How a Dealer Saved Over $150,000 in Three Common Expense Categories

Transcription

1 How a Dealer Saved Over $150,000 in Three Common Expense Categories How to save Big Bucks in 3 specific areas - But also how to change your purchasing culture in all areas of dealership expenses. With Doug Austin, President of Performance Management Group Moderated by Mike Bowers, Executive Editor of DealersEdge

2 Doug Austin, President of Performance Management Group Douglas Austin, founder and principal of Performance Management Group (PMG), a leading national Purchasing Services Provider (PSP) for the retail automotive industry and former NWA, Inc. Director of Purchasing has been providing Purchasing, Distribution and Operations consulting and cost reduction solutions since Doug earned a B.A. in Business from the College of St. Thomas, a Certified Purchasing Manager (C.P.M.) designation, and has acquired over 25 years of line, staff and executive level experience in the airline, retail, manufacturing and service sectors. Company website:

3 How a Dealer Saved Over $150,000 in Three Common Expense Categories Presented by: Douglas Austin, Principal Performance Management Group

4 Cost cutting can reduce expenses and improve profitability! So what kind of Cost Cutting ideas can we come up with?

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6 Objectives Today 1. Identify Cost Reduction Opportunities 2. Centralize Purchasing to Capture Opportunities 3. Reduce Costs Now with three Common Expense Categories.

7 Dealership Business Challenges Need to improve profitability Fewer internal resources available to attack cost structure Time to Source, Quote and Negotiate 100+ expense categories Once categories are completed, repeat

8 Where do sustainable Cost Savings come from? Pricing & Terms Payment Strategies Process Improvements Iceberg Theory most focus on pricing-terms and ignore larger opportunities Strategic Purchasing focus vs. Tactical Negotiating Standardization of Supplies/Services (Core lists limit choices) Compliance Internal & Supplier Strategic approach yields long-term, sustainable results

9 Bottom Line Opportunity Annual Revenues $25MM $50MM $75MM $100MM Average Annual Supply Service Spend Supply & Service Spend as % of Revs. Research Average PMG Cost Savings Results Conservative Savings Estimate 12% Dealer Savings Opportunity $1.648M $2.558M $3.161M $4.394M 6.6% 5.2% 4.2% 3.8% 23% 23% 23% 23% 12% 12% 12% 12% $197,760 $306,960 $379,320 $527,280 Cost savings flow to the bottom line! How many cars need to be sold to generate this net?

10 Cost Reductions Roadmap to Improved Profitability 2008 Performance Management Group All Rights Reserved.

11 I. Develop a 2011 Sourcing Plan Why Develop a Sourcing Plan? Creates a Roadmap for 2011 Expense Reduction Aligns staff around a common objective - plan 100+ expense categories to manage - you need a plan Benefits of a Sourcing Plan Generate meaningful cost reductions 15% to 25% Avoid contract auto renewals get ahead with a plan Focused plan will yield measurable results

12 I. How To Develop Your Sourcing Plan Generate 12 month spend report from DMS system supplier name/total spend Categorize suppliers in 100 expense categories Populate the chart with spend and supplier count, contract end dates Review and finalize your plan *Contact: for free category template

13 I. Finalize Your Roadmap

14 II. Approval Policies Mitigate Risk Why Approval Policies? Three(3) methods of commitment (P.O.s, contracts, invoices) Organizations should formalize key policies Written policies will improve controls and mitigate risk Benefits of Approval Policies Eliminates risk of unauthorized contracts Essential component of meaningful Purchasing policies Send message to team that commitment of company funds will be a controlled and limited process

15 II. How to Develop Approval Policies 1. Define by management position 2. Assign expenditure level 3. Publish to all employees Position Contracts Purchase Orders Owner Unlimited Unlimited Unlimited Invoices President Unlimited Unlimited Unlimited CFO $25,000 $25,000 $25,000 Controller $15,000 None $15,000 Director Fixed Ops None $10,000 $5,000 Service Manager None $5,000 $2,500 Parts Manager None $3,000 None

16 III. Create Supplier Competition Why Create Competition? Competition reduces your costs Fewer suppliers reduces your costs Partnerships, while valuable, need to be checked periodically Benefits Reduce costs of supplies and services Fewer suppliers reduces back office costs(checks, invoices) Suppliers get much more excited about a one year, two year opportunity with a commitment to purchase

