Best Procurement Practices in the Retail Industry: Managing Pennies to Save the Dollar
The retail sector is a fiercely competitive industry which operates on a tight margin. Procurement teams need to be on the top of their game by creating a seamless value-added experience for the customer. In the retail industry, sourcing and purchasing account for almost 80% of the total cost. Marginal savings in this cost could […]
The retail sector is a fiercely competitive industry which operates on a tight margin. Procurement teams need to be on the top of their game by creating a seamless value-added experience for the customer. In the retail industry, sourcing and purchasing account for almost 80% of the total cost. Marginal savings in this cost could result in superior ROI. As a result, most teams are focusing on maximizing ROI for their business by optimizing their sourcing and supply chain practices.
Here are some of the procurement best practices for the retail industry:
Segmenting the Spends
Categorizing the organization’s spends is one of the fundamental concepts in sourcing management. Spends should be segmented as required by the business into logical groups of similar items or services from suppliers. Spend categories differ vastly within each organization in the retail industry due to its highly multi-variant nature. With the increasing complexity of the spend category and supply market, the need for sophisticated segmentation models has increased. Consequently, procurement managers need to consider supplier performance, sourcing type and nature of demand, supplier risk, demand volume and variability, and regulations to create a proper spend segmentation.
Evolution of Managed Services
The retail industry is relying on Managed Service Providers (MSP) as an alternative to on-demand outsourcing to improve operations and cut down on the costs. MSPs with expertise in the retail industry can evaluate a supplier based on pre-defined parameters such as compliance of suppliers against assigned roles and responsibilities, utilization of enterprise management tools, and their ability to efficiently deploy service models and define standards for categories.
Advanced sourcing enables both buyers and suppliers to work together to drive costs out of the system instead of squeezing in margins. Advanced sourcing helps control indirect spend procurement such as merchandise display, transportation and logistics, store facilities services and materials, and corporate service. Advanced sourcing coupled with spend aggregation, supplier collaboration, stakeholder and business alignment, and staff efficiency and innovation can deliver impressive results in identifying and eliminating avoidable costs.
Retailers are highly reliant on procurement best practices to get rid of unwanted costs and squeeze more profits to add to the overall revenue. They are always on the lookout for maximizing returns on investment by striking the right balance between deploying innovation versus optimizing the value they deliver.
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