Q: What are some key best practices related to conducting accurate pricing comparisons on club supplies?
A: It is important to know what to look for when you receive a price comparison. In many cases, comparisons pair the customer’s purchases with lower quality items. For example, a bad price comparison would be to “show savings” by recommending that high-quality bacon be replaced by low-quality bacon flavored with a liquid. Also critical for achieving the best comparison is pulling from the same time period. Due to changes in market costs, it is not accurate to compare a purchase made in July to the price of the same item in September.
Another best practice: For a price comparison to paint an accurate savings picture, savings must be properly weighted according to a customer’s spending habits and history. Some pricing analyses may exploit the opportunity to pick and choose items that would make savings appear much greater than reality. Clubs should study top purchases together, ideally the top 80 percent of spend, to avoid this pitfall—the savings should demonstrate an accurate and holistic picture of the impact contracts would have on an entire budget.
Establishing a strategic procurement program can help private clubs control costs and remain competitive. While many clubs choose to partner with grocery suppliers or other distributors independently, establishing a strategic procurement program can help generate savings without compromising quality or safety.
Q: How do new customers of procurement programs see where they will find savings?
A: Managers should request price comparisons that provide an analysis of the prices they currently pay vs. the prices they would pay for matching items if they leveraged a firm’s contracts.
Avendra begins by collecting a customer’s purchasing data, including specifications, quantities and freight. We then analyze the items on which the customer spends the most, find the equivalent-contracted product and compare their prices. Savings shown on these items will have the biggest impact on the customer’s budget.
We found that using this system saved an average of 12 percent across a variety of segments and categories (food and non-food) in 2014 cost comparison projects.
Q: What are some examples of changes you can implement based on ongoing price comparison research
A: A great area to investigate savings opportunities is the supply chain. For example, some contracts use bracketed freight, which gives the largest discounts to distributors for buying a full truckload of product from a manufacturer. For products with limited shelf life such as yogurt, it’s hard for smaller distributors to purchase a full truckload, as they may not be able to use the product before it expires. Clubs tend to buy smaller quantities of these items for the same reason. To accommodate these situations, different freight structures for yogurt can be negotiated so both smaller and larger distributors can take advantage of favorable freight rates.
In addition, new products may be added to existing contracts. When reviewing “spend data,” look for frequently purchased items that are not under contract. When you find items that exist outside your contracts’ savings structures, it is possible to add these products so you have access to more advantageous contracting terms.
Karen Holden is the director of product analysis of Avendra, LLC, North America’s leading comprehensive procurement services company. With more than 5,500 hotels, resorts, and private clubs as customers, Avendra wields nearly $4 billion of purchasing power to negotiate the best possible deals with key suppliers and provides customers with a safe, cost-effective supply chain. For more information, visit www.Avendra.com or e-mail [email protected].
Q: How do you find the right interim GM and ensure his or her success?
A: Filling a management gap can be a time of high anxiety for membership and particularly for staff. There is uncertainty around what is happening and how it will affect them, their roles and sustainability. When considering an interim general manager, the board must decide if this short-term placement will outweigh the disruption that someone could create within the organization.
Interim general managers may include semi-retired GMs who periodically choose to tackle such a post for two to three months or professional managers who are in between opportunities. The best executive search firms will understand and substantiate why these individuals are available.
From the onset, the club and board need to understand the value, if any, of this short-term hire. Are there areas that might under-perform due to lack of control? Are there quality control assurance systems in place that might slip? What field intelligence is being lost? Are there unique circumstances that require attention?
The answers to these questions need to be in the context of whether the “liability” in these areas is high. For example, if a club has a high performing management team or is closed for the season, is there any value in bringing in an interim GM?
One of the most valuable aspects of having an interim GM, for both the board and the consultant, is having eyes and ears on the ground during the transition.
The astute board or consultant might decide not to place an interim manager to see who internally rises to the occasion or who fumbles the ball. Who disconnects from their goals and objective? Who stumbles? Who reaches out? Who makes an impact? Is there a staff member who rises as a leader who isn’t in a leadership position? These are very powerful insights to learn about your organization and at no cost.
