Centralized purchasing: Taking business operations to a new level of efficiency

by jason_cramp | November 15, 2016 11:51 am

By Jessica Chase

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In today’s highly competitive marketplace, centralized purchasing has become integral to business success. It eliminates redundant and duplicated efforts and creates opportunities for combining departmental purchases to qualify for volume discounts and decreased/eliminated shipping costs. Centralized purchasing also makes it easier to create and maintain good relationships with vendors and suppliers. Volume purchasing means better prices, greater discounts, and more agreeable terms can be obtained. Further, volume deliveries also help to cut down on staffing costs involved to move and store goods. Fortunately, the technology incorporated into today’s business software allows pool and hot tub retailers to automate much of this work as well as integrate these purchasing systems with accounting and stock control, making centralized purchasing key for specialized retailers to compete against big-box stores.

Patio Pools & Spas, a specialty retailer based in Arizona, implemented a centralized purchasing system using this technology. The company has five retail locations and a full-service department comprising a fleet of more than 30 service trucks to maintain 700 pools per week, plus a residential and commercial construction department. Not only did this technology help to improve Patio Pools & Spas’ bottom line, it also enabled the company to grow and thrive in this competitive niche market. In fact, the centralized purchasing tools that are now available have become the company’s backbone in its ability to offer its customers better service.

Each department and store is managed and operated differently—as business would dictate. However, every department uses the same products and parts—from the retail stores, service technicians, and construction crews. For instance, the company’s retail stores sell filters, the service technicians sell, install, and clean filters, while the construction department installs and replaces filters. That said, before centralized purchasing, it was a struggle to get an accurate understanding of the company’s product inventory and purchasing needs amongst the different locations throughout the system. However, once the automated purchasing and inventory control system was established, the company has since become an efficient buyer—not only by lowering inventory and carrying costs, but also by enabling the company to offer better customer service across all aspects of the business.

As the company is diverse, it was essential to set-up one warehouse to handle purchasing for all locations—making it truly, centralized purchasing. Prior to having this central warehouse, each location ordered its own supplies, which became a nightmare to track and control costs. The system now shows the central warehouse, each of the five retail store locations, as well as the service truck fleet, which are classified as ‘rolling warehouses’ in the system.

Control and management

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Centralized purchasing systems provide greater internal control. The primary benefits being the ability to control costs on individual products. In any given week, Patio Pools & Spas may need the same particular product in three different retail stores as well as on a project site. However, each location was not aware of the needs of the other departments.

Now that the company uses centralized purchasing, which integrates into a business management software program, any computer or mobile device on the system can see stock at the main warehouse, as well as at any assigned ‘warehouse’ location. The software allows the creation of a ‘warehouse location’ for each retail store and every service truck. For example, anyone can log-in to find out if a pump or a filter is in stock at any of these ‘warehouses.’ The company trucks move between the stores and the project sites so it is easy to move required parts within the system.

“Our purchasing has become much smarter,” says Patio Pools & Spas’ vice-president, Nicole Ragel. “We are now able to establish true re-order points with such precision that we can have re-order points based on the time of year—with seasonally adjusted minimum and maximum levels. This allows us to take advantage of price discounts so we can get better volume discounts if we order a pallet or a truck load rather than a few at a time.”

After careful examination, the company realized it was losing a substantial amount of money on shipping costs by not ordering products in higher volumes.

“When we order large quantities, our freight is usually reduced or waived by the vendor,” says Ragel. “Because of the centralized purchasing, the individual unit cost of the purchased product is now much lower. Having the lowest possible cost for the product, allows us to remain competitive against big-box retailers.

“We attribute a great deal of why we are a successful specialty retailer to the fact we are now smarter about our purchasing.”

Warehouse not where-house

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Prior to using this business software, Patio Pools & Spas could not see the available stock at all of its locations at the same time. A particular retail store might need a filter that was sitting on the shelf at two other stores and in one of its service trucks. It was very difficult and time-consuming to call the service manager at each store to determine whether a part/product was available—especially during the height of the season.

With the power of business software and centralized purchasing, Patio Pools & Spas can now be much more responsive to customers as they can immediately tell a customer whether a part/product is available at a particular location, or to provide accurate expectations of a repair job. Being able to give a quick, precise response has improved the customer experience, not to mention customer loyalty.

“Not only can we see the available stock within our own organization, but our business software is integrated with an industry distributor which enables us to view the stock on hand at local distribution centres,” says Ragel. “We can even reserve and ‘pull stock’ (essentially put a product on hold) immediately at the distribution centre, all while the customer is standing at the counter or on the phone with one of our team members.”

In essence, the company now maintains better returns on its inventory and, therefore, only keeps what is needed on hand. This eliminates tying up thousands of dollars on products that are not being used regularly.

Accounting has also become easier. Everything is linked to a purchase order (PO) so invoices are no longer arriving without anyone knowing which location or project they apply to. As soon as an order is placed, a request is generated, as well as a PO number, which is applied to the invoice with the vendor. Further, the company is now able to take advantage of the incentive programs and promotions (e.g. buy three get one free deals) from certain vendors.

