relocation white paper - 09jan2015
TRANSCRIPT
Sourcing and Negotiating Relocation Services
©Corris Consulting Group – Jan. 2015 [email protected]
1 | Page
Prelude
I started my professional career in Human Resources and later developed one of the first shared services
centers for the IT company I was working for at the time. The shared service model was a one-stop shop
intended to service the needs for our 7,000+ software engineers who were working at remote customer
sites. These employees and consultants, who were predominantly foreign nationals working in the
United States on H1B visas, had an interesting array of requirements which included relocation services.
We processed more than 750 relocations per year, so my expertise in this field was developed by trial
and error from working over 15 years in the field. I’ve given several presentations on the subject,
including one titled “Managing the Corporate Relocation Spend While Maintaining Employee Benefit”
which I presented at the Institute for Supply Management’s Annual Services Group Conference in
2006.The following is intended as a primer for sourcing these complex services that have more heads
than a Hydra.
The Sales Pitch
There are many white papers and case studies that tell Human Resource and Procurement professionals
how to aggregate spend to save money via engaging the services of an overall Relocation Management
Company. While these papers speak to Procurement 101, which is aggregation of spend, these usually
lead you down the path to their success by targeting low hanging fruit and quick hit opportunities, which
are not necessarily in the best interest for your company in the long term. That is not to say that they
are bad, but more to point out that Relocation Management sales personnel are industry professionals
with strong negotiation skills and tons of experience in making their point. The pie chart below provides
interesting statistics that came from a white-paper by written by SIRVA titled, “Breaking Through the
Relocation Cost Reduction Paradigm: The Total Cost of Ownership Approach.”
Source: SIRVA Worldwide – April 2013
41%
11%14%
11%
6%
6%
3%3%
2%2% 1%
Total Cost of Relocation By Item
Home Sale Costs
New Home Purchase
Household Goods (HHG)
Tax Liabilities
Temporary Accommodations (during move)
Miscellaneous Allowance
New Home Location
Service Fees
Final Move
Spousal Assist
Expense Management
Sourcing and Negotiating Relocation Services
©Corris Consulting Group – Jan. 2015 [email protected]
2 | Page
The SIRVA data makes a relevant point in that relocation services fees are less than 3% of the total cost
of employee relocation. So, why do most HR and Procurement professionals concentrate on bidding
only service fees and household goods? HR just wants one company to act as an intermediate buffer
between them and the relocating employee, so their buy is purely emotional. To the Procurement
professional who is less emotional and more analytical, they will settle for a small savings amount, since
the total process is something they don’t really understand. Both groups are missing the opportunity for
a large process improvement and usually a significant savings as well. In most cases you can have it all.
Market Analysis
Most of the larger and even some of the mid-sized relocation management companies own affiliate
moving and storage companies, brokerage service providers, and real estate agencies. Procurement 102
is to conduct a market analysis and understand the vertical integration of the relocation management
firm that you want to use to manage your program. In most cases, the relationship between the
relocation management firm and its suppliers is incestuous and creates a general conflict of interest. The
following table illustrates two examples of this:
Company Name Affiliates
SIRVA Allied Van Lines
North American Van Lines
Allied International
Allied Pickfords
DJK Residential
SIRVA Mortgage
SIRVA Relocation
SIRVA Move Management
SIRVA Global Relocation and
SIRVA Settlement
Cartus Coldwell Banker
CENTURY 21
ERA (Home Loans)
Sotheby’s International Realty®
ZipRealty
The Corcoran Group
Citi Habitats
Coldwell Banker Commercial
Title Resource Group (TRG)
Better Homes and Gardens
Real Estate
As you can see above, both companies own or control multiple real estate companies, mortgage
companies, title agencies, and have van line affiliations. Most all relocation management agreements
Sourcing and Negotiating Relocation Services
©Corris Consulting Group – Jan. 2015 [email protected]
3 | Page
utilize a cost plus model for service fees that add a percentage fee to the cost (which is likely to be
above market rate) plus their fee. For example, if an expensive piece of art work needs to be crated, the
relocation management firm may use a company they own or control to provide the service at inflated
rates. Then the relocation firm adds their service fee to your invoice. They make profit and collect fees
on everything they touch. There is nothing wrong with this if you know the services provided were at
market rates, but it’s rarely at true market rate. Transparency and trust are paramount in any
agreement but remember to add the right to audit. The joke on the right to audit is that you need
subject matter expertise to conduct the audit and that does not normally exist in house. The relocation
management firm will always have supporting invoices from their own affiliate companies in their
records. So unless you have a trained eye, you will not catch them doing anything unlawful in this
process. While it’s not unlawful, the conflict of interest should be questioned ethically.
