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Ho w Can Daycon Help Reduce Co s t s and Improve Resident Satisfaction?

We sent OUR team to three MARYLAND communities to review service operations and analyze supply chain management practices. Every day, at ABC Management portfolio communities throughout the region, Service Managers and maintenance teams are working diligently to meet a wide range of resident repair requests, conduct routine community maintenance, manage vendors and contractors, complete turnovers, and respond to the needs of Property Managers. Last month, Daycon Integrated Services sent a team of Supply Chain Management experts to three ABC communities to analyze sourcing, procurement and inventory management practices in order to answer the following key questions: 1 Do your Service Managers and maintenance teams have the parts and products they need, when they need them, to quickly respond to the needs of residents? 2 3 Do current inventory management procedures ensure against overstocked and out-of-stock items that increase costs and require last-minute procurement inefficiencies? Is the specification of parts and products standardized to ensure optimal cost savings and ease of installation? Our initial findings from this audit are presented in this report, along with recommendations on how Daycon can help ABC Management eliminate supply chain bottlenecks and inefficiencies to reduce costs and improve resident satisfaction through a one-stop Supply Chain Management Partnership. Page 2

OVERVIEW The photos above portray the disorganization and lack of inventory management controls that keep service teams at ABC communities from performing at peak efficiency. An operational audit can feel intimidating, or even threatening, to service personnel. However, this was not the case with the ABC Service Managers we interviewed. They were highly responsive to our questions, and candid in their assessments of where and how improvements could be made. Outstanding Training and Skills Management: ABC Management communities clearly excel above the vast majority of other multifamily community companies in training and skills utilization. Staff are trained at the basic and advanced levels for all critical skills in handling repairs and turnovers. While the time spent by these communities on turnovers and repair tickets falls within industry norms, ABC enjoys a cost advantage over competitors due to its lack of reliance on subcontractors. Disorganized Shops and Inadequate Inventory Management: In stark contrast to its outstanding training and skills management, ABC communities suffer from unacceptable shop conditions and inventory management practices that are poorly organized, inefficient, and, in some cases, hazardous. Every Service Manager recognized inventory management as a major weakness, and welcomed the opportunity to make improvements that will save time and increase operational efficiency. Page 3

Community 1 Community 2 community 3 AVERAGE The average of all three communities is used as a rough estimate for the overall portfolio. Units 291 410 111 270 Service Personnel 4 4 1 3 Time spent on supply chain and inventory management per week 20.5 hrs. 12 hrs. 9 hrs. 13.8 hrs. Ratio of avg. monthly turnovers to service personnel (sp).875/sp 6.25/sp 2/sp 3/sp Ratio of avg. monthly repair tickets to service personnel (sp) 30/sp 63/sp 85/sp 59/sp Work performed by in-house staff Plumbing 95% HVAC 100% Electrical 100% Renovations 90% Turnovers 100% Cleaning 100% Painting 20% Plumbing 100% HVAC 100% Electrical 100% Renovations 100% Turnovers 100% Cleaning 0% Painting 0% Plumbing 100% HVAC 100% Electrical 100% Renovations 100% Turnovers 100% Cleaning 0% Painting 0% Plumbing 98% HVAC 100% Electrical 100% Renovations 97% Turnovers 100% Cleaning 33% Painting 7% Annual Inventory Expense $66,540 $228.65/unit $48,552 $118.41/unit $4,872 $43.89/unit $39,988 $148.10/unit SERVICE METRICS The metrics listed in the above table are based on estimates provided by the Service Managers at the three audited communities. While each community has unique requirements, accounting for some of the variances in ratios, the service teams are extremely productive. It is unusual to find nearly 100 percent of repair and turnover work (except cleaning and painting) conducted by in-house staff. Our objective in collecting this data is to identify significant variances in performance between communities, deviations from industry norms, and specific areas for process improvement and cost savings. Community 2 is operating at nearly twice the service efficiency of Community 1. The size and specialized nature of Community 3 make direct comparisons difficult. Service Managers are spending, on average, 30 percent of their time dealing with inventory and supply issues. This includes time spent off site buying materials, dealing with vendors, and locating materials for prep. Annual spending for maintenance and repair supplies at Community 1 and Community 3 reflects huge variances above and below the industry average of $125 per unit. ABC s reporting systems make it difficult to track, analyze and control inventory spending. Page 4

