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Resourcing Critical CRE Activities within Large Scale Manufacturing and Consumer Packaged Goods Industry Sectors

A Large Scale Manufacturing Industry Group Report


August 2011
Background The Large Scale Manufacturing Industry Group (LSMIG) was formed in the spring of 2009 at IAMCs Oklahoma City Professional Forum under the leadership of Judy Passwaters, DuPont, and Bill Pearson, BASF. The group is currently cochaired by Judy Passwaters and David Hocker of Cooper Standard Automotive. LSMIG is a network of corporate real estate & facilities management professionals who represent the large-scale manufacturing industrial sector. This includes industries such as: chemicals, metals, aircraft, paper, heavy equipment, tools, electronics and materials. LSMIGs objectives are to serve as a forum to share best practices, conduct special studies and benchmark IAMC enduser performance metrics that are relevant to this industry sector. Deliverables of LSMIG include: 1. Teleconferences and/or face-to-face meetings of industry sector members to discuss current issues, challenges and potential solutions. 2. Bi-annual conference calls of industry sector members to provide updates on study programs and projects. 3. White papers, studies, benchmark reports. 4. Input to IAMC Forum programs and the Education & Research Committee. LSMIG meets at every Professional Forum and conducts special conference calls dealing with specific issues raised by members; these special calls are termed Flash Calls and have proven to be engaging, timely, and helpful in addressing member concerns and questions. Special LSMIG Report: CRE Resourcing The purpose of this report is to share benchmarking data on full-time-equivalent staffing, both company employees and outsourced contractors, for eight key corporate real estate (CRE) task areas. Data contained in this report were gathered through a benchmark survey of IAMC Active members conducted in the fall of 2009. According to Orient Point Consulting LLC, the term full-time equivalent (FTE) is defined as the number of working hours that represents one fulltime employee during a fixed time period, such as one month or one year. FTE simplifies work measurement by converting work load hours into the number of people required to complete that work. Survey Respondents The sample contains 30 IAMC member companies 26 are in manufacturing; three are in services; and one is in another sector of the economy. The sample companies average 2008 net sales was $20,766,000,000. Net sales distribution across all 30 companies is: $1 billion to $10 billion = 53% $10.1 billion to $20 billion = 7% $20.1 billion to $30 billion = 23% > $30 billion = 17% Two companies in the sample are in Fortunes Global 500. 18 are on the Fortune 500 list. Six are on the Fortune 100 list. Two are on the Fortune 50 list.

What the Data Tells Us Who does the work? MYTH: U.S. companies have significantly outsourced their CRE work. For this sample, most of which are large manufacturing companies, the outsourced portion averages 27% of FTEs. Respondents noted that although many CRE tasks are outsourced, on average, most work, 73%, is done in house by company employees.

All Surveyed Functions for All Respondents


average FTEs, 30 observations Outsourced 27%

In House 73%

For the 30 respondents, following is a list of CRE functions with the percent of FTEs that are in-house versus outsourced.

Activity
Strategy Development Transactions Tenant Fit-Out & Support Lease Administration Database Management Space Planning Facilities Management Surplus Property Mgmt. Property Management

Activity
Strategy Development Transactions Tenant Fit-Out & Support Lease Administration Database Management Space Planning Facilities Management Surplus Property Mgmt. Property Management

In House Avg. FTEs % FTEs 1.8 83% 2.8 75% 1.4 70% 1.4 78% 0.8 61% 1.7 74% 4.8 76% 0.8 61% 0.6 49%

Outsourced Avg. FTEs %FTEs 0.4 17% 0.9 25% 0.6 30% 0.4 22% 0.5 39% 0.6 26% 1.6 24% 0.5 39% 0.6 51%

In House Avg. FTEs % FTEs 2.3 82% 3.1 71% 1.5 62% 1.5 75% 1.0 63% 2.7 74% 3.2 64% 1.1 59% 0.9 47%

