Other than payroll and floor plan expenses, the spend for supplies and services can consume a large part of a dealership’s revenues. Spending the time to source, quote and negotiate 130 categories of supplies and services pays big dividends for dealers based on our 2016 sourcing results. Again…23% cost reductions for 2016…right in line with average cost savings from the past few years.
Why are these savings still occurring in dealerships across the countries? Dealerships tell us the following:
- Sales are strong – no time to focus on expenses
- Too many other competing priorities to focus on expenses
- We will not step in to oversee expenses – we trust our people to make the right decisions
Dealership Opportunities in General
Before we explore the best category opportunities for 2016, it might be a good idea to review some dealership facts as it relates to spend management in a dealership.
- Single-point dealerships will spend up to 9% of total annual sales on supplies and services
- Large groups will spend up to 6% of total revenues on supplies and services
- There are typically 130 expense categories in a dealership
- Most dealers spend money routinely in 100 expense categories
- Single-point dealerships will typically have 400 active suppliers supporting the business
- Multi-point groups will often have 1,000 or more suppliers supporting the group
- Research says that centralization of purchasing can yield up to 25% cost savings as well as other efficiencies and controls
- SSI’s internal research suggests that cost savings of 20-25% are very achievable for dealerships with a centralized approach
Opportunities for 2016 based on 2015 Results
Based on the result of nearly 1,000 Requests for Quotes (RFQ’s) and bids managed in 2015, the following categories represent the best opportunities to either reduce expenses or opportunities to improve gross profits in selected areas. All of these categories represent savings opportunities of 20% or more across a dealership.
- Auto Parts – Non-factory Parts
- Energy Management
- Maintenance – Lighting Program
- Vehicle History
- Marketing Classified Listings (New/Used)
- Key Management
- Printed Materials
- Check Processing
- Credit Bureaus
- Uniforms & Laundry
- Dealer Management Systems
- Office Equipment
- Office Supplies
- Lubricants & Fluids
- Lubricants, Fuel Additives
- Shop Supplies
- Insurance, Casualty/Property
- Marketing Services
- Food Service -Beverage
- Telecom Services
How Can Dealerships Generate Greater Savings?
Any business or organization can realize a significant amount of bottom line savings or new profits by taking a centralized approach to sourcing. The act of developing a quote and quoting multiple suppliers will probably generate a minimum of 10% savings in any given category to any group willing to take the time to do so.
Let’s assume you have found the “centralization” religion and are now going to take a more aggressive approach to managing your suppliers, your pricing and your bottom line. How does one go about that? Well…the sourcing process is pretty straightforward whether you are sourcing office supplies, print, HVAC maintenance or a new lift for the service bay. The eight-step sourcing process is a proven process tested over time that if executed correctly, will deliver compelling results to your organization.
Why Should We Consider Centralization?
The benefits from sourcing are real, they are measurable, they are auditable and they are compelling. What would your dealership do with an extra $50,000…$100,000…or $500,000 in extra profits? Newly created cost reductions can fund new marketing programs…fund facility improvements…enhance profitability…fund new acquisitions and more.
To get a sense of the annual, two and three year savings that can be achieved in a typical dealership with a focus on centralization, review the chart above. By securing a competitive price and set of business terms from your suppliers, and then locking that price over an extended term, your bottom line impact can be significant.
How to Get Started
Senior dealership management has to make the call to shake things up (centralize) on the purchasing side or things will never change. Making the decision to centralize purchasing and limiting purchasing decisions to a handful of trusted managers, following standard policies and processes must come from the top…Dealer Principal…CEO…COO is a starting point.
A few other key steps to get the process moving:
- Develop a spend map with 12-month spend applied across all categories
- Update your purchasing policies and procedures
- Assign the centralization to one of your trusted senior managers to lead the effort
- Develop some concrete objectives around categories you expect to be completed this year, cost savings you expect and supply base reductions
- Prioritize the high impact categories noted above
- Form a team of trusted managers to assist in the sourcing effort
- Execute, measure and report
Research proclaims the many merits of centralizing procurement including cost savings of up to 25%, improved controls, fewer suppliers, greater internal efficiencies and more. Our own experience over the years and particularly last year shows that compelling cost savings are still available to dealers who take the time to utilize the eight-step sourcing process outlined above. Review the 20 categories noted above to get a good start own cost reduction opportunities for 2016. Good luck! Contact me with any questions at: firstname.lastname@example.org.