17 III. How to Create Competitive Suppliers 1. Select an expense category 2. Develop a quote (from high usage items) 3. Use spend from spend report to identify annual spend opportunity - the sizzle 4. Contact current suppliers to extend quote invitation 5. Invite new, reputable suppliers to quote 6. Analyze results & select

18 IV. Maximize Internal Buy-In Why Develop Internal Buy-In Non compliance with Preferred Suppliers can be quite high Sourcing costs can be quite high compliance reduces costs Non-compliance can impact other category compliance Benefits Internal compliance with Preferred Suppliers can reduce category costs by 15% Category compliance will spread across the organization Reduces additional sourcing activities until next quote

19 IV. How to Maximize Buy-In 1. Implement Purchasing Policies 2. Communicate Policies to Employees get signatures on file 3. Communicate Approval policies 4. Include influencers in Sourcing Process 5. Include influencers in Selection Process 6. Include influencers in Implementation Process 7. Insist on compliance

20 V. Benchmarking Strategy Why Benchmark? Compare your results to others (price, suppliers, terms) Effective benchmarking reduces costs Process instills confidence in Management Benefits Cost reductions of up to 25% Negotiate from a position of strength with suppliers

21 V. How to Implement Benchmarking Uniform Example * Select high usage items/services * Benchmark from similar geography * Find functional matches Develop target pricing Item Our Costs Dealer # 1 Dealer # 2 Shirt $0.50 $0.39 $0.65 Pants $0.55 $0.45 $0.68 Jacket $0.75 $0.80 $0.78 Shop Towel $0.075 $0.05 $.12 Service Charges $3.00 week No Charge $2.50

22 VI. Purchasing Centralization Why Centralize Purchasing? Cost reductions of 25% (Aberdeen) 23% PMG Reduce back office costs with additional suppliers Mitigate risk with controlled process Benefits Reduced costs improved profitability Reduce supplier base of 35% or more is typical Improved focus of staff on core responsibilities

23 VI. How to Centralize Purchasing 1. Assign responsibility to senior executive 2. Hire, re-assign and train or outsource the Purchasing function 3. Develop spend report and develop roadmap 4. Develop Purchasing Policies/Approvals 5. Communicate plan and new policies to organization 6. Implement the plan 7. Measure results and report organization wide

24 VII. Sustainable Results with Strategic Purchasing Why is Sustainability Important? Want to protect pricing and results obtained Sourcing is an expensive process (done correctly/incorrectly) Sustainable results reduces activity over the long run Benefits Forecasted results will be obtained Less staff time re-sourcing categories Roadmap will generate predictable-consistent results

25 VII. How to Achieve Sustainability 1. Centralize Purchasing 2. Limit Purchasing authority to designees 3. Work the Roadmap or the plan 4. Measure and report results 5. Repeat categories every 2 years 6. Reward results

26 Cost Reduction Opportunities

27 Cost Reduction Opportunities Category Savings Generated Credit Card Processing $70,792 Credit Bureaus $34,465 Telecom $87,790 Total $193,047 $16,087 month

28 Credit Card Processing Why Focus on Credit Card Processing Can be one of the larger sources of expense Rates are a source of cost reduction Process is a source of cost reduction Benefits Cost reductions of 15% 40% can be achieved Statements can be audited for accuracy & compliance Fixed costs(other than interchange) can be achieved

29 Case Study Credit Card Processing Fees charged for the processing of credit card purchases Item Before After Annual Spend $372,152 $301,360 Rates(non-interchange) 0.25% 0.15% Transaction Fees Yes None User Friendly Statement No Yes Monthly Statement Fee Yes No Fixed Pricing Life of Contract Contract Term 3 years 3 years Annual Cost Savings - Rate 0 $57,542 Annual Process Savings None $13,250 Total Cost Savings $70,792 No Yes

30 How to Reduce Credit Card Charges Use the following targets to lower your costs. Train operators to reduce down charges on processing fees. Item Target Rate(non-interchange) 0.10% % Transaction fees $ $0.07 Process Changes Qualified Keyed Business Card Standard Monthly Statement Fee Require Supplier to train staff for correct information and prompts Target should be 75% of transactions Swipe Card to lower costs Target should be 75% of transactions Swipe Card to lower costs Swipe and Key Enter, follow all prompts None