SERVICE OPERATIONS AUDIT REPORT Exceptional Average Below Average Unlike the key metrics listed on the previous page, this evaluation takes a more qualitative view of how service operations stack up against other multifamily housing operations. When viewed holistically, this paints a promising picture of opportunity. Improving shop conditions, procurement and inventory management will enable better performance across service operations. Where current inventory spending is listed as Average to Below Average, we are confident that, through our partnership, this can improve to Exceptional within the next nine months. SCORE CARD Comm 1 Comm 2 Comm 3 Average Comments & recommendations Shop Conditions None of the shops has categorized inventory in bins with labeled part numbers. Community 2 has some labeled inventory. Community 1 has been waiting several months for its vendor to start this process. Community 3 has only three small shelves of inventory. Inventory Management Process No minimum and maximum inventory levels are used to prevent overstocking and understocking of inventory. This results in additional inventory carrying costs and last-minute procurement. Sourcing & Procurement Process Managers are spending too much time dealing with vendors and procurement issues. Also, ABC is liable for employees during working hours, including time spent off site. Bulk ordering at Community 2 prevents inventory tracking, and storage of cases on shop floors makes access difficult. Skills Management ABC service teams are among the best trained in the business. Apartment Turnover Process Performance across all communities can be improved with more organized shops, more accurate inventory management, and more efficient sourcing and procurement. Repair Ticket Process All shops could benefit from instituting repair ticket books for tracking problem resolution times. Inventory Standardization Opportunities exist to reduce costs and installation times through additional standardization, new product research and training. Subcontractor Utilization This is exceptional across all communities. Inventory Spend Improvements are possible across all communities with better inventory management and tracking. Page 5

ANSWERS TO KEY QUESTIONS Do your Service Managers and maintenance teams have the parts and products they need, when they need them, to quickly respond to the needs of residents? No. Response times for repair tickets and apartment turnovers fall within industry norms. Service teams are getting the parts and products they need, but at what cost? The way supplies are being purchased, managed and inventoried today is taking up an inordinate amount of Service Manager time. This results in sub-optimal inventory levels that drive up costs and chaotic shop conditions that make it more difficult for service teams to do their jobs effectively. We estimate that our outsourced Supply Chain Management systems, procedures and personnel will save an average of one full day a week for the Service Manager at each ABC community. They can then devote more time to direct and indirect tasks that will yield higher returns on your manpower investment and increased resident satisfaction. Do current inventory management procedures ensure against overstocked and out-of-stock items that increase costs and require last-minute procurement inefficiencies? No. Implementation of minimum and maximum stocking quantities for all parts, materials and supplies will reduce working capital requirements and ensure the availability of inventory required to meet turnover and repair requirements. This will prevent the need for bulk ordering, which results in shops being overwhelmed by boxes of materials for two weeks every month. Is the specification of parts and products standardized to ensure optimal cost savings and ease of installation? No. Some inventory standardization exists across the communities audited. However, we are certain this is an area that can benefit from further improvement. We believe we ll be able to identify products and installation techniques that can provide increased efficiencies and additional cost savings. BUSINESS BENEFITS The table below shows estimated savings resulting from the Daycon ABC Supply Chain Management Partnership across 58 regional communities. TYPE OF Benefit Business Impact Savings Detail Annual Value of Savings for 3 Communities Annual Value of Savings for 58 Communities Productivity Enhancement Time Savings: Number of hours saved annually by Service Managers through the Daycon ABC Supply Chain Management Partnership 8 hrs. per community/week $34,944 $627,328 Assumptions: Time savings based on average fully loaded cost per Service Manager of $26.00 per hour. $627,328 represents the estimated value of the productivity enhancement, not direct reductions in operating costs. Cost Reductions Annual Reduction in Inventory Costs: The Supply Chain Management Partnership will yield 20 percent in direct cost reductions for inventory and supplies across all portfolio communities. 20% $23,992 $237,907 Assumptions: Cost savings based on reduction in spending from $148.10/unit to $118.48/unit for 8,032 units. Page 6