Outsourced Avg. FTEs %FTEs 0.5 18% 1.3 29% 0.9 38% 0.5 25% 0.6 37% 0.9 26% 1.8 36% 0.8 41% 1.0 53%

CRE Task FTE Distribution The top-5 CRE tasks, rank ordered by the total allocation of FTEs, (in-house plus outsourced), for all 30 respondents are: 1. Facilities management 2. Transactions 3. Space planning 4. Strategy development 5. Tenant fit-out and support For all 30 respondents, the top tasks conducted primarily by employees are: 1. Strategy development 2. Lease administration 3. Facilities management 4. Transactions The most heavily outsourced tasks are: 1. Property management T2. Database management T2. Surplus property management 4. Tenant fit-out and support Large Scale Manufacturing Industry Group (LSMIG) In this section, well focus on the 17 respondents that are members of the Large Scale Manufacturing Industry Group (LSMIG), engaged in the manufacture of chemicals, components, machinery, materials, etc. These 17 companies outsource slightly more of their CRE work than the average for the 30 Industry Group respondents.

The top five CRE tasks, rank ordered by the total allocation of FTEs, (in-house plus outsourced), for the LSMIG respondents are: 1. Facilities management 2. Transactions 3. Space planning 4. Strategy development 5. Tenant fit-out and support Consumer Packaged Goods Industry Group (CPGIG) In this section, well focus on the seven respondents that are members of the Consumer Packaged Goods Industry Group (CPGIG). Most of these companies are engaged in processing food and beverages for retail delivery. These companies outsource significantly less of their CRE work than the average for the entire respondent pool.

Consumer Packaged Goods Industry Group Respondents


average FTEs, 7 observations Outsourced 19%

In House 81%

Large Scale Manufacturing Industry Group Respondents


average FTEs, 17 observations Outsourced 32%

For the seven CPGIG respondents, following is a list of CRE functions, including the percent of FTEs that are in-house versus outsourced.

Activity
Strategy Development Transactions Tenant Fit-Out & Support Lease Administration Database Management Space Planning Facilities Management Surplus Property Mgmt. Property Management

In House 68%

For the 17 LSMIG respondents, following is a list of CRE functions with the percent of FTEs that are in-house versus outsourced.
2

In House Avg. FTEs % FTEs 1.4 87% 2.5 89% n/a n/a 1.4 87% 0.5 43% 0.6 75% n/a n/a n/a n/a n/a n/a

Outsourced Avg. FTEs %FTEs 0.2 13% 0.3 11% n/a n/a 0.2 13% 0.6 57% 0.2 25% n/a n/a n/a n/a n/a n/a

The top five CRE tasks, rank ordered by total allocation of FTEs, (in-house plus outsourced) for the CPGIG respondents are: 1. Transactions T2. Strategy development T2. Lease administration 4. Database management 5. Space planning

The next largest area of divergence based on company size is for Tenant Fit-Out and Support. Here, the larger companies staff the activity with 60% employee FTEs, while the smaller companies use in-house resources for 90% of the work..
Graph 3: 100% 80%

Tenant Fit-Out & Support FTEs


90% 60% 40%

Does Company Size Make a Difference? Comparison of the Samples 14 largest to the 14 smallest companies. Large companies enjoy superior economies of scale in many operations and have less expensive access to capital markets compared to smaller companies. Such differences result in somewhat different operating models when it comes to the allocation of CRE resources. Consider the Facilities Management (FM) task. The 14 largest companies in our sample of 30 overwhelmingly do this task themselves with little outsourced support. The 14 smaller companies employ almost the opposite approach.
Graph 1: 100% 80% 60%

60% 40% 20% 0%

10% Smaller Co. Larger Co. In House Smaller Co. Larger Co. Outsourced

Facilities Management FTEs


96% 76%

For Lease Administration, all companies in the sample of 30 did most of the work with in-house staff, but smaller companies tended to outsource more than did larger companies.
Graph 4: 100% 80% 68% 60%