Areas of Concentration
The three external areas that you should be most concerned with are: home sale costs, new home
purchases, and household goods movement. All relocation management companies are going to want to
maintain control of the real estate, because the home buy and sell costs are a combined 52% of the total
costs of employee relocation. So, concentrating on the reduction in household goods movement at 14%
of the total relocation cost and neglecting to examine the real estate piece of the pie at 52% of the cost
is naive. A 1% reduction in home buy/sale costs are equal to a 3.5% reduction in household goods
movement. You might come to the conclusion that real estate costs and fees are really the only
expenses that matter. While that may appear true, it’s not the only opportunity.
As stated previously, the relocation management company will be unlikely to let go of the real estate
action, but the terms are fully negotiable. Step two is to control their subcontractors. The relocation
management firms will either push the household goods movement to their own van lines or those with
which they have partnering agreements. Every household goods move the Relocation firm books on
your behalf gets them a commission or fee from the carrier plus they charge the client an additional
service fee. It’s the double dip that you are trying to avoid. The cure is that you can bid the household
goods movement separately. This permits you the opportunity to choose the van line of your liking
before negotiating or bidding the aggregator service (a.k.a. the relocation management firm). Lastly,
temporary housing can be bid out as well before choosing the relocation management firm. Because
you have created a trilogy of providers with the use of two hand-picked subcontracts, you have
controlled the market price with competitive bidding and also controlled the total cost of relocation.
Concentrating on home sale costs, new home purchases, and household goods puts you in control of
66% of the total relocation cost. There is nothing you can do about the tax liabilities. Miscellaneous
expenses, spousal assist, and final move costs are internal governance issues normally controlled by the
corporate relocation policies.
Previously in this white paper we discussed three external areas of concentration. Now we will talk
about benchmarking, best practices, and policy. Benchmarking your relocation policies is relatively easy
to do. Just keep an open mind and stop thinking that your particular company is different than any other
because it’s not. Benchmarking relocation policies is also easily done with membership in Worldwide
ERC (http://www.worldwideerc.org/ ). Once the policies have been established, you must address
compliance. I suggest using a tiered policy approach, which is more generous for those in higher
positions in the corporate food chain. Executive exceptions seem to be the worst, because that is where
Sourcing and Negotiating Relocation Services
©Corris Consulting Group – Jan. 2015 [email protected]
4 | Page
the opportunities are, since the exceptions spawn and grow. It is not unusual to see the exceptions
totaling more than a million dollars in an average size program, which defeats the purpose of the
sourcing event. Employment agreements must reference corporate policies without exception. Support
from senior management and the budget owners is critical to maintain compliance. If you are to make
an exception of any kind, keep it out of relocation and tie it to a sign-on bonus which will be taxed. It’s a
slippery slope once you say yes to an exception, because more are sure to follow.
Summary
For more information, you may contact Frank Corris at [email protected] or visit the profile of Frank Corris, C.P.M & CPSD on LinkedIn at: https://www.linkedin.com/pub/frank-coris/0/847/27b Frank Corris and Darlene Corris, PhD are the founding members of the Corris Consulting Group. Frank has 30 years of combined
HR and Procurement experience in; retail, higher education, and energy industries. He earned undergraduate degrees in
Aeronautics and Business as well as a Master’s Degree in Public Management from Carnegie Mellon University. Frank holds two
professional certifications from the Institute for Supply Management (ISM) as a Certified Purchasing Manager and a Certified
Professional in Supplier Diversity. Frank is active in the Pittsburgh affiliate of ISM and has been a featured speaker at ISM events,
PeopleSoft, National Business Travel Association, Ariba Live, Aberdeen Group webinars, and a few local charities.
Darlene Corris, has more than 15 years in higher education and has held administrative positions for the last seven years as high
school and middle school principals. Darlene is certified and has taught A/P and Honors Chemistry, Physics, and Biology. She
earned an undergraduate in secondary education, a Master’s degree in Public Management from Carnegie Mellon University,
and a PhD from Robert Morris University. She has a book and several publications related to research and education.