November 24, 2017

Why Centralisation in Auto Retail is Vitally Important

Auto Retail Centralisation

Today’s economies are dramatically changing, triggered by development in emerging markets, the accelerated rise of new technologies, sustainability policies, and changing consumer preferences around ownership. Digitization, increasing automation, and new business models have revolutionized industries, and automotive will be no exception.  

To defend against cost pressures there has been a significant amount of consolidation in the automotive sector, which is likely to continue for the foreseeable short-term future. Interestingly, some large dealership operators such as AutoNation, have adapted their operations in order to create real benefit from a dealership consolidation strategy. Something that can be seen clearly on the bottom line. 

Some of the key areas which are affected by a dealership consolidation strategy can be seen here: 

  • Data and systems integration issues typically arise – you have duplicate data and multiple systems which are normally DMS silos. 
  • Overlapping back-office resources and poor utilization rates of such resources 
  • Reporting overheads – everything is significantly more difficult to track and to consolidate for reporting and decision-making purposes 
  • Increased risk – with increased growth and less oversight and controls at a corporate level the organization opens itself up to new risks.  

Given the margins involved in the automotive retailer world it can be easy to avoid prioritising new systems and as such it is quite common to grow from five sites to 30 without taking the opportunity to centralise. With the advancements in technology in recent years, now could well be the time to investigate further. In our experience the next four points will provide real savings. Something backed up in AutoNation’s annual report.  

  1. Centralization / Shared Services

In order to leverage economies of scale across dealerships Finance and Procurement should be centralized. Automotive retail is one area which should not have difficulty in doing this from a business process point of view, as the process by and large should be the same across dealerships.  

A centralized function will not only deliver economies of scale from a personnel point of view but it will also deliver improved services to dealerships allowing process to be streamlined and operational knowledge to be centralized and improved upon. 

  1. AP Automation

Introducing self-service capabilities can free up significant amount of AP time. This includes areas such as allowing dealership personnel to request suppliers, enable suppliers to provide their data, allow suppliers to check status of invoice payments, will not only provide much better data but free up a significant amount of administrative work. 

Another area to address is removal of paper and moving to scanning and central document management solutions can create dramatic cost savings and streamline operations.  

  1. Indirect Materials Procurement/Supplier Relationship Management

Sourcing of indirect materials is still largely unmanaged. There is a lot of corporate spend in IT, Facility Management and also in Marketing which can be leveraged into national contracts to help drive costs and supplier volumes down. 

By centralizing supplier management, you will give yourself the opportunity to have better control and manage demand so it’s either re-engineered or channelled into existing contracts, as well as reducing potential risks. 

  1. Integration of IT systems

While integration of IT systems is not itself going to reduce costs directly, this is a key enabler for any type of efficient shared services or operational leveraged model. By implementing a system to manage supplier data across all dealer management systems you will create efficient shared services operations, provide the right level of control, and allow yourself to streamline processes around data maintenance. 

Even though the industry is changing there are ways that the automotive retail sector can start to adapt its operations to reduce cost and to free up cash for growth and capital investment in new retail experiences and channels. It’s about shifting thinking away from tradition and thinking about operations as a whole and also embracing new technologies which allow you to work across multiple and different DMS systems as a single unit. 

by Costas Xyloyiannis

Chairman & CEO

With HICX since its formation in 2004, Konstantinos has been instrumental in building it into a leading Supply Base Management company. He is responsible for setting the company’s strategic direction as well as overseeing the growth and expansion, strategy, planning, execution and overall performance of the company.
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