If the board feels an interim general manager is necessary, it must decide if this role will be a “custodian” or a “change agent.” A custodian might be the right fit if you need someone to be the face of the club to both the membership and the staff. Their primary function is to report to the board on the state of the club and simply “steady the rudder.” On the other hand, the board might want a change agent to make any necessary and often times, difficult changes that are required and sustainable. Situationally, the interim GM can go into an organization and make changes that may be damaging for a long-term placement— realignment of staff, changing tough policies, or terminating the “sacred cow” that really needed to go. This can benefit the new GM who will not have to start their tenure making unfavorable though necessary changes.
Once an interim GM is in place, they must be given clear direction and objectives. There should be weekly and formal lines of reporting that can keep both the consulting firm and the board informed. This is important to ensure that the board is compliant with their fiduciary responsibilities and it empowers the consulting firm to develop a strong pool of talent based on the interim GM’s observations.
It is also important to note that short-term placement searches can be more difficult because of the urgency to fill the role and most candidates are looking for permanent positions. The interim manager might only be a short-term solution, but raise his or her hand for the permanent role. Boards and committees wrongfully may default to hiring this individual to expedite filling this gap in leadership. The board owes a comprehensive search process to identify the best talent for their membership available.
Dan Denehy is president of DENEHY Club Thinking Partners, an executive search and management-consulting firm that has positively influenced the member/guest experience at more than 200 clubs and resorts on more than 400 projects. He can be reached at [email protected] or learn more at www.denehyctp.com.
Q: What is the ideal size for a club board?
A: Many clubs are saddled with overly large boards, as those tend to be the standard of the day when their by-laws were written many years ago. Too many governors, which we’ll describe as anything more than 12 members, harkens from the days when the prevailing theory of leadership was that more people at the governance table assured all constituents were heard. This approach does in fact result in more voices being present, but it doesn’t mean they are singing the same tune.
Unfortunately, politics and inertia often stand in the way of reformers who support smaller boards, but the reality is a move away from old-school notions of inclusiveness improves decision- making and delivers results. Seating a large board doesn’t reflect the new environment present at most clubs: the increased professionalism and training of club managers, how time-constraints and other factors have reduced the number of members interested in governance positions, and an increase in the tools available to regularly collect member input and feedback. There are more effective ways to tap into member opinions and discover the facts of a given situation than surround the table with well-meaning but fractious governors.
Many clubs find success with a triangular organizational structure for governance where the narrow tip of the triangle represents the board and the broad bottom is the membership’s voice. The Standing Committees serve as the bridge between these two ends. If the club is doing a good job of listening to its members through two-way communications, periodic surveys, occasional town hall meetings and the like, then the committees and management will have the customer end of the equation in mind as they develop policy and programs that reflect the membership’s desires. This information can then be moved up to the board where action can be taken.
Large boards tend to revisit all the committee and staff discussions that have taken place prior to the initiative reaching the boardroom. This is not only a poor use of everyone’s time, but it often undermines the good work underlying the recommended solution. This results in frustration and resentment on the part of the committee that prepared the recommendation.
Smaller groups are typically more effective because the setting creates an environment of inquiry, discussion and resolution. Large bodies tend to do a lot more talking, so they are much less likely to reach a conclusion. The notion of “alignment” is highly sought after in organizations today. One of the reasons it often remains an unfulfilled goal in clubs is that disparate opinions are often left to function as unsettled factions. The lack of resolution means issues fester and re-emerge over time. Smaller boards become teams that have the opportunity to face their issues more directly, resulting in greater harmony and effectiveness.
A smaller board itself will not make the governance process more effective. The “right-sized” board needs to be synched up with a fully functioning governance and management structure that assures the voice of the membership is well-represented in the leadership’s efforts. It should also vary in response to the size and scope of the club. A large city club where members tend to be a little more hands-off in their approach due to busy work schedules will often require a larger leadership team to achieve quorums and share the work load. Almost all country clubs could benefit from a smaller board with nine members representing the ideal size.