SUMMARY OF BENEFITS: The Daycon ABC SUPPLY CHAIN Management Partnership Daycon Integrated Services will provide ABC Management with a one-stop Supply Chain Management solution that reduces procurement and operating costs, and frees personnel to spend more time meeting the needs of residents. Your facilities and maintenance teams will have a single point of contact and accountability for sourcing, procurement, and on-site inventory management for the thousands of parts and products they use daily. These include plumbing, HVAC, electrical and lighting, hardware, appliances and parts, and janitorial supplies. Order processing, cost management, reporting, and just-in-time inventory fulfillment are all handled through Daycon s resource management system, ensuring that your communities have the inventory they need, when and where they need it. Page 7

One-Stop Solution Sourcing & Application Expertise Daycon Supply Chain Management Program On-Site Inventory Management Resource Management Technology One-Stop SOLUTION: We provide a single point of contact and accountability for managing supply chain needs through unique integrated partnerships. On-Site Inventory Management: We transform your maintenance shop supply areas into neatly organized, bar-coded bins that are always stocked at appropriate levels with the materials you need. Sourcing & APPLICATION Expertise: Our experts have the in-depth expertise of all your supply needs to help you choose the most cost-effective products, speed installation, and reduce replacement and operations costs. In addition, we can design and implement apartment renovation programs to enhance market appeal and increase the efficiency of your renovation processes. Resource Management Technology: Our resource management system tracks every event in the procurement process to optimize inventory levels and cost savings, providing your purchasing and accounting departments with the controls and reports they need, including usage and budgeting data. Page 8

Give Service Managers an extra day each week to improve resident satisfaction. One-Stop Solution ABC Service Managers are among the hardest working in the business. They handle far more repair and maintenance responsibilities than their peers at competitive communities. The ABC partnership with Daycon Integrated Services will free managers from non-value-added tasks: going off site to buy supplies; managing multiple vendors, orders and deliveries; and routine inventory management chores. This allows them to maximize the technical expertise and skills they currently possess while facilitating additional opportunities for growth. The time saved through the Daycon ABC Supply Chain Management Partnership can be spent troubleshooting community issues, executing work orders, responding to the needs of Property Managers and residents, and creating value for the company. Page 9

Transform your supply areas into organized, barcoded bins for easy access and inventory control. On-Site Inventory Management The current chaos and disorder of ABC shops and storage areas will be transformed into supply areas where every inventoried item has a category, part number, bar code and storage area. The resulting shop will be maintained to ensure quick access and response to emergencies, work orders and projects. The Service Manager will be able to quickly assess required items and rapidly assign work. Inventory management and product sourcing are handled by a dedicated Field Service Representative (FSR), whose job it is to function as your primary source of contact for all of your communities needs. On every site visit, the FSR will conduct a mini inventory and restock, according to your communities unique minimum and maximum levels. He will consult with the Service Manager to ensure that all scheduled project and turnover needs are identified. The problem of open boxes piled on shop floors will be eliminated and replaced by a proven system of just-in-time inventory management that anticipates turnover and repair requirements. Page 10

Get the PRODUCT, PROCURE- MENT AND APPLICATIONS expertise You need to reduce COSTS AND IMPROVE ROI. Sourcing & Application Expertise Your Field Service Representative is supported by a seasoned team of industry veterans with expertise in procurement, finance, logistics, products and applications. This translates into increased purchasing power, exceptional service, and access to the industry s leading experts in flooring, plumbing, electrical and light fixtures, hardware, appliances and parts, building materials, paint and cabinetry. As part of the Daycon ABC Supply Chain Management Partnership, we provide sourcing research, new product recommendations and training, and industry updates all designed to help you reduce costs and increase your return on investment. The vast experience and knowledge base of the Daycon Integrated Services team will become an asset and resource for each ABC portfolio community, enabling them to take advantage of the industry s proven best practices, products, processes, and forward-thinking ideas and technologies. Page 11

