Digital Dealer - March 2019 - 32

D E A L E R OP S & M ANAGEM ENT: Sp e n d M a nagem ent Continued from pg. 31

the designated or preferred
supplier. This audit will also
validate whether the expected spend is observed.
This is the money question.
Is our overall spend lower
and meeting our original
projections or not? If not,
the organization could be
using suppliers other than
those designated and that
needs to be determined and
corrected.
 ITEM COMPLIANCE:
This part of the audit verifies whether the right items
are being consumed... the
high usage items that were
negotiated and recommended. These "core" items
or selected services should
be consumed versus the
higher cost alternatives that
might be available.
 CONSUMPTION: If
the organization consumes
more of a service or a supply, the costs will increase
and cost savings will be
hard to find. Obviously, if
business levels increase,
greater consumption is
justified and welcomed. If
however, business is flat
or declining, consumption
should follow the same
trajectory.
If your category audit
consists of these four
components... rest assured,
your cost savings are there.
The savings are real and
measurable and you just
proved it with this simple
audit. Even though the savings are hidden or buried
in various financials... you
can't dispute that prices are
lower, terms are better, the
spend in that category is
lower, and the limited spend
dollars are being used with
32

MARCH 2019

CHART 2

Category Audits can confirm both supplier compliance and user
compliance and are the best method to validate cost savings results.
Audit Type

Items Audited

Accurate Items

Item Accuracy

Expected Spend

Audited Spend

P.S. Compliance

Non-Core Items

Core Items

Core Items Usage

Non-Core Items

Core Items

Core Items Usage

Supplier Price Compliance

Audit Type
Preferred Supplier Compliance

Audit Type
Core Item Compliance

Audit Type
Consumption - usage

TRADITIONAL
FINANCIAL DOCUMENTS
SUCH AS THE P&L CAN
RARELY BE USED TO
IDENTIFY OR VALIDATE
COST SAVINGS..."

positive that not only are
pricing and terms better,
but employee behavior and
decisions have improved as
well, leading to sustainable
cost savings today and into
the future.

the most cost effective
items.

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

SUMMARY

This article began with a
question, "Where are the
cost savings?" This is a
question that many executives ask of their teams
and some ask of their own
purchasing departments
from time to time.
Traditional financial documents such as the P&L can
rarely be used to identify
or validate cost savings
because of the summary
nature of the document itself. With over 130 expense
categories jammed into 25

D I G I TA L D E A L E R . C O M

or so lines on a typical P&L,
the challenge of validating savings might appear
daunting. This problem can
be overcome with a series
of post implementation
audits. If those audits focus
on price accuracy, use of
the proper supplier, checking in on forecasted spend
and consumption and if the
correct items are used...well
then you have validated
your cost savings and done
a good job for your organization. When management
asks "Where are the cost
savings?" you can point to
your audit results as proof
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