Procurement Procedures to Gain Leverage
Achieving immediate buying power and deploying controlled procurement processes are some of the quickest wins for country clubs.
The most obvious solution in procurement has to do with economies of scale. Golf management companies simply represent a much larger book of business to vendors than a single stand-alone facility ever could. The fact is that a management company with dozens of clubs under their umbrella is going to achieve far superior pricing and terms on this basis alone.
The biggest gains in procurement are often seen in golf course agronomy. Shifting to a scaled approach to buying seed, chemicals, machinery and supplies typically brings immediate 6-figure savings – even for the most modest of clubs.
In cases where clubs are geographically centralized, there also may be opportunity for sharing or leasing certain equipment where standalone clubs could not.
Cut Costs with Buying Power
All too often, department heads with buying power do not properly seek out best possible alternatives for the club. Left unchecked, supplies, services, and vendor relationships can often be entered into for personal reasons rather than for what is best for the organization.
Sound golf procurement strategy means real buying power and vendors competing for your business.
The Path of Least Resistance:
Managers sometimes just don’t have the time to seek out best options and negotiate best possible prices. For one, they’re too busy. Secondly, there’s probably nothing in it for them and they don’t necessarily understand the ramifications to the club’s financial bottom line.
It’s very common for department managers to take the path of least resistance. They’ll work with vendors that they get along well with or who simply treat them the best.
Arguably, buying in bulk from a single vendor could bring possible incentive for price reductions. Normally however, this isn’t the case – particularly over time. The more ordering that is done with a single vendor, the more beholden the club becomes to that vendor. Additionally, it’s simply easier for the manager to place orders with a single company than through multiple vendors. Vendors aren’t chosen on the basis of merit, but as a matter of comfort or convenience.
Rarely is any real negotiation ever taking place.
Captivity:
Over time, as relationships become more and more comfortable, vendors often find themselves in position to push prices well above market norms. Remember, their motivation is to get the best possible fees for their products and services. Understanding that the buyer cannot or will not seek out alternatives means they can get away with above market price bumps.
These cases become more egregious when there is a cost to vacate the current situation. This could be a result of contractual obligations, striking a poor deal, or by virtue of the items or services being purchased. For example, after installing a new point of sale system, there would be considerable cost to change vendors. Poor negotiation or a lack of foresight on termination provisions or legal language could leave the club stuck with unfair carrying costs without any viable options to terminate.
Personal Kickbacks:
Often unwittingly, department leaders will choose to do business with companies that “take care” of them. They might consider tickets to the baseball game, or free product perks of the job. There’s nothing wrong with some added benefits, so long as they’re acting in the best interests of the club first. We have however come across many cases where buyers were knowingly making disadvantageous deals with vendors for personal gain.
In the aggregate, like a frog in the frying pan, expenses slowly rise well beyond market levels in these kinds of relationships. The company is the one paying the price.
A Proven Golf Procurement Strategy:
The fix for poor procurement practices is simple in principle, but requires expert leadership and continued golf club operations diligence to execute in practice. Huge returns are possible in this area, but these gains will need to be earned by company leaders or management.
In basic terms, the key is to force vendors to compete for your business – always.
This means acquiring multiple offers on any significant expenditure. Buyers are required to get bids from at least 3 – 4 vendors every time they make a purchase – including all contract renewals.
This golf procurement strategy accomplishes several very important goals:
- Competition – Vendors know they’ll always need to present their best offer to earn or retain your business.
- Negotiation – We can play offers against each other in situations where we have preferences. We’ll tell one vendor that they’re too expensive, and the other that we want better payment terms – showing competing offers if we need to.
- Fallback Position – If one offer falls through, then we’re able to go with Plan B rather than starting from scratch.
- Definition of a Good Deal – With one offer, we have no idea whether or not we’re sticking a good deal. With 4 – 5 offers, we’ll have far better perspective, particularly when presenting to the Board of Directors and Ownership.
Together, these benefits generate REAL leverage in negotiations and help us negotiate with strength. Without competition, why should a vendor sharpen their pencil for you? Are they your buddy? Have they treated you well historically? Great…just make them prove it.
Fair warning, holding all managers accountable for these buying practices requires significant attention to detail and follow up on behalf of club leadership. There’s also some short term heartburn and resistance to change when these “sweet deals” are taken away from staff (and vendors).
Communication and buy-in into the process is critical for a program like this to take hold over the long term. Slipping back into old habits will sabotage execution and marginalize the returns you’re hoping to achieve.