Frank Vain is president of McMahon Group, Inc., a premier full-service, private club consulting firm serving more than 1,600 private clubs around the world. He also serves as a director of NCA and chairs the Communications Committee. He can be reached at [email protected]. For more information, visit www.mcmahongroup.com.
Q: What are some ways clubs can operate at maximum efficiency and cut down on their expenses?
A: The single biggest expense at a club is payroll, consuming more than 50 percent of each operating income dollar spent. If a club cannot control its payroll and other related expenses, it will become extremely difficult to break-even on the bottom line. In an effort to control these expenses, clubs should consider the following:
Hours/Days of Operation
Many clubs, particularly during the “off-season,” limit the times and days that the club is open. This can be an effective way to minimize payroll in the “off-season” when revenue is much lower since employees would only be working five days a week or less, instead of the six or seven days a week they may work during peak season.
Closing Down
Numerous clubs close down for a period of time each year to permit employees to take vacation and allow various maintenance and other projects to be undertaken. For example, it is common for clubs up north to close for periods during the winter when many of their members head south to a warmer climate. City clubs up north will typically close for periods in August when many of their members head to the beaches before Labor Day. During the recent economic downturn, some clubs have extended their close down periods to obtain additional payroll savings.
Scheduling
Scheduling should be done a week in advance for all departments. Any variations from the pre-approved schedule should be approved in writing by department heads.
Hand-Scan Systems
Despite all the technology available today, many clubs still use hand written payroll sheets or time clocks with punch cards that can lead to “inflated” hours. A hand-scan system can help ensure that an employee’s hours are recorded properly and not overstated due to someone else punching them in or out.
401(k) Plans
Such plans are required to file Form 5500 Annual Return/ Report of Employee Benefit Plan annually with the U.S. Department of Labor. Clubs should keep in mind that if the total number of eligible participants reported on Form 5500 exceeds 120, the club would be required to have an annual audit of its 401(k) plan. Clubs should review the annual census to ascertain that the number of participants is correct and, in order to avoid the cost of an annual audit, the club should review the plan documents to ascertain if former employees with minor balances can be removed from the plan.
Food and Beverage Operations
There are many moving parts to a food and beverage operation; however, clubs should consider addressing, at a minimum, the following issues: Joining a cooperative buying program or using a procurement service, competitive quotes, receiving procedures, storing of items, issuing of items from storerooms, portion control, waste, and vendor discounts for prompt payment
Real Estate Taxes
Clubs should consider certiorari proceedings (appellate proceedings for re-examination of assessments) to reduce their assessed value for real estate tax purposes. This is an area where a club can potentially obtain large refunds of real estate taxes previously paid. Most attorneys who work in this area do so on a contingency fee basis, usually a percentage of the savings
Insurance
Clubs typically purchase various types of insurance (general liability, umbrella liability, excess umbrella liability, D&O liability, employee dishonesty, etc.). If the club has not already done so, it should form an insurance committee composed of members that are well versed in the various aspects of insurance to ensure that the club is adequately insured, deductibles and co-pays are appropriate and the premiums are reasonable in the circumstances.
Utilities
Clubs should periodically have “energy audits” performed by an outside expert to ascertain that they are as energy efficient as possible. Particularly if the clubhouse is an old structure, there may be areas that, with the investment of some capital dollars, annual cost savings can be obtained. The above items are not an all-inclusive list of actions that may save expense dollars, but in these economic times with revenue increases hard to come by, controlling expenses without negatively affecting the member experience is more important than ever. !
Daniel T. Condon is a founding partner in the accounting firm of Condon O’Meara McGinty & Donnelly LLP, which currently serves as auditors, consultant and tax advisors to more than 325 clubs in 14 states. He has practiced in the area of private membership clubs for more than 30 years. He can be reached at 212-661-7777. Learn more about COMD at www.comdcpa.com.