Dave Baiocchi Vendor Management Part 2
Happy New Year! I trust that the turning of the calendar portends hope and success for all of you. We have challenges and opportunities in store for all of us in 2019. My personal “resolution” is to do all I can to improve industry value and dealer profitability in the coming year. If I can help you do that, please let me know.
In the December issue article, we investigated managing the OEM- dealer relationship. This month we will dive into ideas on how to improve our relationships the wider range of suppliers who are not necessarily OEM’s, but still represent significant partnerships that are necessary for us to craft meaningful solutions for customers.
I wrote an article on building strategic partnerships in early 2018. In that article, I explored these relationships from the standpoint of responding to customer needs that may not be within your core competency as a dealer. There are businesses you want to be in and those that are easier and more financially palatable to outsource. Having qualified, skilled partners means that you can serve multiple customer needs without having to be “all things to all people”.
There is however another way to leverage your supplier relationships for mutual gain. Doing so can be part of an annual initiative to pare down your vendor base, increase your buying power, and better manage overall dealer parts inventory. This initiative addresses what can be one of the stickiest issues in the dealership, but it’s an issue that if not addressed head on, will continue to worsen, especially in dealerships with multiple branch locations.
Reducing or consolidating supplier channels should be a goal in every dealer organization. The width and depth of the vendor base in most dealerships is always surprising to me, even when I was running my own dealership. Just look the number of checks to be signed every month! Its staggering! The associated costs are also significant. Consider how many individual tasks, and individual employees are involved in the process of purchasing anything in the dealership.
- Issuing the PO
- Receiving the product and logging it into inventory
- Tracking the packing slip
- Reconciling packing slips to invoices
- Verifying correct pricing for both products and freight charges
- Sending the verified invoice to payables
- Processing payables
- Issuing checks
- Signing checks
- Mailing checks
- Filing the paid invoices
I’m sure some of this has been streamlined in recent years with the advent of more sophisticated software, but it still represents significant cost, and the opportunity for errors is only exacerbated by the sheet number of individual invoices to be processed. The only way to improve efficiency in this process is to find ways to consolidate purchases using fewer vendors. Easy to say… not so easy to do.
From 2004 to 2016, I ran the aftermarket division for a multi-branch dealership. Early on in this position, the importance of streamlining the vendor base was evident to me. I wanted desperately to use our buying power, and the only way to do that was to consolidate our purchases and use fewer vendors. The minute I would try and select a single vendor that could service all of our locations at a price point that actually leveraged our buying power, the branch store “phantom vendors “would appear. When questioned, there was always a special reason why the chosen vendor wasn’t good enough for the branch. The excuses were generally dubious. I attributed much of the resistance to long standing personal friendships between branch personnel and local suppliers. I’m sure the bruised egos of a parts manager trying to assert his own autonomy equally contributed to this condition. Most of us want our branch store leadership team to be well served, and we want to give them the ability to make independent choices that boost regional efficiency. The struggle over vendor selection however can be prodigious.
Some dealerships have tried to deal with this problem by centralizing their purchasing at the headquarters location. Doing this only further alienates branch parts managers, and infuriates the service managers who were convinced (and rightly so) that the main store location doesn’t understand the unique needs of the branch operations.
By the way, wherever I have seen this tried, it’s been a monumental failure. Dealer principals are quick to see the savings they can enjoy by not having branch parts personnel, and the control they will have over vendor selection and pricing. What they often do NOT see are the voluminous errors and frustrations that are created due to the lack of urgency, and miscommunication normally inherent with this practice. Road technicians, service managers, and most of all CUSTOMERS are routinely irritated by the lack of support. No matter how much technology aids in this process, I have not yet seen a place where this is instituted and embraced wholeheartedly by either crew, or client.
A better way to go about controlling and reducing the vendor base is by initiating a collaborative effort targeted at a selected number of vendor items. In order to move the needle on gaining purchasing efficiency, it will be necessary to first determine what products represent the lion’s share of the purchasing dollars spent (on non-OEM items). This initiative will be manageable if it is pointed at the top 10 to 20 products that you purchase from outside suppliers.
Your list of vendor items may include:
- Battery and chargers
- Attachments
- Tires
- Forks
- Fluids and Lubricants
- Hardware
- Hydraulic Hose and Fittings
- Uniform Suppliers
Stakeholders are key to this process. In order for it to be effective the committee chosen to make the decisions must consist of people who are directly affected by the choices. You may in fact have DIFFERENT committees for differing product categories. For instance, you may only have parts management on the committee for purchasing lubricants and hardware, while you may want to include service managers and techs when selecting a uniform supplier.
The goal of the exercise is to get ALL of the needs on the table (especially from the branch store), and give middle management an opportunity to participate in the selection process instead of forcing them to live with an enforced mandate.
Once you have your list of items selected, then you can choose your vendor candidates. You will find that you will usually have 2-6 separate vendors for each category you are currently purchasing. There should be a list of “minimum qualifications” required for a vendor to make the final cut. That list could include.
- Personnel and organizational infrastructure to adequately service all branch locations
- Easily understandable and cohesive pricing policy across all branch locations
- Performance guarantee and clearly defined warranty
- Inventory or flooring programs
- Invoice terms and early payment discounts
- Periodic reporting
- Incentive goals tied to purchases (rebates or future discounts)
Invite each vendor to visit with the committee and present the best offering to the group. Let the vendors know that you wish to consolidate all purchasing and that is why they are being invited in. Do this as an annual or bi-annual process, and I think you will find that you can increase your profit margins, satisfy branch store agendas, and mitigate administrative workloads. Being efficient is the key to survival in the years ahead. Having trusted and repeatable processes in place is the key to creating efficiency. Wishing you success in 2019 and beyond!
Dave Baiocchi is the president of Resonant Dealer Services LLC. He has spent 38 years in the equipment business as a sales manager, aftermarket director and dealer principal. Dave now consults with dealerships nationwide to establish and enhance best practices, especially in the area of aftermarket development and performance. E-mail [email protected] to contact Dave.
