Purchasing Strategies to Reduce 60+ Dealership Operating Expense Categories

Transcription

1 Purchasing Strategies to Reduce 60+ Dealership Operating Expense Categories With Doug Austin Founder and principal of Performance Managment Group And James Williams VP, Business Development for Performance Managment Group Moderated by Jerilyn Klein Bier Editor DealersEdge Business Briefing Presented by DealersEdge

2 Today s Speakers Douglas Austin, founder and CEO 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. James Williams, VP, Business Development for Performance Management Group (PMG), has 25 years of executive level experience in business development, business process management, outsourcing, organizational design and strategic planning in the real estate, computer accessories, healthcare, tax compliance, insurance, manufacturing, software development, direct marketing, and contract furnishings industries. James received his BA from St. Johns University and MBA from St. Thomas University 2007 Performance Management Group All Rights Reserved. Purchasing & Change Mgmt 101 in Auto Dealerships 3

3 Agenda Introduction Research Dealership Challenges Improvement Opportunities Organize Your Approach Category Advice Credit Card Processing Uniforms Shop Supplies

4 Purchasing Research

5 Purchasing Industry Research Centralization Costs can be reduced by as much as 25% with centralized purchasing approach Decentralized Purchasing - Maverick buying practices make it difficult for organizations to track expenditures and usually results in 15-27% higher prices paid for goods and services. Cost Pressures - Increased competition and competitive pressures are forcing organizations to develop new strategies for achieving improvements in business processes, employee productivity and cost reductions. Bottom Line Impact - Purchased products and services represent the majority of an organizations costs. Any reductions in procurement costs flow directly to the bottom line Purchasing offers Competitive Advantage - Procurement is the key to competitive advantage. Competition, pricing pressures and finicky financial markets are forcing organizations to develop new strategies to improve performance Purchasing Impacts Profitability Quickly - A $5 Million reduction in procurement costs increase profits by a corresponding amount. However, a company with a 10% profit margin would need to increase sales by $50 Million to attain a similar profit improvement Performance Management Group All Rights Reserved. 5

6 Dealership Challenges

7 Top 10 Reasons for Ineffective Purchasing in Auto Dealerships Source: Center for Advanced Purchasing Studies(CAPS) Transaction Focus vs. Strategic Focus* Resource Constraints* Broad, decentralized purchasing authority* (everyone s buying) Lack trained Purchasing Resource* Broad supplier base* and supplier price creep Poor Procurement Policies, Processes & Tools* Spot Buy Approach (get it done) Lack Category Expertise Employee Turnover can result in excess suppliers, price escalations Little focus on Operations expense reduction, more focus in selling vehicles 6/3/2008 CONFIDENTIAL 7

8 Five Critical Purchasing Requirements at a Category Level Price knowing what a competitive price is Selection Selecting the most economical items/services Consumption Visibility to actual items purchased, pricing and terms Suppliers How many suppliers are needed and used? Purchasing Structure Limiting authority to make category decisions and negotiate contracts

9 Improvement Opportunities

10 Expense Categories Finance Services Reduced Office Services Costs, Supplier Optimization Facilities Services and Guaranteed Automotive Results! Prod/Serv Telecom Services High Return Categories Check Processing Advertising- Janitorial Services Shop Supplies Cell Phones Credit Bureaus Food Services Janitorial Supplies Detailing Supplies Local, LD, Data Credit Card Processing Music & Messaging System Hazardous Waste Fluids - Lubricants Telecom Maint. Ins, Prop & Casualty Office Supplies/Toners Waste & Recycling Aftermarket Accessories Tele Systems Ins, Workers Comp Printed Materials Maintenance-Doors Auto Glass & Installation VOIP Key Track Systems Uniforms Maintenance-Lighting Wheel Wts & Tire Repair Longer Turn Times- Good Return Courier Services Auto Rentals Fire Safety, Monitoring Aftermarket Services Employee Benefits Business Services Landscape Services Body Shop Repair Services Information Services Computer Hardware Maintenance-Car Wash Body Shop Supplies, Mat Insurance, Health Marketing Products Maintenance-Electrical Car Wash Chemicals Marketing Services Office Equipment Maintenance-HVAC Fuel Payroll Services Office Furnishings Maintenance-Prking Lot Hardware Transp, Small Pkg. Records Management Maint-Plumbing/Drains Non-OE Parts Software Security Patrols Tooling Temporary Help Travel Sec Systems (Electron) Signage Utilities 2007 Performance Management Group All Rights Reserved. 10

