Module 1 - Case STRATEGIC PURCHASING MANAGEMENT Assignment Overview Review the following article from Purchasing.com. Hannon, D. (2008). P&G uses Gillette deal to draft the blueprint for post-merg

Average Rating: (0) Rate this: Centralization stream lines purchasing Paul E. Teague -- Purchasing, 5/18/2006 2:00:00 AM When you manage the purchasing function at a small company, you have to be fleet of foot because often you're a team of one. Just ask Jay Johnson, who to tally revamped procurement at Fitcorp, New England's larg est fitness center company. Joining a company that really had no purchasing staff, he acted as a one-man band handling sourcing, negotiations, buying, leasing an d contract management.

His advice for others: centralize.

Before Johnson arrived at the company, Fitcorp, lik e many other companies large and small, was very de centralized in its approach to purchasing. Fitcorp owns 11 different fitness facilities and manages 32 others, many of the latter owned by and housed in corporat e offices in the area. Buying at all those locations was an add-on responsibility for people whose main job was something else. "Everyone bought from their favorite suppliers," Johnson recalls.

Result: Fitcorp was working with between 300 and 40 0 suppliers for exercise equipment and indirect materials such as paper and plastic. One of Johnson's first acts was to pare that number down to 25-30 through an RF P process where he measured suppliers according to metrics such as pricing, how easy they were to do business with, reputation, financial stability and length of time serving the fitness industry.

Interestingly, Fitcorp doesn't actually buy the tre admills, stair steppers, stationary bicycles and we ight-lifting equipment: It leases the equipment.

"Price is not so much of an issue," says Johnson. " All the equipment is competitively priced and you can make up any differences in negotiations or in freight charges." The key challenge, he says, is getting the equipmen t serviced. "The equipment manufacturers outsource the servicing, but there aren't many service providers in our area who are qualified, and they mark up the parts. " His solution was to hire his own service technician rather than rely on outsiders.

He did the same with the cleaning service for the f acilities. "We were spending $150,000 a year on an outside cleaning service, so we brought the work in house and cut the cost in half," he says.

Payment terms is one area where Johnson believes th at companies of any size can have leverage, especially companies in the fitness industry where most fitness centers lease equipment through leasing agents. "We decided to bypass the leasing companies and go direct to the manufacturers, paying them in 30 days," he says.

That meant that the equipment makers would get thei r money sooner. "They would deliver us product even without a purchase order if we needed it," says Johnson.

Fitcorp is the largest locally owned fitness center in New England and part of a booming fitness indus try. According to the website for Fitness Management magazine ( www.fitnessmanagement.com ), enrollment in health clubs throughout the U.S. w as 22.5 million people as of 1999, the most recent statistics from the magazine.

Johnson recently left Fitcorp. Says Bob Schwartz, s enior vice president and CFO, "Jay saved us money t hrough competitive bidding and skillful negotiating, and standardized purchasing at all our centers." Fitcorp at a glance Business: Owns and operates fitness centers Size: 200 employees, $17-18 million in revenueKey challenges: Cutting number of suppliers; finding reliable servicing for equipment Key initiatives: Reduced supply base from 300-400 to 25-30 through rigorous RFP process; hired their own full- time service rep to offset problem of lack of reliable qualified service agencies. Saved money by bringing service and clean ing in-house. RELATED CONTENT TOPICS AUTHOR TOP RATED SPONSORED LINKS TALKBACK We would love your feedback! Post a comment » VIEW ALL TALKBACK THREADS New England Supply Chain conference set for October 08/03/2009 NECON 2007 01/14/2010 DOE says slow-moving electric reform laws put relia bility at risk 07/12/2000 Happy New Year 12/22/2008 Hiring activity does not let up 07/15/1998 Centralization streamlines purchasing - 2006-05-18 06:00:00 | Purchasing http://www.purchasing.com/article/231259-Centraliza tion_streamlines_p... 1 of 2 1/14/2010 11:33 AM Resource Center Browse Categories Browse Companies Featured Company SIRVA SIRVA, Inc. is a leading worldwide provider of relo cation and moving solutions to a well-established a nd diverse customer base around the world. The Comp any strives to deliver the best mobility experience at the lowest total cost to relocate... more Most Recent Resources Measuring The Impact of Procurement Training However You Slice It, Buying Energy is Unique Breaking Through the Relocation Cost Reduction Para digm: The Total...

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