Digital Dealer - January 2019 - 27

CHART 2

Potential Profit Improvement
Opportunities for Your Group

Annual
Revenues

Supply/Service Annual
Spend %
Spend

Savings
%

New
Profits

Time to $1.0MM
Years

$25,000,000
$50,000,000
$75,000,000
$100,000,000
$150,000,000
$200,000,000

8%
6%
5%
5%
5%
5%

15%
15%
15%
15%
15%
15%

$300,000
$450,000
$562,500
$750,000
$1,125,000
$1,500,000

3.33
2.22
1.78
1.33
0.89
0.67

spend 4-6% of total revenues on those categories of
supplies/services.
 Most dealerships can
reduce their spend by 25%,
adding to their bottom line
as new profits.
WHAT IS THE
OPPORTUNITY?

I think it is fair to say that
most owners and executive
management teams are
all interested in improving
profitability. The strategies
employed to reduce/contain
costs and sustain those
reductions can vary greatly.
Organizations with $100MM
in annual sales should have
at least 5% or $5MM in annual purchases for supplies
and services to support
their organization based on
our extensive benchmarks.
Reputable research
firms suggest that organizations can realize up to
25% in bottom-line cost
savings with a centralized,
controlled, systematic
purchasing approach. Our
experience suggests that
the 25% target is realistic
and achievable.
WHERE DO YOU
FIND YOUR $1.0MM?

Your new profits are
hiding in the 130 expense

$2,000,000
$3,000,000
$3,750,000
$5,000,000
$7,500,000
$10,000,000

categories that you spend
5% of your revenues on.
Think about it for a minute...$5.0MM in spend, at
25% savings = $1.250MM
in new profits. If your dealership is smaller, the math
is the same, it just takes
longer to get to the $1.0MM
in savings.
Your cost savings opportunity depends on your
overall annual revenues
and annual spend and how
well you have sourced your
categories to date. If you
want to know where to start
and how to identify potential
savings, build a spend map.
A spend map is a tool
that contains the previous
12-month spend for all of
your expense categories
and becomes a planning,
scheduling, management,
and tracking tool to help
your organization.
If you are interested in
uncovering your $1,000,000
in profit improvement
opportunity, determine your
annual spend in each of the
130 categories. Some, but
not all category examples
are listed in Chart 1.

PROFIT IMPROVEMENT
OPPORTUNITY FOR
YOUR GROUP

Chart 2 (see above),
depicts potential profit
improvement opportunities
based on data we have.

REALIZATION OF
$1.0MM IN NEW PROFITS
- NEXT STEPS

How does an organization proceed with a strategy
to increase their profits by
$1.0MM? Following the
steps listed below would be
an ideal place to start.
1. Review your 12-month
spend from your DMS
(on-demand checks and
accounts payable), credit
card payments and ACH
2. Develop a spend map
(categories, annual spend,
and supplier count) for your
business
3. Set your profit improvement objectives
4. Develop a sourcing
plan from the spend map
5. Assemble your team
6. Execute the plan by
sourcing each category with
three to four suppliers
7. Measure, manage and
report
8. Enjoy new levels of
profitability
SUMMARY

This process is not
quick...it takes time and requires management focus.
D I G I TA L D E A L E R . C O M

Those committed to driving
new profits are doing so.
The benefit stream is both
short term and long term,
because as categories are
sourced and new pricing is
"locked"...the benefits will
be sustainable year over
year, ensuring improved
profitability long term.
$1.0MM in new profitability is out there for you
and your organization.
Even more profitability,
shorter term is available for
larger groups. It becomes
a question of how bad do
you want those new profits
and what are you prepared
to do to achieve those
levels?
If you're a dealer interested in beginning this
process, email daustin@
strategicsource.com for a
spend map template to get
started.
DOUG AUSTIN is the
founder and president
of StrategicSource, Inc.,
the leading provider of
spend management
services (strategy, spend
mapping, sourcing, process
improvement, and audit) for
the automotive and truck
dealerships, and various other
vertical markets. Doug is a
veteran of the U.S. Marine
Corps, a graduate of the
University of St. Thomas,
and a speaker at various
conferences, 20 Groups,
seminars, and webinars.
Doug has acquired over
30 years of line, staff and
executive experience in spend
management and supply
chain management in various
vertical markets. Doug is also
a trainer, speaker, consultant,
and business owner. EMAIL:
daustin@strategicsource.com

JANUARY 2019

27
http://www.DIGITALDEALER.COM
Digital Dealer - January 2019

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