OPERATING

WALLY LYNCH Paid Associates PO. Box 741623 Dallas, Tx. 75243

ACOUPLE of months ago this column was dedicated to reducing operating costs so that available sales could be made at a profit. Your letters and calls have asked for more thoughts on the bottom line One area that should have more universal appeal is the buying of inventory, certainly everyone's largest cash outlay annually.

Recent years have seen major changes in marketing thrusts as hardware stores and lumber yards have redirected themselves as home centers in an attempt to capture an ever larger part of the lucrative consumer market. Wholesalers, seldom lacking for energy , have positioned themselves to participate in kind by expanding their activities to include support programs and products for this retailing concept.

Some of these same wholesalers have responded by expanding their direct sales to contractors. If you ask a wholesaler or buying group how the retailer has taken to the effort, you will get some surprising answers.

Whatever you call it, the economic purpose behind a wholesaler or buying group is to reduce the purchased and landed cost of inventory at an acceptable turnover rate for the retailer. "Ace by the case" has been changed. Commodities as well as hard lines a re available through many structured wholesalers . New warehouse locations and expansions occur yearly, along with sophisticated pass through programs.

With all this activity to serve and to facilitate with broader support, most of these suppliers will tell you that purchasing participation by their members or customers runs between 40 % and 45 % of all purchases made by the retailer and averages around 42%. Over the years one buying group has successfully returned to its members at a minimum their original participation contribution each year. One structured wholesaler has made annual rebates approximating 10% of the member purchases each year in either credits or equity for man y years. Most agree that a good rule of thumb on advantages and benefits of collective purchasing is around I 0%. Why then such a low participation?

This is not about the pros and cons on multiple tier distribution , but about the numbers involved and how to improve the bottom line Buying habits change very slowly. Even under the best of conditions, no one source of supply could be all things to any retailer.

Some simple numbers suggest that there is reason to examine your purchases to at least part of this extent. Let's say you have $1,000,000 in gross margin at 24.2% maintained Then if 42 % of your purchases yield a 30% margin , the other 58% will generate an aggregate 20 % margin The 10% difference being made from collective buying of some sort. If the $580 ,00 0, or 58 %, could be made through lower landed costs to yield 30% margins , it means $58 , 000 more bottom line dollars.

Take a look at your 58 % Maybe you can cut it in half or three quarters. It 's like finding money you didn't know you had