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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.
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.
Is improved profitability really a priority for most organizations?
Most organizations in the U.S. and Canada are decentralized in their purchasing approach. What that means is various leaders, managers or employees within departments are charged with managing selected expenses, including the periodic shopping, quoting, benchmarking and negotiation with suppliers.
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?