11 Sample Dealer Expense Reduction Opportunity Results Expense Category % Savings Expense Category % Savings Office Supplies 25.29% Waste & Recycling 22.82% Check Processing 40.27% Marketing-Direct Mail 42.85% Credit Card Processing Reduced Costs, Supplier 9.81% Optimization and Guaranteed Maintenance-Lighting Results! 20.41% Printed Products 28.45% Telecom (Local, LD, Data) 37.61% Auto Rentals 8.57% Insurance-Work Comp % Maintenance-HVAC 30.56% Auto Parts - Glass 21.07% Credit Bureaus 27.88% Uniform & Linen Services 23.08% Total Avg. Annual Cost Savings % = 22.61% Auto Aftermarket Access % Advertising-Internet 16.05% Vehicle History Reporting 64.79% Insurance, Property/Cas % Janitorial Services 27.43% Telecom-Cell 27.12% Telecom-Systems 14.14% Transportation-LTL 17.50% Lubricants and Fluids 9.39% Auto Parts - Tires 2.66% Maintenance-Car Wash 44.13% Utility Services and Audit 10.48% Janitorial Supplies 27.93% Waste, Hazardous 50.06% Office Supplies-Toners 83.77% Shop Supplies 17.21% Auto Parts 13.22% Auto Parts - Non Orig. Eq. 7.95% Security-Video Surveillance 28.83% Food Services 12.60% Records Management 62.62% Maintenance-Doors 14.42% Body Shop Paint/Supplies 13.45% Drug Screens 18.52% Office Equipment/Postage 15.65% Drain Pump Services 8.79% Detail Supplies 9.53% Spot Buys 15.03% 2007 Performance Management Group All Rights Reserved. Purchasing & Change Mgmt 101 in Auto Dealerships 11

12 Organize Your Cost Reduction Approach

13 Strategic Purchasing Model Purchasing & Expense Reduction Analysis Monthly Measurement, Reporting & Auditing Audits Purchasing Planning & Strategy Performance Management Group Strategic Purchasing Model Copyright 2003 Commitment & Implementation PMG Strategic Purchasing Model Requirements Definition Analysis & Recommendation Supplier Sourcing & Qualification Quoting & Negotiation 6/3/2008 CONFIDENTIAL 13

14 Purchasing Organization Leadership Select a senior executive to lead the initiative Authority Vest this person with authority to make category decisions across the enterprise Communicate Communicate the purpose and objective of cost reduction initiative to all levels of the organization

15 Develop a Strategic Plan Select 4-8 High potential categories for first year Selection should be made on cost criteria/opportunity or service issues Communicate Strategic Category Plan to all previous Category Owners or Influencers to eliminate roadblocks

16 Category Approach - Considerations Quick Turn Categories Do first to gain momentum (vehicle history, check processing) Contract Driven Categories days out from expiration Dates (uniforms, office equipment) Longer Turn Categories High item content, much more involved analysis and quote time (shop supplies, print, office supplies) 2007 Performance Management Group All Rights Reserved. Purchasing & Change Mgmt 101 in Auto Dealerships 16

17 Develop Your Strategic Plan Yr 1- Prioritized Expense Categories to Reduce Expenses On Annual Cost Reduction Plan Actual Cost Reduction Results 2007 Performance Management Group All Rights Reserved. Purchasing & Change Mgmt 101 in Auto Dealerships 17

18 Gather Information at Category Level 12 Month Spend Pull A/P information to see how much was spent in 12 mos. and the suppliers utilized in each category Develop List of Supplies/Services Select top 10, top 50 or top 100 items used and the last price paid from your most recent invoices (in Excel)

19 Develop Category Requirements Information Gathering Talk to previous Category owner/influencers to determine what specifically is required in this category: Set cost savings objectives and supply base objectives($ or %) Price Locks Payment terms Transportation impact on price Customer Service Product Returns Warranty Other Critical variables

20 Source & Quality Suppliers Review Current Supplier List to determine incumbents Determine who should participate in new quote (talk to influencers) Contact suppliers to determine their interest in quoting process Narrow down the list to 3 to 5 suppliers

21 Request for Quote Send RFQ Using information built for the category, send to suppliers with cover letter Due Date Give suppliers a due date Follow up Remind suppliers two days in advance of due date to ensure your timing is met Protect Supplier Pricing Respect the suppliers by not sharing pricing between each other, force a blind quote process

