings.”

Buy in
The hardest part of the process was not, as might be expected, automating the procurement process and integrating the card with Rentokil’s general ledgers but obtaining ‘buy-in’ from suppliers. “Most suppliers thought that it would be an extra cost burden for them,” she reveals. “We visited each one and explained that if we could get a paperless benefit from the procurement card, then so could they. The big benefit is that they are paid five days after the transaction rather than 60 days after we receive the invoice now, so they have a cashflow benefit,” she adds.

With one supplier, Rentokil even examined how the two companies could work better together and agreed to place its orders at quieter periods in the supplier’s cycle to balance out the company’s workflow throughout the month.

The automated process means that Rentokil no longer has to worry about creating purchase orders or invoices manually; everything is managed electronically and triggered automatically.

Before the process was fairly lengthy. As Dowling explained, “If one of our district managers decided he needed to place a materials order he or she would normally print it out and fax it across to the supplier; the PO would have to be authorised internally and go through our internal process; the supplier would then deliver the goods, the invoice would go to the branch and the manager would put the invoice into the system. This would then be downloaded into our central purchase system and we would approve the payment, before payment was made.

“Now there is no pre-authorisation process because the supplier has authorisation limits on the card,” she continued. “So when the district manager wants to make a purchase he contacts the supplier direct, the supplier authorises it or rejects it, and then we pick up the file at the end of the month. The district managers love it because they do not have to chase internal authorisation and they know what their spending limits are because they are on the card.”

Control
If a manager tries to order more than the limit on the card, the order is rejected and the manager receives a text message alerting him or her to the problem. The manager then has to contact the central administrator to explain why the limit needs to be extended in this instance. The process is centrally managed and Rentokil has tight budgetary control over its expenditure.

Rentokil has achieved the savings Dowling originally outlined in her proposal and much more. In terms of its cost base, Rentokil has reduced its invoice processing team by 70 per cent, equivalent to an annual saving of £100,000. “With compliance savings as well, we have probably saved the company almost £200,000 a year,” she said.

Despite winning new clients, the division has also not had to hire any more invoice processors to deal with the extra demand as the automated system can scale up to cope with greater capacity.

One of the savings Dowling has not achieved yet – but has earmarked as the next challenge – is supplier savings. “We want to make better use of the data American Express supply us with and rationalise not just our supplier base but also the products they are using. By concentrating on fewer products we might be able to all achieve some economies of scale,” she explains. “For example, with the price of oil going up, the price of plastic bags has increased. At the moment we might order 50 different types of bags, but if we could cut the 50 different types down to two, then our supplier could get better deals on these two styles and we all win.”

While Rentokil might not have yet achieved savings in this area, it has gained some extra benefits that were unexpected. “With some of our clients we will order consumer goods for them – such as hand towels and toilet rolls – and charge them as an extra service,” explains Dowling. “What we were finding with our old system is that because it was a manual process we often forgot to invoice our clients back, so we were spending money on our suppliers but missing out on the income. With the American Express system, we have created two separate cards – one that is for rechargeable goods and one that is not. Every rechargeable good now goes through a pre-planned route and an invoice is created automatically for the goods purchased. As a result, we have seen our levels of rechargables increase since implementing the
procurement card.”

Future
The procurement card has been such a success in the Cleaning and Facilities division that the rest of Rentokil Group will be moving to the American Express solution. This will not only give other divisions the opportunity to achieve similar savings but also attract a rebate from American Express if the volume of goods being purchased through the card is high.

Within Cleaning and Facilities, Dowling continues to look for ways to improve the division’s use of the card and achieve further savings. In the meantime, the division continues to gain from savings in process automation and compliance. “The procurement card has been excellent for us,” concludes Dowling. "We’ve definitely achieved headcount cost savings and compliance cost savings, and soon we hope to benefit from sourcing savings as well.”

Link: Rentokil Initial


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