You bought what?

The client

Our client is one of the world’s largest non-bank financing companies. Australian operations are based around the acquisition, financing and management of fleet and transport vehicles, financing for manufacturing and construction plant and equipment, commercial finance, property finance, business finance, factoring, truck & trailer rental and specialist fleet management leasing services.

Our firm has helped this company to successfully develop and implement a number of programs to improve the company’s customer services and profitability.

 

Objectives

  • The company’s management wanted to know where and how they could achieve the biggest positive impact on the bottom line in the current financial year.
  • Our firm identified purchasing of goods, services and capital expenditure as an area from which the company could extract significant financial benefits.
  • We were tasked with helping the company to identify and capture the savings, and improving the procedures and systems by which the company expends money.

Delivering Success

Our client is a sales-based company. Its focus has always been on generating new revenue and providing the support services to keep customers happy. The purchasing side of the ledger had fewer controls and less management time devoted to it. No one in the company had the mountain top view of what was being spent and where, and no one had accountability for it.

Most of the money goes here 

Much of the company’s business revolves around passenger and commercial vehicles. The company either purchases fleets and manages them on behalf of clients, or supplies leased vehicles. This forms the largest point of expenditure and represented the single biggest opportunity for savings.

Lots of people buy a bit

The purchasing of fleet and leased vehicles was an uncoordinated affair. Often, the person making the sale was responsible for obtaining quotes from vehicle dealers. This included negotiating prices and securing the rebates the company was due on volume purchases. Sometimes the sales people managed to negotiate a low price. However, in boom years, dealers were rarely tempted to take a longer term view and negotiations were less successful. Added to this was the fragmented nature of our client’s business – geographically (the company operates in all Australian states) and by business type. Fleet sales, novated leases and commercial vehicles all purchased separately. This prevented the company from taking maximum advantage of its negotiating power and rebate opportunities – with many of its rebates veering towards the lower end of the scale.

A better deal

There was clearly a need to change the way in which car purchases are made in order to increase rebates and lower the cost of vehicles. The company embarked on a short term strategy to improve prices and services from dealers, and a longer term strategy to purchase more vehicles directly from manufacturers.The first was business negotiating 101. Reduce the number of dealers, promise a higher volume of purchases and secure better prices. The second is more complex.

Can’t buy direct 

The company is able to source only a small portion of its vehicles directly from car manufacturers. These vehicles, purchased in minimum lots of 100, are used for mini-leases – typically as replacements for cars that are off the road for repair. There are a number of benefits to be gained from purchasing vehicles directly from the source. However, the company’s management had tried this approach before and hit a brick wall. The key obstacle is that, from the perspective of the car manufacturers (mainly Ford and Holden), there are few potential benefits in this arrangement. Passing any savings made on dealers’ costs to the company will generate no financial benefit to them and may throw a spanner into their distribution chain.

Think differently

The challenge facing this company is to find and demonstrate two-way benefits in a direct sales strategy. The company is now in the process of doing this in collaboration with one of the major manufacturers. Together, the companies are analysing key areas such as distribution costs, working capital, increased sales opportunities and a range of smaller savings. The aim is to prove and negotiate sufficient mutual benefits to justify our client hooking into the manufacturer’s computer systems and becoming part of its integrated supply chain.

Next – on the commercial arm

The company supplies a range of light and heavy trucks to customers. In the main, this involves purchasing a prime mover from one source, buying a trailer or a tank from another and combining the two.Not much is standardised in this corner of industry. There are many small engineering companies up and down Australia who build trailers and tanks according to customers’ specifications. It’s rare to see a run of more than 10 units. Once again, this was a relatively straightforward task of consolidating orders with a select group of engineering suppliers and trading volume for price. The same tactic has been applied to distributors of prime movers – using yearly volumes, rather than single purchases, as the carrot to lower prices.

New processes and a new role 

Along with these changes, a number of key shifts have been made to purchasing procedures and policies. These are matched by a revised organisational structure and clearly documented roles and responsibilities. A new position, strategic sourcing manager, was created and an appointment made. Sales people are now able to focus on selling. The strategic sourcing manager is responsible for obtaining goods and services – from paper clips to prime movers – at the best price and for ensuring the new procedures are adhered to.

Rats, mice and sharks 

A raft of smaller cost saving opportunities have been identified and are now being seized. These range from printing services to rent; vehicle service costs to consultants and lawyers. Again, most of the benefits are being achieved by asking tough questions, both internally and of suppliers, taking a whole-of-service approach, and consolidating purchases.An example of this is tyre purchases. Ford Falcons are equipped with Goodyear tyres, Holdens with Bridgestone. The company consolidated its tyre purchasing – generating a range of service and cost benefits that can either be used to improve the company’s bottom line or to sweeten the deal for buyers. A similar approach is being taken to other expenses. Such as going to the market and benchmarking best telecommunication prices, enforcing a preferred supplier agreement for office supplies, ensuring a business case is made before hiring consultants, and questioning needs – a lawyer, or will a solicitor do?

Keep going

A number of internal project teams have been established to explore and implement ongoing cost saving opportunities. The teams comprise managers and lower level staff, usually with a direct interest in, and ownership of, the purchasing processes they are working to improve.
The teams have defined financial goals and report directly to, and receive input from, the new strategic sourcing manager. Our firm continues to provide guidance and support.

More to come 

Further saving opportunities have been identified through activity based costing. This will be our client’s next task.

Easy on paper 

This project, like many of our engagements, looks straightforward on paper. The reality is far from it. Our skill is not just in identifying problems and designing solutions, but in making those solutions work – often in a tough business and cultural environment.
GPR Dehler has an excellent record of implementing change programs in Australia, New Zealand, Asia, Europe, North America and Southern Africa. Everything we do is geared towards achieving results – not writing reports. We have the management and planning skills as well as hands-on consultants with experience to overcome obstacles and transform good ideas into effective and successful programs. Significantly, we do this with minimum disruption to our clients’ business operations.

Results

  • Initial annual savings of $6 million have been identified and are now being captured.
  • The potential to generate $15 million in savings each year has been flagged.
  • New purchasing policies and procedures have been developed and implemented - including clearly documented roles and responsibilities and the appointment of a strategic sourcing manager.