Optimize inventory levels, and get the reporting and controls you need with DAYCON S resource management technology. Resource Management Technology At the core of the Daycon ABC Supply Chain Management Partnership is our Resource Management Technology platform. This includes wirelessly enabled hand-held computers that allow Field Service Representatives to quickly scan inventory bar codes and enter new orders. Utilization rates, pricing, shipping and tracking are all handled through Daycon s integrated ERP and CRM systems. Annual Usage reports can be run for each community to assist in analyzing spend and forecasting for future budgeting needs. Participating in our consolidated billing process eliminates the burden of multiple purchase orders and payments to dozens of different vendors. Invoices can be transmitted electronically for download into your database. Your finance department will significantly reduce processing costs with one monthly invoice and unified GL reporting from a single source. Page 12

Deployment Process & Sample Schedule Daycon will follow a five-phase, 24-step process for deployment of the Supply Chain Management Partnership at ABC s 58 regional locations. The schedule below, presented as a sample only, shows our five major deployment phases. Project Lead: In order to make the overall deployment process as efficient as possible, we request one primary point of contact from ABC Management to serve as the Project Lead. This individual should have decision-making authority for procurement, inventory management and service operations policies. Schedule: Many factors will influence the actual deployment schedule, including the availability and schedules of ABC service personnel and conditions at each community. During the Planning and Walk- Thru phase, we provide a checklist to each Service Manager, itemizing conditions that need to be met to begin shop setup. These conditions include removal of trash, hazards and obsolete items. ABC Management Planning & Walk-Thru Account & GL Setup Shop Setup Community Kickoff 30-Day Review Community Name Location City/State/Zip A B C D E F G H I J K L M N O P Q R S T U WE 7/23 WE 7/23 WE 8/06 11-Aug WE 9/17 WE 8/06 WE 7/23 WE 8/27 1-Sep WE 10/1 WE 8/20 WE 7/23 WE 9/10 15-Sep WE 10/15 Page 13

ABC Management Planning & Walk-Thru Account & GL Setup Shop Setup Community Kickoff 30-Day Review Community Name Location City/State/Zip V W X Y Z AA BB CC DD EE FF GG HH II JJ KK LL MM NN OO PP QQ RR SS TT UU VV WW XX YY ZZ AAA BBB CCC DDD EEE DC DC Virginia Virginia Virginia WE 9/03 WE 7/23 WE 09/24 29-Sep WE 10/29 WE 09/17 WE 7/23 WE 10/08 13-Oct WE 11/19 WE 10/01 WE 7/23 WE 10/29 3-Nov WE 12/03 WE 10/22 WE 7/23 WE 11/19 24-Nov WE 1/7 WE 11/12 WE 7/23 WE 12/03 8-Dec WE 1/7 WE 11/19 WE 7/23 WE 12/17 22-Dec WE 1/28 Page 14

PLUMBING HVAC ELECTRICAL & LIGHTING HARDWARE PAINT APPLIANCES & PARTS BUILDING MATERI- ALS GROUNDS JANITORIAL SUPPLIES All of us at Daycon Integrated Services appreciate the opportunity to provide these observations, insights and recommendations to ABC Management on how we can reduce costs and increase resident satisfaction through our unique partnership program. By serving as your one-stop solution for all the materials, parts and supplies used in daily operations, we can positively affect your return on investment. In addition, as part of our partnership program, we provide valueadded services, such as assistance in implementing green cleaning and sustainability programs, access to seminars and research reports on current industry trends, and the ability to work with established multifamily housing leaders on both a local and national level to provide you with a platform to the future. At this time, we would like you to consider the program put forth today. We stand ready to begin the Daycon ABC Supply Chain Management Partnership and implement our recommendations to help improve your bottom line. Harry Feldman President Daycon Integrated Services Harry.feldman@daycon.com 301.385.4320 Page 15

Daycon embraced the concept of partnering by taking over our supply chain and inventory management functions. The value they create for us is measured in time savings and productivity improvement. - Ron Frank, President Southern Management Corporation