Executive Insight: Richard Ham “They can exploit the 5% you don’t know, for a +>20% profit.”

Richard’s Categories: Uniform Rentals, Waste Management, and Pest Control Services

Executive Takeaways:

  • There are a lot of unknown – unknowns in these three complex categories, and the supplier sales teams can and will exploit it for profit. It’s how they get paid.
  • Most sourcing managers may think they have hard savings quantified; but, when they don’t track/audit compliance, the reality is far from the truth. And typically, in the supplier’s favor.
  • You can partner with experts like those at Fine Tune, for complex and cumbersome but necessary sourcing opportunities, to create contracts, tracking and adherence to ensure hard dollar savings over the life of the agreement.

 

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Richard

I am going to start by saying, I know absolutely nothing about strategic sourcing of Uniform Rentals, Waste Disposal, and Pest Control Services. So, this interview was a great learning experience. Not to mention if I ever had these categories, I knew who to call.

And since these categories are ones that I wouldn’t be jumping up and down to source, it’s good to know someone will be! Especially if you can hire them based on only sharing a percentage of hard dollar savings.

But let’s start at the beginning of the story, at the beginning of Richard’s career. He pursued a Journalism and Poly-Sci. degrees in college. He wanted to write and talk about sports.

But, he eventually he got an offer he couldn’t refuse and moved to the sell-side, working for a national uniform supplier. This forever shaped his trajectory in life.

Selling Uniform Rentals wasn’t the life Richard had dreamed of. He was bored and dreading his work weeks. But with that, he realized that he would be able to embark on his own to build a consulting solution—from sourcing and procurement to ongoing management–to this complex expense.

Richard had learned the ins and outs of the expense—and how to exploit them—as a seller, so he decided to take the opposite approach in negotiating, buying, and auditing on the client’s behalf. Why should the industry behemoths make all the money? He could carve out his piece as well.

As scary as going out on your own can be, Richard felt like it would be relatively easy to pick up and try again if it failed. Especially since he didn’t want to remain in his current position.

He also didn’t feel like starting his own business was a risk at all. Maybe it was a sign that it was his calling, or maybe it wasn’t. But after 18+ years of a successful business, I might tend to think it was.

You see Richard got to see what others didn’t. He got to see how to exploit the 5% that Category Managers didn’t know, for in excess of a 20% profit. And in turn, he was able to help the buy-side with his knowledge.

Eventually, Richard modeled his business and support team to be so deeply immersed and dedicated to their targeted categories, they know the customer’s programs and history better than they do themselves. When Category Managers rotate out every 3-4 years, Fine Tune has the knowledge to train and educate them on the past 10-15 years of what the company’s strategy was, what had worked and what hadn’t.

He also was able to help them understand the difference between hard and soft savings. Especially when it comes to all of the necessary ongoing management practices after a contracting process.

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richard
Executive Insight: Richard Ham "They can exploit the 5% you don't know, for a +>20% profit." 1
Executive Insight: Richard Ham "They can exploit the 5% you don't know, for a +>20% profit." 2

You see, when it comes to Uniforms, Waste Disposal, and Pest Control Services, you can easily negotiate 10-20%+ savings. The key though is in the vigilant and ongoing management of the expenses after those deals go live. Everything from tracking and auditing the negotiated rates, identifying and addressing new products, and responding to field-level issues is required to truly optimize these categories

Richard gave me a business case where the initial Category Manager had projected 30%+ based on their savings. The thing was, that 30% savings, when tracked and audited – quickly became a 30% INCREASE in sales. Yes, you read that right. And it was all attributed it to non-contract compliance.

The Category Manager may have negotiated a decent deal (it wasn’t ever really 30%–but putting the bad math aside), but they never made sure it was enforced or audited. That became the ultimate issue his business could address.

I mean, how many of us can say we track 100% of contract compliance? Probably not many. Therefore, the inevitable happens. Suppliers take advantage of the system. How can you blame them? They have to show a profit too, and their service reps are commissioned based.

So even though they agreed to a discount (in theory) for some of the products currently in service, they a) probably don’t ever fully and accurately implement the new deal, b) immediately start more aggressively imposing discretionary charges, and c) start injecting new products and charges at “book price.” It happens. Every. Single. Time. It’s the supplier’s playbook for regaining their margin.

This is also why Fine Tune (a full service expense management consulting business with proprietary auditing software) is so successful. You can negotiate the greatest deal in the world, but if you aren’t tracking and auditing it, you might as well throw it in the trash.

Unless you have a resource with decades of category experience, and the tools to efficiently identify problems as they arise, you’re almost surely still missing key areas and leaving a surprising amount of money on the table.

Want to know more about category management, but don’t have the time? Check out 2 minute reads on Category Management Mondays – Here!

Executive Insight: Richard Ham "They can exploit the 5% you don't know, for a +>20% profit." 3
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