Lease Administration FTEs


85%

40% 24% 20% 4% 0% Smaller Co. Larger Co. In House Smaller Co. Larger Co. Outsourced 20% 0% 15% Smaller Co. Larger Co. In House Smaller Co. Larger Co. Outsourced 40% 32%

We see a similar, but somewhat less dramatic, pattern for Space Planning. Over three quarters of the large-company FTEs are employees, compared to a little over one-third for the smaller firms.
Graph 2: 100% 80% 60% 40% 20% 0% 37% 23%

Similarly, for Transactions most of the work in both large and small companies is done with in-house resources, but larger companies tended to outsource more than smaller companies.
Graph 5: 100% 80%

Space Planning FTEs


77% 63%

Transactions FTEs
86% 72%

60% 40% 28% 20% 0% 14% Smaller Co. Larger Co. In House Smaller Co. Larger Co. Outsourced

Smaller Co. Larger Co. In House

Smaller Co. Larger Co. Outsourced

In general, CRE departments of smaller companies in the sample use a higher percentage of outsourced FTEs as compared to CRE units in larger firms.

Percent of CRE FTEs that are Outsourced


50% 42.8% 40% 30% 21.7% 20% 10% 0% Smaller Companies (14) Larger Companies (14)

Conclusions The data in this sample only reflects the business models of two primary industry sectors: Large Scale Manufacturing and Consumer Packaged Goods. Use the findings with care. The data sample is rich; look to the findings for potentially important ideas and trends worth further exploration within your own company. CRE units at large manufacturing companies employ outsourcing for a wide variety of activities. However, the extent of outsourcing is considerably less than was initially assumed and less than what is typically found in service and financial sectors. CRE units invest the most resources in facilities management, followed by transactions management activities. Large Scale Manufacturing companies, on average, tend to outsource more than Consumer Packaged Goods companies. The samples largest companies do most of their facilities management with in-house talent. In contrast, the smaller companies use mostly outsourced FTEs for this task. On average, the 14 smallest companies outsource about twice as much of their CRE work as the 14 largest companies. The decision to out-source or do work with in-house human resources should be carefully evaluated with full understanding of your cost structure and current performance.

IAMC Industry Group Coordinators Pat McKee, UGL Equis Wayne Young, Burns & McDonnell The Large Scale Industry Group Co-Chairs Judy Passwaters, DuPont Company David Hocker, Cooper Standard Auto Members Doyle Shea, 3M Company Susan Reber, Air Products and Chemicals Jim Winter, Alcoa Inc. Bill Pearson, BASF Corporation Jack Gaylord, Stanley Black & Decker Jeff Adelson, Boeing Corp. Real Estate Marty Collier, Caterpillar Kirk Toups, CEMEX Inc. Craig Brace, Cummins Inc. Todd Clark, Cummins Inc. David Newsome, Cummins Inc. Martin Norman, Cummins Inc. Daniel McConaghy, Deere & Company Bob Hand, Deere & Company Tad Leach, Diebold

Steve Zeller, Donaldson Company R. Todd Koele, Dresser Inc. Mark Miller, DuPontPioneer Hi-Bred Bill Wetherholt, Eastman Chemical Co. Phil Hammel, Honeywell Rick Frazier, Kaman Industrial Tech. Chris Whann, Kimball International Len Anderson, Kimberly-Clark Corp. Laura Harvey, Lennox International Dave Robinson, Lennox International Pete Garra, Linde Group Jeff Troan, Lockheed Martin Christopher Goudreau, Northrop Grumman James Eckert, Owens Corning

Frank Butler, Owens-Illinois Michael Brendes, Raytheon Rags Coxe, Sonoco Kim Ile Johnson, Sony Kirk Starks, Texas Industries, Inc. George Manos, U. S. Steel Real Estate Elizabeth Cannon, Valspar Corp. Samantha Turner, Weyerhaeuser Co. Rick Little, Weyerhaeuser Co.

We thank the Large Scale Manufacturing Industry Group sponsors for their continued support: NV Energy Southern California Edison

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