StrategicSource Blog

As we’re approaching the end of 2021, many businesses are finding some disappointing profit margins. With the volatility of 2020 and 2021, it’s likely that your profitability suffered. While we can’t predict what will happen in 2022, one thing we can do is offer some tips for effective cost management strategies. Many businesses spend more on supplies and vendors than they actually need to, which causes extra spend and less profit.

Failure to plan results in a plan to fail as they say.

Spend Management is really a combination of a number of key tasks in an organization including the following:

Running a business is stressful, time consuming, and complicated; riddled with issues and challenges.  While business can be complex for the leadership team, it can also be complex for management and staff as well. When our teams run into problems, more often than not, they try to solve the problems as quickly and as effectively as they can.  Management teams may even thank their employees and encourage them to repeat that same level of initiative again. While the staff are well-intentioned, they might be inadvertently adding to the overall complexity of the business and possibly adding risk to the enterprise.

Organizations frequently embark on cost reduction initiatives across their enterprises. Some organizations handle it at the corporate level, while others have Purchasing Departments whose responsibility is to get the right product or service to the right location at the best cost. In either case, one common question always arises – where are the cost savings? Where can I see them?  Frustration can occur if visibility is not shed on the challenges inherent in this process.

Most organizations are realizing the true value of high performing purchasing functions now more than ever.

Managing your supplier expenses is critical to your profitability.  If you have ever read or heard about the “Iceberg Principle,” you know that 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 Principle” have to do with the management of supplier expenses in a dealership?

2020 will be coming to an end within a few weeks. 2021 will be upon us all soon, and with the new year, there will be significant opportunities and challenges to face. Let us look at 2020 and review the current environment and likely conditions for 2021 before we start planning.

The implementation of a spend management vision – a dedicated function within an organization is very common in most large organizations.  The management of direct and indirect expense are considered an important and strategic role that has a material impact on profitability performance, and efficiency.  Organizations with a defined and well-managed spend management or purchasing function are typically centralized and provide several measurable benefits to their organizations including:

Organizations seek growth for many reasons. Usually greater revenues and future economies of scale are the primary drivers of growth and scale. Economies of scale can be achieved in various functions within an organization. Economies of scale can occur through centralized facilities, staffing, standardized processes, standard policies and more.