Digital Dealer - May 2019 - 18

D E A L E R OP S & M ANAGEM ENT: Sp e n d M anagement

By Doug Austin
Founder and President,
StrategicSource, Inc.

Developing a
Revenue Center
Is it time to
innovate yet?
The market is changing.
Profitability is being
challenged once again.
Dealers are quickly exploring all options to shave
costs and improve profitability. OEMs are also under
pressure to help their
dealers improve profitability
and some are exploring
unique approaches to
partner with their dealers to
drive out costs and improve
the bottom line.
As dealers start to
examine their P&Ls and
look for options to improve
profitability, they are going
to find once again that their
statements don't yield a
lot of obvious cost reduction opportunities. So, the
typical approach is to look
at headcount, inventory,
floor plan, and then...punt
and hope for the best. As
we all know, hope is not a
strategy.
A methodical and prioritized approach to cost
reduction has proven to
yield sustainable results,
and it might be time now
for some big, outside-thebox thinking, and one idea
is the development of a
company-based revenue
center. More on that in a
few minutes.
18

M AY 2 0 1 9

FAILED DEALERSHIP
COST REDUCTION
APPROACHES

In our experience, tactical
cost reduction approaches
do not yield sustainable
bottom-line benefits. These
approaches are normally ad
hoc, are short on data, short
on management direction,
and short on expectations.
These efforts are characterized by a monthly management meeting where rising
expenses are a hot topic
and various managers are
tasked with going away and
looking for opportunities to
either eliminate suppliers
and/or negotiate with selected suppliers to generate
better pricing than they
currently have.
Problems with the typical
approaches:
 POOR PLANNING:
Without a data-based
plan, management may
be spending time with low
spend categories that will
yield insignificant results.
 WRONG
PHILOSOPHY: If the focus
is on obtaining only on a
short-term price reduction,
the buyer may be missing
many other opportunities to
take down costs. Additionally, unless the pricing is
locked for an extended period of time (12 - 24 months),
the suppliers are likely to
begin raising prices within

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

weeks, maybe months of
the negotiation. Audits are
necessary to verify pricing.
 LACK OF
BENCHMARKS: If the
buyer doesn't have access
to benchmarks that
represent 'best-in-class'
pricing for the supplies
or services they are
negotiating, they really
don't know how much they
are leaving on the table
with the supplier when they
conclude a negotiation.
Request for Quotes
(RFQ's) determine truth in
the marketplace, but that
process is rarely if ever
used by dealer personnel.
 LACK OF MANAGEMENT EXPECTATIONS/
ATTENTION: If manage-

ment doesn't have an organized, long-term approach
to this initiative with a big
objective in mind, the initiative will fail. Sustainable,
long-term results will not be
obtained if there isn't a regular focus (bi-weekly) on the
folks assigned to this work
and measurable results
posted against a plan.
 REPURPOSING
HUMAN ASSETS:

Some organizations will
undoubtedly redeploy
certain employees from
their current position to
full-time work on expense
reduction projects. This
approach can work but

rarely produces material
results to the bottom
line. Lack of data, lack
of experience, and lack
of direction and tools will
normally doom this effort to
a short-term initiative with
minimal results.
So, what will work? What
strategies will yield measurable, sustainable, and even
material cost reduction, or
new revenue results?

OUTSIDE-THE-BOX
THINKING - DEVELOPING
A REVENUE CENTER

The purchase of supplies
and services are absolutely
necessary to the effective
operation of any business.
The purchase of those
supplies and services are
expenses which show up
on our P&Ls and reduce our
profitability. There are some
executives and management teams that throw up
their hands and feel there is
nothing they can do in any
significant way to reduce
expenses. We all know that
the act of reducing expense
dollars will flow directly to
the bottom line as new profitability...new revenues.
We also know that
over-paying suppliers and
service providers happens
occasionally, and if those
dollars can be minimized or
recovered...expenses go
down, and new revenues or
profits will increase.
Stay with me here...
what would happen if we
took a big step and decided
to create a new function
in the organization where
the primary purpose is
new revenue generation?
This revenue center is not
the generation of revenue
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Digital Dealer - May 2019

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