Successful leaders realize that they have a unique obligation to establish a challenging course for their business, to create a new and compelling direction, embrace challenges and establish “BHAGs” that reach for new levels of organization and market performance. Those initiatives may be innovative and bold within a market, and sometimes those initiatives are bold steps only within an organization itself. In any event, meaningful change does not occur on its own, someone is leading the charge or charting the course for change and improvement…and that is the leader.

It has been said, “Leaders do the right things” and “Managers do things right.” While this not the most articulate of definitions on leadership and management, it does create an understandable distinction between the two roles that we all play within an organization.

Leading the way to improved profitability

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.

Developing the plan – strategic spend map

In order to create an effective and credible expense management or spend management plan, you need to start with some solid data. The development of a Strategic Spend Map combines the DMS and related spend data into a tool that become the basis of your plan as outlined below. Dealerships buy indirect services and supplies in over 100 expense categories typically. That data should be extracted from your DMS system and built into a 24, 36, or 48 month spend management plan.

Note in the example below that the category name and the 12-month spend is populated, the month (priority) is established, the due date and the individual (that this project is assigned to) is defined as well. An estimated savings objective is also inserted in this document. If you take the time to develop this spend management plan for your organization, your odds of driving sustainable change and improved results increase considerably.

Driving results

With the plan established, now comes the critical execution or management phase. In my experience, most organizations can complete one or two expense categories per month if the management team is aligned, engaged, focused and performance driven.

Suggested management approach

1. Executive sponsor – A senior leader in the organization should take ownership of the plan and provide the resources, encouragement and focus to keep the plan on track
2. Engaged resources – Leadership should identify and select resources (Category Owners) that are motivated, capable and excited to be part of this strategic initiative to reduce costs and improve profitability.
3. Strategy – Each expense category warrants a strategy unique to the category. This might mean going out for quote (RFQ), it may mean renegotiating with an incumbent supplier, it may mean learning more about changes in the marketplace and going out for a Request for Proposal (RFP). In any event, a strategy should be defined by category.
4. Monthly management meetings – Leaders should gather all resources (Category Owners) on a monthly basis to discuss the progress with respect to sourcing, quoting, renegotiation and implementation, including the challenges and wins.
5. Recommendation meetings – To ensure engagement and buy-in from management and organization influencers, the Category Owner should present a summarized version of the recommendation for that category, including current spend, savings estimates, implementation dates, etc. and all service and support implications for feedback and potential course adjustment.
6. Scorecard tracking – The planning tool you develop can easily double as a scorecard or tracking and management tool (see results area below). This document becomes an effective planning, tracking and management tool and helps you keep score and understand how you are progressing against your plan.
   

Opportunity

Organizations that choose to lead in the expense arena, that choose to manage its indirect spend, will be amply rewarded for their efforts. Most organizations will spend at least 5% of their total sales on the purchase of indirect services and supplies. A well-developed and executed spend management plan can contribute 10-20% savings on a sustainable basis. Additionally, innovative leaders will expand the focus of their initiatives beyond just costs savings, to multiple objectives that involve simplifying processes to save time, controlling processes to reduce risk and more.

Leading an organization in any capacity involves making choices. Those choices may be limited by time, resources, money, organizational support and more. Leaders that choose to embark on a mission to improve their expense line, improve efficiency and improve profitability need to take that first step and make a leadership commitment. The commitment is followed by the development of an objective and then the detailed plan as we have outlined above. When the plan is developed, communicated and understood, the regular engagement, management and tracking of results are then keys to sustainability and achieving your desired results. The final results of all of this leadership initiative will be recognized with a very positive impact on your bottom line.

If you are interested in receiving the Spend Management Planning and Management tool, please send me an e-mail at:  [email protected]. I would be happy to send you the tools you need to begin this important initiative in your organization.