While mid-sized retailers may never match big-box retailer purchasing power, there are numerous opportunities to reduce costs in the supply chain.
1. Discover New and Innovative Sources of Supply
Wegmans, Whole Foods, and Trader Joe’s are the toast of the grocery industry for a reason – and it’s not because of their prices. These companies have thrived at finding products that differentiate their brand and the consumer experience.
Despite the tough economic climate, consumers have shown a willingness to pay more for innovative products and brands that they believe in. Despite being more expensive than competitors, Apple and Whole Foods offer products consumers passionately believe in — one of many reasons for their growth.
The issue for most retailers is a lack of time and resources needed to understand what products and promotions will inspire that consumer passion, and to go out and find those new suppliers and products. Both are time-consuming, but as some of the top performing mid-sized retailers have proven, the revenue and branding payoff is worth it.
2. Say No to Strategic Suppliers
Mid-sized retailers may lack big-box purchasing bower, but they still have ample opportunity to cut supply costs. The biggest cost-cutting roadblock is the concept of “strategic suppliers.”
Too many retailers aren’t willing to change suppliers. The “if it’s not broken, don’t fix it” mentality rules, especially if products always show up on time, and the supplier meets expectations. This is especially true for retailers with small sourcing staffs.
While there may not be anything wrong with current suppliers, by sticking with the same source year-after-year, retailers miss major opportunities to drive better terms and lower costs. The most mature sourcing programs take direct items out to bid every other year, and indirect goods and services every year.
The reason: few retailers are confident that they’re getting the best value from their suppliers. And while retailers may never discover a supplier’s rock-bottom price, incumbent suppliers will certainly put a better offer forward if they see other suppliers competing for the business.
3. Collaborate and Aggregate to Save
Truly collaborative supplier relationships allow both parties to get creative and work in union to drive savings. To find new pockets of savings, mid-sized retailers need to work closely with vendors to understand their cost factors, and be flexible in negotiations. For instance, one strategy for dealing with volatile commodity prices is formula-based pricing – it eliminates the guesswork, and reduces the future risk to both parties.
Another simple, but sometimes under used strategy for retailers, is long-term contracts. By committing to purchase a certain volume from the same supplier over a two-year period (as opposed to sporadic purchase orders), suppliers can increase their own purchasing power by buying up-front, and pass along the savings to the retailer.
Internal aggregation and spend visibility are also critical. Retailers need to understand all of their buying needs: are separate retail locations purchasing paper and landscaping services, for instance, from different suppliers? What about your current suppliers: Can supplier A, which normally supplies paper, also provide plastic bags and shopping carts? Understanding your suppliers’ full product line allows retailers to aggregate more spend. The savings may seem small, but over time, the increased purchasing volume has a trickle-down effect on costs.
Competing against big-box retailers like Wal-Mart and Target will never be easy. But mid-sized retailers can drive impactful savings, improve margins and find innovative products that attract and retain new customers by making a few strategic changes to purchasing and sourcing operations, including:
1. Explore new sources of supply: Finding products that differentiate brands and inspire consumer passion gives mid-sized retailers an edge over big box stores. The revenue and branding payoff is well-worth the time and resources to source these products.
2. Put pressure on suppliers: Even if suppliers meet your expectations, not challenging them means missed opportunities for better terms and prices. Take direct items out to bid every other year, and indirect goods and services every year.
3. Collaborate and be creative: By working together closely, retailers and suppliers can develop unique arrangements and stronger relationships. Consider under used strategies such as formula-based pricing, long-term contracts and supplier consolidation. n
Article courtesy: Intesource
Intesource provides e-Sourcing solutions and services to help retailers, grocers, and restaurants competitively challenge suppliers to secure the lowest possible prices.