2009 looks like it will be another year of slow sales growth. The dealers I talk with tell me that there are still too many new homes for sale, builders are cautious and sales of existing homes are slow. A few of the dealers have told me they have noticed a little more action in kitchen remodeling – but they quickly add that this trend is still more interest than actual buying.
Years like this are when astute cabinet dealers take a closer look at their operations and find new ways of doing business that reduces cost and gets more productivity out of their people. Over the years there has been a debate about centralized vs. decentralized purchasing. Fans of centralized purchasing think it’s a good way to get extra sales time inexpensively.
Traditionally most dealers have had their salespeople do their own purchasing. This way of doing business started back when the owner founded the company. He or she designed the kitchen, ordered the products, coordinated the delivery and even collected the bill. When it came time to add more salespeople, they just followed the owners lead.
As the sales teams get bigger, most dealers begin to have delivery coordinators and accounting staff free up salespeople’s time by making someone else responsible for kitchen installation and collections. The salesperson spends less time doing what they don’t like – pushing paper – and more time doing what they like – selling. It works out great for everyone.
Many dealers are slow to apply the same logic to purchasing. Let’s say you have a sales team of 5 salespeople, all of whom spend 20% of their time filling out and placing purchase orders. For the price of a purchasing agent – you can get a salesperson and 2,000 hours of selling time back. Even in a tough sales market – that’s a good deal.
Most companies who centralize purchasing have the salesperson or associate do the kitchen design and prepare the quote for the prospect. After the quote is approved is when things begin to change. The salesperson in the centralized purchasing environment will create a job packet and send the information to the purchasing agent.
The purchasing agent is responsible for reviewing the design, organizing the required materials by supplier, and then creating and placing the purchase orders. Some variations exist, but for the most part the purchasing department also receives and checks the manufacturer’s confirmations and enters the cost information into the accounting system.
The purchasing person becomes the point person for the salesperson on order status questions. Back-orders, anticipated delivery dates, modifications to the orders and rush orders are all handled by the purchasing person. The purchasing person takes on a lot of paper and follow-up work that normally robs salespeople of their selling time.
Building supply companies and cabinet dealers with multiple locations can centralize purchasing as well. They can have the salespeople at each location fax or e-mail the design and quote to the purchasing department – who then processes the paperwork.
There is a caveat to centralized purchasing – quality control. Cabinet dealers produce a lot of paperwork and sometimes that paperwork contains a lot of errors. A salesperson placing their own orders can easily hide their mistakes (and the cost of those mistakes) with a few quick calls to the manufacturer.
Salespeople who also place orders can easily forget items that directly deal with the manufacturer and mark these items as a “service.” A centralized purchasing system can easily identify these errors and charge it to the job instead. Initially this can be painful to the sales rep’s commissions; however, it teaches the salesperson to be more careful and helps the dealer recapture lost profits.
Industry leaders feel that best practice is to eliminate all the passing of paper between sales, purchasing, receiving and accounting by automating the entire process. Dealerships that have made this leap have seen a single purchasing agent be capable of supporting over 15 salespeople who sell over $30 million worth of kitchens and related products per year.
Should you centralize purchasing? I don’t know. But I do know that you should spend a day watching your salespeople. Are they spending the majority of their time doing the things that make a difference in your business? If you answered no, centralizing purchasing can likely be your first step in a more efficient direction.