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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:
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.
For those of you who have done any sourcing over the years, you know the best way to determine truth in the marketplace is to develop a well-designed request for quote (RFQ) and run that quote with three to four qualified suppliers. But a quote is predicated on the notion that you know exactly what you want - specific items and or services. Instead consider reframing your strategy as benchmarking instead of seeking RFQs.
COVID was a 2 x 4 to the head in terms of getting our attention and showing us how quickly a business can go from something amazing to pure survival mode. During early COVID times management teams were scrambling to gather information and executing strategies to cut costs quickly, not knowing when business would come back, if at all.
Many organizations have engaged in some form of cost reduction at one point or another. Most cost control actions are short term….designed to quickly reduce costs in some proportion to the corresponding decrease in revenues. But once they’re no longer needed, they’re retired and spending returns to normal. So what now? What do businesses do to keep and maintain a reduced bottom line and enhance profitability? What can organizations do differently to improve results, increase efficiency and improve effectiveness going forward?
All organizations have a purchasing function within their operations. Some organizations centralize their purchasing activities with one group to leverage spend, reduce costs and drive economies of scale. Other organizations decentralize their purchasing responsibilities and spread that responsibility to management closest to their operational responsibilities to maximize the category expertise.
Pop quiz time: How many supplier contracts does your organization have? Where are your contracts located? When do those supplier contracts expire? Which of the contracts will automatically renew? If you don’t know the answers to these questions, you are not alone.
As a purchasing group, we are continually investigating, interacting with and meeting new suppliers and industry experts who have proven they can impact a business in a very positive way. Many of these suppliers have new and innovative approaches to old problems, and some are meeting new challenges head on.
If your business is like most businesses, you don’t spend a ton of time thinking about your procurement costs. At some point, somebody somewhere set up a plan to order toilet paper and paper towels annually, so that’s that. This is usually true for every purchasing category.
Managing your supplier expenses is critical to your profitability. People can tend to focus their efforts on the “visible” part of an iceberg and neglect to see the dangers of the “invisible”, in this case the size of the iceberg under the water line. What does the “iceberg principal” have to do with the management of supplier expenses?