22 Analysis & Recommendation Comparison Build out spread sheet so that suppliers can be compared on each item or service Sum Sum each supplier response for total cost and savings opportunity Factor Usage if usage is known, calculate savings opportunity based on usage. If Usage is Unknown Either plug in an educated guess on usage or ignore usage impact. Negotiate Negotiate any high cost items to with likely suppliers reduce program costs Recommendation Develop a recommendation for the supplier that meets cost and business objectives

23 RFQ Expense Category Analysis 6/3/2008 CONFIDENTIAL 23

24 Recommendation & Implementation Presentation present recommendation to any and all influencers to gain buy-in and to address issues or concerns. Make a Timely Decision Make a decision within 2 weeks Communicate Communicate decision to all levels of the organization Notify Suppliers Contact all suppliers and thank them, advise them of decision Implementation Plan Begin executing the implementation plan developed internally or by the supplier Post Implementation Audit 60 days after the implementation, audit for price compliance

25 Category Advice Credit Card, Uniforms and Shop Supplies

26 Credit Card Processing Target 10% Obtain two months of statements Determine current rate charged Determine how much is qualified, mid-qualified and nonqualified (move as many transactions to qualified to reduce cost) Implement pin debit cards vs. swiped debit cards to lower cost (5% savings on debit cards) Negotiate small fixed rate over the standard interchange rate Limit or eliminate transaction fees Limit or eliminate miscellaneous fees Lock rates for months in contract

27 Uniforms & Laundry Target 25% Obtain 5 weeks Reduced of invoices Costs, Supplier Optimization and Guaranteed Results! Determine how many wearers and quantities of each item from this determine annual cost of each Offer Uniform supplier a longer agreement if they re-open contract and pricing Focus negotiation on shirts, pants, shop towels and miscellaneous surcharges Reduce inventory charged on shop towels(100% to 50%) Reduce price of lost towels or replacement towels Reduce or eliminate stop charges, environmental charges, waste water charges (fixed dollar or % of invoice) Negotiate a 20% reduction in pricing of shirts, pants and towels Memorialize with all changes in new contract Eliminate auto renewal feature of contract Limit annual price increases to zero up to 2% Audit to ensure new pricing is obtained.

28 Shop Supplies Target 20% Obtain electronic usage reports from each supplier in Excel 12 months of data, including price, quantity and description Focus on wheel weights, abrasives, chemicals, gloves, adhesives..all items used in shop areas Paste together into one large usage report, noting suppliers and current pricing Save file with your last price paid and supplier names Strip pricing from file and use as your quote Send out for quote encourage substitutions, use brand names if necessary Once quotes are returned, negotiate best pricing (try 15-20%) on high usage categories mentioned above (brake clean, gloves, wheel weights, hardware, chemicals) Select a supplier Lock in pricing for months Audit supplier 60 days after implementation

29 Follow the Process for Each Purchasing & Expense Reduction Analysis Monthly Measurement, Reporting & Auditing Audits Category Purchasing Planning & Strategy Performance Management Group Strategic Purchasing Model Copyright 2003 Commitment & Implementation PMG Strategic Purchasing Model Requirements Definition Analysis & Recommendation Supplier Sourcing & Qualification Quoting & Negotiation 6/3/2008 CONFIDENTIAL 29

30 Questions? Reduced Costs, Supplier Optimization, Guaranteed Results! Thank you DealersEdge Conference Attendees for your time and consideration today! We appreciate the opportunity to present a blueprint on how your dealership can realize measurable cost reductions that go far beyond what passes for expense reduction plans in most of today's dealerships Performance Management Group All Rights Reserved. Purchasing 30

31 Reduced Costs, Supplier Optimization, Guaranteed Results! PUMP UP YOUR DEALERSHIP S PURCHASING POWER! PMG s target was to save the Phil Long Dealerships $300,000 gross over a year, says Gary. "I challenged them to get us to $700,000 and I think they ll crack $800,000 before our contract year is up. - - Gary Fentiman, CFO Phil Long Dealerships "We have measurable cost reductions of 21% and we have reduced our supplier base by nearly 40%. Their focus on process simplification has led to increased employee productivity as well. Their approach is professional, timely and dependable." --David Roen, GM Saturn of St. Paul, Rydell 2007 Performance Management Group All Rights Reserved. Purchasing 31