“The system has worked so well for us that when we do our annual, physical inventory, we are within $300,” says Ragel. “In the past, we were off by thousands of dollars.”

Making the most of everyone’s time/skills

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With Patio Pools & Spas’ service trucks incorporated into the system, products are automatically deducted from the inventory as it is pulled off the truck. When the service technicians are preparing their trucks in the morning before leaving the shop, the warehouse manager knows exactly what each technician needs on their truck before heading out for the day. It is no longer the responsibility of the truck driver to know what they need to have on their trucks for any given day.

All purchasing, sourcing, and research falls on the purchasing department, not in retail, service, or construction. Previously, for example, service technicians used to spend time researching parts for each specific project. It was common for them to spend one to two hours in the office each day to perform this task. Now, the company’s service technicians are no longer wasting time sourcing the products they need to service, it is all handled by the purchasing department. This has made Patio Pools & Spas’ service crews much more productive and profitable.

By implementing this business management software and centralized purchasing system one might think the company’s purchasing agent would be less useful to the organization when, in fact, it makes them more valuable. This person no longer needs to spend inordinate amounts of time with purchases and instead can now concentrate on making decisions that directly affect the profitability of the company.

From a company stand point, the employees feel less dependent on the purchasing manager, knowing the system is operational 24-7, which means management of the company’s purchasing and inventory is never compromised.

“Our purchasing manager now makes better business decisions and there is a lot less ‘blaming’ or pointing fingers because it is all in the system for everyone to see at all times,” says Ragel. “So, even if the actual purchase is made in a centralized fashion, the system is transparent and accessible by all. Everyone in our company has ‘faith’ in the system.”

While anyone in the company can see where a product is located, there are various access levels that can be set to avoid everyone from seeing actual product costs and mark ups.

Improved financial analysis/review

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Having centralized records of all purchases allows the company to improve financial analysis and review of pricing practices and quoting. For example, Patio Pools & Spas has some customers that have their chemicals included in their service agreement and others in which the chemicals are billed out separately. By using centralized purchasing it allows the company to evaluate what the client is being charged versus the actual cost of the chemicals.

It also provides a much more accurate cost of goods sold, making the company better at quoting and bidding on jobs, which ultimately increases profits.

This systematic approach also prevents orders from falling through the cracks. For instance, if a service technician cannot finish a job because a particular part is needed, the job automatically generates a PO to the warehouse staff as the technician leaves the project site. This immediacy of communication expedites the ability to complete the job the following day or, in some cases, the same day. There is no time delay. The work order has a list of parts, the office invoices, parts are delivered, and a minimum/maximum is triggered to replenish the stock.

Patio Pools & Spas has even created a ‘special order’ category for the company’s large number of ‘do-it-yourself’ customers. By creating this category, it gives them an easy way to help them find what they need to keep their pools and hot tubs running smoothly. This has allowed Patio Pools & Spas to gain the reputation of a company that is easy to do business with. All of these benefits contribute to being more profitable.

Teamwork

Another benefit Patio Pools & Spas has come to realize since using centralized purchasing is improved teamwork. Employing business software that allows for transparency has helped the company’s staff become more team-oriented by improving inter-company relations. For example, if a product is on the shelf, but has a tag on it saying ‘Reserved for Smith job,’ a service technician can contact the construction department and find out when they need the part or product. This way, a retailer or service technician is not taking a product that might hold up a job or the construction crew is not holding a product they do not need for another few weeks. The team works to make everyone’s job easier and, ultimately, the customer happier. In the past, there was no system that could tag an item in this manner.

New business development

Once centralized purchasing is integrated into the company’s business software, many firms are able to develop new business opportunities with the additional time gained by being efficient purchasers. This happened to Patio Pools & Spas, when they realized there was an opportunity to act as a wholesaler to smaller pool professionals. This can be a great opportunity for some companies with respect to providing high quality service to fellow industry colleagues. Patio Pools & Spas is delighted to support other service professionals because in the big-scope of things they realize the industry needs to work together to ensure consumers remain happy with their pool and hot tub purchases. The consumer should never say pools and hot tubs are: “too much work,” “too costly,” or “not worth it.”

“If we work together to keep consumers happy with pools that are clean and fully functional, it supports the long-term health of the industry,” says Ragel.

All pool businesses should take advantage of how technology can make centralized purchasing an easy reality to build directly into their business operations.

[6]Jessica Chase is the vice-president of client services at Evosus Inc., in Vancouver, Wash., a developer of business management software designed specifically for the pool and spa industry. She has been with the company for more than eight years and previously held the position of support manager. Chase has a bachelor of science in social sciences from Portland State University. She can be reached via e-mail at jchase@evosus.com[7].

Source URL: https://www.poolspamarketing.com/trade/centralized-purchasing-taking-business-operations-to-a-new-level-of-efficiency/

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