Monday, August 21, 2000

Company helps businesses save on purchasing

By John Eckberg
The Cincinnati Enquirer

        Seeking and then finding economies in purchasing and other sectors of a company is a lot like closing your eyes and repeatedly squeezing a sponge from a full bucket into an empty bucket.

        It is clear that the water is dripping. It is obviously flowing away because you can hear it and feel it.

        But because you can't see it and have no time to figure out a way to quantify how much fluid is moving, there is no good way to determine how much water is left.

        So you hire a guy who is not blindfolded to tell you.

        Identifying and quantifying money spent to buy materials or services — cash flow, not water flow — are a couple of goals of AMS Business Solutions, a Loveland company that provides clients with expertise in the strategic sourcing of goods and services.

        The company, founded in 1999, is in a rapidly growing field. It attempts to improve earnings for clients by making the most of procurement dollars and bringing efficiency to a client company's supply chain.

        AMS may recommend consolidation of services, technology and materials. Or the company may advise clients to broaden its supplier base in an effort to bring black ink to the top and bottom lines.

        “Because of a lack of time or skills, organizations can end up making major purchasing decisions without fully investing in the necessary research or evaluation process,” said Allen M. Schwartz, owner of the firm.

        “Strong supply chain management will directly impact the bottom line by minimizing direct and indirect costs, increasing procurement efficiency and improving vendor services. When the purchasing environment changes, longtime suppliers are forced to compete, and usually for first time.”

        A July survey by the Education Foundation of the National Federation of Independent Business found that cost of supplies and materials was a critical priority for businesses — ranking ahead of key issues like how to retain key employees and competition.

        Supplies and inventory procurement ranked 17th among the top 20 concerns of the businesses surveyed. Because eight of those top 20 concerns deal with taxes and government regulations, the actual priority is even higher.

        The Education Foundation is the research and education arm of the NFIB, the nation's largest small-business advocacy group. A leading voice in public policy debates, NFIB represents the consensus views of its 600,000 members before legislative and regulatory bodies in Washington, D.C., and all 50 state capitals.

        That ranking is another indication of the breakneck pace in the growth of procurement consultancies. From a one-man shop a year ago, Mr. Schwartz expects to have five consultants on the company payroll within three years with annual revenues exceeding $500,000.

        Mr. Schwartz is confident his proprietary five-point strategy for procurement can achieve significant economies for companies. He developed the five-point strategy while serving as senior vice president/global for Peerless Carpet Corp., a manufacturer of commercial and residential floor covering based in Montreal.

        That firm had lost $50 million in the three years prior to the creation of a management team that included Mr. Schwartz. Within a year, that team converted annual losses of $12 million into a $3 million annual profit.

        The company, which was publicly traded, was then sold, and Mr. Schwartz returned to Cincinnati, his hometown. He is a 1981 graduate of Sycamore High School and a 1985 graduate of the University of Cincinnati, where he majored in business marketing and received a bachelor of science degree.

        He said the strategy of developing a sourcing plan led to the turnaround at the Canadian company and promises similar results for local clients.

        “Our clients can expect to see positive results within 30 to 120 days after completing the sourcing process,” he said.

        The procurement trend for most companies generally is to buy materials only as needed, which saves on warehousing costs and keeps capital working for a company rather than gathering dust as unfinished product in a back room.

        Looking for new suppliers to create competition is generally avoided because companies are usually satisfied with good enough, Mr. Schwartz said.

        Developing a broad array of suppliers is one of his company's the first steps. The competitive offers will soon follow.

        His planning saved $228,000 for one company on a $1.2 million buy of marketing support materials like folders and binders and $720,000 in a $3 million purchase of outdoor signs for a financial institution.

        “What is happening throughout the industry is you're getting people at companies where, say, the core interest may be manufacturing,” said Stan Hemsley, a member of the board of directors of the local arm of the National Association of Purchasing Managers, a 400-member organization.

        “Companies don't want to do maintenance or procurement so they will farm it out to consultants or companies with the expertise to control what is spent and keep prices down through negotiation.”

        Procurement consulting is a rapidly growing field because it enables firms to keep a close watch on their core competencies, said Charles R. Crain, professor of management at Miami University in Oxford.

        “Companies want to focus on what they do best,” he said, “and that is usually something other than the buying of goods and services.”

        Unlike large, international strategic consulting firms with tens of thousands of consultants, AMS targets small and mid-sized companies, specific commodities or departments within large companies.

        Mr. Schwartz said finding efficiencies in procurement immediately boosts profits. For every five percent savings in material costs, there is a 27 percent increase in profits, he said.

        Customers relations are also critical because about half will leave for a new provider every five years. Reducing that churn to create can also be critical to the survival of a company, he said.


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