September 2007 Edition
PURCHASING
Strength in Numbers
Even though going it alone is an American trait, sometimes e pluribus unum is the way to go in getting purchasing discounts
By joining a buying consortium, the H.E. Parmer Co. was able to purchase metal products at a significant discount compared to buying as an individual company
With the competitive global marketplace, running a metal manufacturing company is complex. From purchasing materials and finding skilled labor to marketing the shop and meeting sales goals, keeping up with the competition is a full time challenge.
For Russ Barnes, president and CEO, H.E. Parmer Co., Inc., a mid-size metal manufacturing company employing 25 and based in Nashville, TN, success means strategically using every economical advantage available. He found one by joining the Prime Advantage program, a private buying group offered to Fabricators & Manufacturers Association, International members.
Founded in 1889, and one of the 15 oldest businesses still owned by the same family in Nashville, H.E. Parmer is a leader in the manufacturing of trailer fenders, trailer parts, and custom sheet-metal fabrication. The company purchases sheet stock of steel, aluminum, and stainless steel to fabricate its products — primarily fenders — used in vehicles ranging from SUVs, RVs, boats, to trailers.
Big, but Small
Though among the largest fender manufacturers in the world, it's a relatively small player in the metal purchasing sector, and Barnes strives to cut costs. Doing so is often a challenge.
"We have to purchase metal from whichever company offers the best price since fenders are a commodity," Barnes said. "We make a consistent, quality product, yet that doesn't command a price position. We can't compete with the price points of a larger metal purchasing corporation because we'll be beaten."
Seeking a way to further connect with the metal fabricating industry, Barnes joined the Fabricators & Manufacturers Association — FMA — in 2006. Soon after, he learned about the Prime Advantage program, a buying consortium for industrial manufacturers offered to FMA members.
The company recouped the $1,000 membership fee in less than a year
FMA partnered with Prime Advantage in 1998 to offer its members a multifaceted savings program to help lower purchasing costs through group buying power. With 280 member companies, the buying group offers pre-negotiated discounts and rebates from more than 115 endorsed suppliers, providing access to volume discounts and rebates on raw materials, components, supplies, and services.
Endorsed suppliers offer discounts on indirect goods and services comparable to those that Fortune 500 companies enjoy — and they treat Prime Advantage members as a large national customer, with all the corporate level contacts and services that such status brings.
Barnes was already aware of the power of buying groups. In a former position in the boat manufacturing industry, he learned firsthand how buying groups help companies pool resources to drive down costs.
"We partnered with other boat manufacturers to capitalize on our volumes," he said. "Doing so allowed us to buy fiberglass, resin, plastics, and other materials at competitive prices."
"You're a member, too?"
As a fender maker, the products from the H.E. Parmer Co. are a commodity, so the company had to find a way to cut costs to stay competitive. It found purchasing strength by combining with other small manufacturers in a purchasing program.
Barnes found that his primary stainless steel sheet dealer was a member supplier.
A month after joining FMA, Barnes enrolled H.E. Parmer in the program.
"We performed some rough calculations and felt we could recoup the initial cost of membership in a year," said Barnes. "For us, joining was a no-brainer."
Since joining Prime Advantage, H.E. Parmer has purchased $600,000 worth of stainless steel, carbon steel, and aluminum from the Prime Advantage member supplier. By purchasing metal at a reduced cost from his preferred vendor, Barnes has decreased the company's supply expenses and improved the business' bottom line.
The investment has already paid off — the company recouped the $1,000 membership fee in less than a year.
"Based on our participation in the program, we've already exceeded our initial investment, which makes the membership worthwhile," Barnes said. "The savings we receive over time will be reinvested in the company or distributed as dividends to shareholders."
Joining FMA's Prime Advantage group provided additional benefits for Barnes. The program offers semi-annual conferences and committee participation provides cross-industry networking, best practices, and benchmarking opportunities.
"Being a member of Prime Advantage has fostered productive meetings and relationships with several quality suppliers who are a part of the program," Barnes said. "As a smaller company, we normally don't get that kind of service. It's allowing us to network and make strategic sourcing solutions."
Another Tool in the Inventory
"We've been trying to buy from a large steel supplier for a while but their prices are always a bit high," Barnes said, pointing to a recent example of the membership benefits. "We think the savings through the buying program will offset that cost and allow us to purchase from them in the future. Doing business with this larger Prime Advantage member will allow us to better manage our inventory and optimize service to our customers.
"The program is a valuable tool for a small company like ours because there's an almost immediate payback," he said. "It's allowing us to re-examine our supplier relationships to reduce costs and increase profitability."Fabricators & Manufacturers Association
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