Purchasing Strategies to Reduce 60+ Dealership Operating ... · Key Track Systems Uniforms Maintenance-Lighting Wheel Wts & Tire Repair Longer Turn Times- Good Return Courier Services

Purchasing Strategies to Reduce60+ Dealership Operating Expense

CategoriesWith

Doug AustinFounder and principal of Performance Managment Group

And

James WilliamsVP, Business Development for Performance Managment Group

Moderated by

Jerilyn Klein BierEditor DealersEdge Business Briefing

Presented by DealersEdge

Reduced Costs, Supplier Optimization and Guaranteed Results!

©2007 Performance Management Group – All Rights Reserved. Purchasing & Change Mgmt 101 in Auto Dealerships 3

• 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 1992. 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

Today’s Speakers


Agenda

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


Purchasing Research


©2007 Performance Management Group – All Rights Reserved. 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.


Dealership Challenges


6/3/2008 CONFIDENTIAL 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 creepPoor Procurement Policies, Processes & Tools*Spot Buy Approach (get it done)Lack Category ExpertiseEmployee Turnover can result in excess suppliers, price

escalationsLittle focus on Operations – expense reduction, more focus

in selling vehicles

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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


Improvement Opportunities


©2007 Performance Management Group – All Rights Reserved. 10

Expense Categories

Finance Services Office Services Facilities Services Automotive 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 Sec Systems (Electron)

Travel Signage

Utilities



Sample Dealer Expense Reduction Opportunity ResultsExpense 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 9.81% Maintenance-Lighting 20.41%

Printed Products 28.45% Telecom (Local, LD, Data) 37.61%Auto Rentals 8.57% Insurance-Work Comp. 11.19%Maintenance-HVAC 30.56% Auto Parts - Glass 21.07%

Credit Bureaus 27.88% Uniform & Linen Services 23.08%Auto Aftermarket Access. 10.31% Advertising-Internet 16.05%

Vehicle History Reporting 64.79% Insurance, Property/Cas. 25.47%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%

Total Avg.

Annual Cost

Savings % =

22.61%


Organize Your Cost Reduction Approach



Purchasing & Expense Reduction

AnalysisPurchasing Planning &

Strategy

Requirements Definition

Quoting & Negotiation

Commitment & Implementation

Monthly Measurement, Reporting &

Audits

PMG Strategic Purchasing

Model

Supplier Sourcing & Qualification

Analysis & Recommendation

Performance Management GroupStrategic Purchasing Model

Copyright 2003

Auditing

Strategic Purchasing Model


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


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



Category Approach - Considerations

• Quick Turn Categories – Do first to gain momentum (vehicle history, check processing)

• Contract Driven Categories – 90-120 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)



Develop Your Strategic Plan

Actual Cost Reduction Results

Annual Cost Reduction Plan

Yr 1- Prioritized Expense Categories to Reduce Expenses On


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)


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


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


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



• 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



RFQ Expense Category Analysis


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


Category Advice

Credit Card, Uniforms and Shop Supplies


Credit Card Processing – Target 10%

• Obtain two months of statements• Determine current rate charged• Determine how much is qualified, mid-qualified and non-

qualified (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 12-24 months in contract


Uniforms & Laundry – Target 25%

• Obtain 5 weeks of invoices• 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.


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 12-24 months• Audit supplier 60 days after implementation



Purchasing & Expense Reduction

AnalysisPurchasing Planning &

Strategy

Requirements Definition

Quoting & Negotiation

Commitment & Implementation

Monthly Measurement, Reporting &

Audits

PMG Strategic Purchasing

Model

Supplier Sourcing & Qualification


Performance Management GroupStrategic Purchasing Model

Copyright 2003

Auditing

Follow the Process for Each Category

Reduced Costs, Supplier Optimization, Guaranteed Results!

©2007 Performance Management Group – All Rights Reserved. Purchasing 30

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.

Questions?

Reduced Costs, Supplier Optimization, Guaranteed Results!

©2007 Performance Management Group – All Rights Reserved. Purchasing 31

"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, GMSaturn of St. Paul, Rydell

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, CFOPhil Long Dealerships

Documents

Purchasing Strategies to Reduce 60+ Dealership Operating ... · Key Track Systems Uniforms Maintenance-Lighting Wheel Wts & Tire Repair Longer Turn Times- Good Return Courier Services