31 Credit Bureaus Why Review Credit Bureaus? High expense category Management frequently unaware of expensive processes Benefits Cost reductions of 15-35% Reduced supplier base is common

32 Case Study Credit Bureaus Cost savings a result of improved rates and improved processes Item Before After Annual Spend $166,117 $131,652 Single Pulls 25,344 25,344 Double Pulls 2,184 1,092 50% reduction Triple Pulls 6,240 2,118 66% reduction Report $0. Included Score $0. Included Profile Summary $0. Included Red Flag $0.45 $0.38 Statement Fees $5.00 $0.00 Annual Cost Savings $34,465

33 How to Reduce Credit Bureau Costs *Reynolds, Credit Masters default to multiple bureaus change this *Savings due to improved rates and process changes Single Pulls Double Pulls Triple Pulls EFX - Equifax XPN - Experian Item TUC Trans Union Targets Try to utilize single pulls Use only when needed Pull triples only when necessary Make sure defaults are set to single pulls $3.50 minimize this bureau if possible $2.30 per pull, use when possible $2.30 per pull, use when possible Statement Fees $ $5.00

34 Telecom Strategy Why Develop a Telecom Strategy? High expense category Competitive markets Most dealer groups have multiple suppliers Benefits Cost reductions of 20-45% Eliminate unused services Create fixed pricing - audits

35 Case Study Telecom *Cost reductions due to competitive quoting/reduced fees on unused lines Item Before After Annual Spend $279,622 $191,652 Early payment discount No Yes Vendor Change required Unused business lines Yes No Contract Term 3 Years 3 Years Fixed Pricing over term No Yes Annual Cost Savings $87,970 31%

36 How to Reduce Telecom Costs *Renewal rates generally do not compare favorably to rates obtained when changing providers Item Target Rates 23 Channel PRI $ month Interstate Long Distance Intrastate Long Distance Interconnection Fee Caller ID on PRI DID telephone numbers Toll Free numbers Included Included Included $20.00 month $0.15 month Included Basic business line $15.00 Long distance overage cost per min. $.045 Data T1 $410.00

37 Webinar Summary

38 Purchasing Centralization Top Ten Benefits 1. Free limited resources to focus on key responsibilities 2. Improved profitability with cost reductions 23% - $100K to $250K year 3. Reduced supplier base 35% on average 4. Reduced risk with approval policies 5. Flexibility to address strategic and tactical needs 6. Develop internal benchmarks to improve effectiveness 7. Improved Supplier performance - Suppliers have greater stake in their business 8. Simplify management and business processes 9. Strategic vs. Tactical Approach to your business 10. Develop confidence in sourcing activities

39 Next Steps to Improved Profitability 1. Decide to Centralize Purchasing 2. Assign Responsibility to Senior Executive 3. Set 2011 Cost Reduction Objectives 4. Staff Position Internal, New Hire, PMG 5. Develop Roadmap 6. Develop Approval & Purchasing Policies 7. Engage the Management & Employees in New Direction 8. Execute the Plan

40 About Performance Management Group

41 About Performance Management Group Full Service Purchasing Services Provider Complete Sourcing, Purchasing & Audit Services Indirect Expense Reduction and Purchasing focus Founded in 1992 Supplier Independent Headquartered in Bloomington, MN Experienced in over 100 Expense Categories Supporting up to 480 single point, group and mega group Client Locations 220 years of Purchasing/Logistics/Supply Chain experience Average 23% cost reductions and 35% Supply Base Reductions

42 Purchasing & Spend Analysis (PSA) Best Starting Point Short term project days Limited Staff involvement Create 2011 Purchasing Roadmap Guaranteed ROI with Live Recommendation Gap Analysis Draft Purchasing Policies

43 Contact Performance Management Group Ask for DealersEdge discount! Contact Phone Doug Austin, Principal Pam Gabor, Sr. Director Sales Ryan Kleinjan, Mgr. New Business Development

44 Opportunity - Purchasing Newsletter If you would like to be added to the Performance Management Group newsletter, please contact the following: Ryan Kleinjan rkleinjan@pmgpurchasing.com

45 Thank you for attending this webinar today! Happy Holidays!