By Alex Saric, Smart Procurement Expert at Ivalua.
It’s clear that the rise of pure-play e-tailers and the Amazon model have significantly disrupted the retail market, putting traditional brick and mortar retailers under more pressure than ever to manage costs, whilst also meeting rising customer expectations.
This is being done against the backdrop of a retail landscape that has become more challenging. According to the Centre for Retail Research, 28 retail companies with multiple stores ceased trading in the year to August 2018, affecting 2,085 stores and 39,000 jobs, with major names like Toys R Us, Maplin and Poundworld disappearing from the high street. Even top retailers like John Lewis saw profits plunge by 45% last year.
Retailers have always operated on tight margins, however, the pressure to find savings has increased as the competition to cut prices has grown fiercer. To combat this and thrive in an increasingly difficult environment retailers need to focus on operational efficiencies by working with their suppliers to innovate and find ways to better manage their cash flow.
Using procurement to focus on the little things
We’re often told the savior of the high street is better data analytics or adopting the latest and greatest retail technology to improve customer experience. However, despite not being seen as a
transformational part of business, procurement can become the ultimate ally when it comes to identifying areas for sustainable cost savings in a challenging trading environment.
All too often there is poor visibility into spending in retail, especially in brick and mortar. However, by making seemingly minor changes in the purchasing process, retailers can make all the difference when looking for ways to increase margins. By taking spend management to the cloud, organisations can centralise data from the company, suppliers and third parties to develop a working supplier database and monitor spend efficiently. This smarter approach to procurement, gives retailers visibility into contracts, orders and invoices; helping to better manage spend and collaborate closely with suppliers to improve operational efficiencies.
This 360-degree view means that retailers can manage supplier payments and identify areas for cost saving. For example, with a top-down view of supplier processes, organisations can easily spot opportunities to receive reduction rates for early payment. By knowing which contracts are eligible for these types of savings, retailers have a risk-free way to reduce costs and get a better return.
Using automation to speed up purchasing
With this central source of spend data, retail businesses can also take advantage of automation and AI. Retailers typically work with thousands of suppliers who in turn will sell thousands of products. Given the scale of this operation, automation could become an essential tool to improving operational efficiency. Retailers need to look at ways to use automation to save time and resources across the source-to-pay process. By automating critical tasks such as creating process orders and reporting, pulling together supplier information and even managing certification, time and resources spent on the purchasing process will be dramatically decreased.
Not only can automation increase efficiency for retailers, but it can also help to identify new areas of saving through instant performance assessments, offering companies a chance to correct inefficient processes and make changes that will improve the source-to-pay process with every future purchase.
Collaborate with suppliers to benefit both sides
Efficiency is a two-way street, and while driving efficiency in-house is vital for retailers, there is just as much value in building strong relationships with partners and encouraging greater collaboration. By creating a single supplier hub across the supply chain, retailers can facilitate collaboration directly with suppliers and identify areas where both parties can benefit. For example, Marks & Spencer recently worked with produce suppliers to decrease water wastage, which is helping to reduce the risk of low food yields, which will ultimately help bring down costs.
Retailers must cultivate more of these types of relationships that ensure mutual benefit. Whether it’s working with a supplier to input on the product design process to find savings and innovate, sharing critical risk information or working together to navigate regulation changes, closer collaboration is a simple but often-overlooked way for retailers to create sustainable savings. By building strong relationships with suppliers, retailers will gain greater value from the relationship over time.
Conditions are tough on the high street, and retailers need all the help they can get to grow and maintain margins where they can. However, these margin-moving measures need to be sustainable in the long term and work both ways, otherwise they could put suppliers at risk. As such, it’s vital that retailers utilise procurement as a tool to better collaborate with suppliers and help identify ways to improve cash flow. This will allow organisations to find opportunities for cost savings, but also assess risk for the future and develop long lasting relationships with suppliers. In an increasingly competitive and challenging retail environment that isn’t about to get any easier, procurement could be the saving grace for retailers when it comes to maintaining their margins.