Purchasing Departments or Spend Management functions are a given in most larger organizations.
They are typically charged with:
This is a strange economy. Sales may be gaining momentum but in many cases, it seems that fat is beginning to creep back in to many organizations and tamping down profitability. Profitability can be elusive, and the level of profitability depends on how well the business is managed.
We will spend a bit of time on common sources of profit leakage and strategies to address those leaks and plug the holes.
Margin compression is very real for most dealerships. As companies continue to consolidate, competition can be reduced, prices go up and a take it or leave it attitude can prevail with some suppliers - giving dealerships even more headaches to contend with.
Expense categories where supplier consolidations have occurred:
Many organizations’ profits are being challenged by compressed margins, growing expenses, flat sales and greater competition. As leaders, it is up to us to have plans in place to prevent that profit erosion and have the data, tools, reports, metrics and strategies to manage through to better results and targeted profitability.
A high-performing purchasing or sourcing group can make contributions to the business in a number of ways. Most people think of purchasing groups in terms of their ability to reduce costs and improve overall profitability and that is the probably the greatest focus of most groups. Additionally, purchasing’s role in the supply chain is to also ensure that the “right goods are procured, at the right cost, at the right time, at the right quality levels and in the right quantity and delivered to the right location”.
Purchasing teams can also have an impact on the administrative impact of a business by ensuring that a narrow, high performing supplier base is in place vs. a large, bloated, inefficient supply base that reduces leverage and adds costs. High performing Purchasing groups can also impact your gross profits in a positive way…..in many more category areas than you might have first thought.
The categories that make up goods and services that are ultimately resold to your customers are many and offer some real significant opportunities to buy for less, increase your mark-ups and sell for more - improving your gross.
Business leaders face many challenges and many opportunities every day. If leading your organization to reduced costs and improved profitability is a course you have chosen, developing an aggressive objective and an executable plan are essential next steps.
There is no question that dealerships are focused on cutting costs. We see it in our business, we heard it at NADA and we talked with suppliers at NADA who were honing in on that message as well. Cut costs and track the reductions…a great objective for any business or non-profit.
Most business organizations find themselves involved in cost reduction initiatives from time to time. To sustain an organization over the long term, cost reduction efforts need to become deeply ingrained in the business structure itself and that is usually accomplished through a Spend Management or Purchasing Department. Purchasing is typically charged with sourcing, quoting, negotiation, implementation and supply base management responsibilities including compliance audits.
Is improved profitability really a priority for most organizations?
The implementation of a Spend Management Vision – a dedicated function within an organization is very common in most large organizations. While most organizations that have a Spend Management Vision and Department realize the benefits and efficiencies, organizations that do not have those functions resident in their organizations probably do not realize the costs of being highly decentralized.