Every organization has a variety of functional silos- departments that keep the business running at peak efficiencies. Those silos include the sales department driving top line sales, service and parts keeping customers happy, human resources attending to the needs of the employees, IT keeping the under-appreciated computers, systems and data flowing, and the finance and office team….managing expenses, keeping the books and keeping the ship pointed in the right direction.
Every department needs trained, dedicated employees to keep those departments running. Those employees depend upon a variety of tools to execute their jobs effectively. Without the right tools, the job, the performance is sub-optimized. A carpenter cannot hammer a nail effectively with a stapler. A technician can’t remove a frozen nut with a pair of pliers. A salesperson can’t sell a vehicle using a notebook, and a CFO can’t manage the Spend Management function effectively without a Spend Management Toolbox. What are the tools that a CFO or a Finance Department needs to effectively manage spend in your organization?
Spend Management Tools
All organizations, dealerships, manufacturers, non-profits, need a set of tools to execute the business of the organization and to protect the organization from risk. Those key tools include the following:
Spend Map – Once a year, a detailed listing of all service and supplies expenses should be developed by expense category, with total annual spend attached to each category.
Purpose – The spend map helps the team prioritize expenses, and ultimately becomes the sourcing plan for the organization to follow. The sourcing plan becomes a deliberate, proactive approach to managing expenses, rather than hoping for the best.
Purchasing Policies – Approval Matrix – This rather innocuous sounding document can put many people to sleep in some organizations, a good cure for insomnia. If constructed correctly, this document is short, concise and to the point. It lays out who has authority to commit company funds, who can make supplier decisions, how suppliers are brought into the organization, etc.
Purpose – Purchasing policies provide guidelines to employees, advising them what is acceptable, what is expected and that which is unacceptable. It is the responsibility of Executive Management to provide guidelines to the team in the Purchasing function, just as they do in Human Resources, IT, Sales, and Customer Support.
Purchase Order – In any other business, a Purchase Order (P.O.) is submitted to an organization (supplier) at the time of purchase…..or precedes the commitment. Almost all dealerships use the P.O. as a confirmation of a verbal purchase and as such, does not offer the control or protection normally afforded in the P.O. process. I am not going to change an industry practice, but suffice it so say the issuing a P.O. on the back-end of a commitment is an internal control device, but does not do much more than that.
Purpose – The purchase order is a “commitment device” in most organizations. A P.O. communicates the requirements, the price, the terms and expectations of the “buyer” as it relates to the purchase, and that document usually drives the filling of the order or the initiation of a service.
Contract Tracker – Dealerships have more contracts with suppliers than they care to admit. This happens because there is a lack of policies limiting who has contracting authority. When contracts and agreements are unknown, they have a tendency to renew with unfavorable terms and prices. An important tool known as a “contract tracker” is used to help the Finance Department be proactive and avoid surprises.
Purpose – The contract tracker can take many forms, but essentially is a tool to manage the expiration date of known contracts or agreements. The tracker is a management tool to help the organization become proactive about managing agreements. Contracts can be set-up as alerts in Outlook, or a tool can be constructed in Excel to manage agreements by due dates. In any event, a tracker should be in place to manage commitments.
Preferred Supplier Template – This tool is essentially a listing of suppliers by expense category. A more creative and helpful version of this tool is a Preferred Supplier tool which sets up both the primary and secondary suppliers in each expense category. If you have created the spend map, the Preferred Supplier template can easily be created from that tool.
Purpose – The purpose of this tool is primarily one of communication. In its simplest form, the Preferred Supplier document advises the management and employees who your designated or preferred suppliers are. The existence of this tool implies to those who read it that you are “deliberate” about who you work with in each expense category and suggests that not everyone can add a supplier to the mix….there is a process.
Terms and Conditions – Most organizations have defined business terms and conditions that are employed for the purchase of supplies and services. This is the small print that is found on the back of most purchase orders, or contracts. It protects the buyer or the seller in transactions relative to warranty, delivery, functional, pricing, terms, etc.
Purpose – Terms and Conditions protect the “buyer” for normal business commitment transactions, such as a purchase order or contract. Normally terms and conditions are printed on the back of a P.O., but they can also be posted on an organization web-site.
Supplier Letter Templates – There are various times when formal communication with suppliers is appropriate. The award of an RFQ should be memorialized in writing, advising suppliers of performance problems or breach should be done in writing as well to protect your organization. A number of letter templates can be set up ahead of time and then printed on letterhead when needed.
Purpose – Letter templates help the members of the organization respond formally, accurately and in a timely basis when written communication is necessary.
Purchasing Scorecard – A Purchasing or Spend Management Scorecard is a tool to track the progress of sourcing events and the results of the sourcing function. Date completed, date implemented, estimated cost savings in dollars and savings % are all helpful metrics to track and utilize in the management process.
Purpose – Management uses scorecards every day to manage various functions. Sales are tracked daily, weekly, monthly and annually. Service and Parts activities are tracked and reported on to give management a perspective on performance to plan. If a sourcing plan and cost savings activities are underway, a scorecard is needed to track, communicate and recognize performance. There as well.
The management of the Spend or Purchasing function should be treated just like any other silo or department function in your organization. 95% of dealerships handle their Purchasing in a decentralized manner….meaning various, non-dedicated staff are accomplishing those Purchasing tasks. The staff executing these tasks should be trained, should be following a plan to hit the desired objective, and should be equipped with the right spend management tools to get the job done. As leaders of your organization, it is your role to ensure your team is equipped, trained and equipped to deliver the results you expect.