Spend Management in the Home: The Importance of Benchmarking

Like many dads, I gave-up a sporty car a few years back to purchase the family truckster, in our case a Honda Odyssey. Incidentally, if you're interested in buying one now, a friend in the Spend Management world was able to haggle the price down to $10K under sticker last week (and this for one of the best selling cars in America which is rarely discounted). But her negotiation strategy is not the subject of this post. What to me is more fascinating is the spread of bids for something as straightforward as tire replacement.

Now in our case, the tires aren't as simple as it may seem. They're run-flat tires produced only by Michelin which require special equipment to install. Still, every Honda dealer in North America has the equipment and tire discount stores are still able to make the replacement swap by ordering tires already attached to the special rims (and taking your rims back). But the one catch remains that the entire car is built around this particular brand of run-flats, including a pressure monitoring system. This makes it impossible to shop for alternative models.

Still, I had a gut feeling that there was money to be saved by sourcing these tires. To test my hypothesis, I called around to four dealers and one tire discount store. Many wanted to quote a piece-part price at first (i.e., tires, labor, disposal, gel packs, etc.) and this quickly reached as high as $375 per tire in one case. But when I finally got someone to quote a fixed price off the bat, I knew the number would be good. They came in at $1092 plus tax to replace all four tires. This was not the lowest price. The tire discount store came in at $1035. My local Honda dealer, which is only 2 miles away, was in the middle of the pack at $1400 (they later came down to $1300 when I told them that another near-by dealer was over 25% less).

This sourcing exercise required no negotiation. It simply took the form of a phone-based benchmarking exercise that took approximately 30 minutes and the analytical know-how to ask for both bundled and un-bundled pricing. In this case, the bundled pricing was far cheaper. Granted the dealer who came in at $1092 also immediately tried to up-sell me a $100 alignment, an extended warranty and other good things. But we all know better than to go for the extras.

In the end, I went with the dealer vs. the discount center. The extra 5% was worth the peace of mind in working with a dealer who had the in-house to replace the tires versus sending them out. So there you have it. 30 minutes spent doing some supply market research resulted in a $300 savings. Not bad, especially in this economy when making $400-500 (the top line amount required before State and Federal taxes, depending on income bracket) in 30 minutes is quite hard for any of us to do! Unless, of course, you're auctioning off a Senate seat …

- Jason Busch

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