CASE STUDY

Strategic Procurement in the Retail Industry – Best Practices

Jul 19, 2021

Why is Strategic Procurement Important in the Retail Industry?

The unexpected boom of the retail industry, growth of e-retail, development of various channels of marketing and sale, and evolution of consumer expectations has led to significant growth for companies in the market. Simultaneously, this has led to the development of various challenges, most significantly pertaining to procurement, and has given rise to the increasing need for strategic procurement. Fluctuating prices, rising demand, increasing risks, and rapid development have caused retailers to reconsider their strategies, and attempt to reduce costs, mitigate risks, improve efficiency, and meet market demand without incurring losses. This has required substantial changes within their supply chains, processes, and existent systems, also encouraging companies to revisit their approach to other crucial tenets throughout the organization. As rapid urbanization, globalization, and evolution of consumers’ demands continue, retail companies will need to evolve their strategies accordingly. Currently, maintaining reduced costs, efficient processes, and robust business plans is the most efficient way forward. The ideal way to achieve that is to implement certain key strategic procurement best practices, and develop a sustainable growth trajectory within the company.

What are Key Strategic Procurement Best Practices for Retail Companies?

Optimized Communication: As companies grow, the various departments often lose track, communication is minimized, and efficiency is impacted as a result. Maintaining communication between departments can mitigate various risks and challenges, create a stronger supply chain, and encourage more sustainable growth. Additionally, it can reduce the chances of over-ordering, unnecessary expenses, lack of transparency, and disagreement or confusion between departments. Strong communication also helps stakeholders gain clear insights into the company, help decision-makers determine more collective and collaborative targets, and improve overall efficiency of the supply chain through cooperation and coordination.

Supplier Management: Efficient and effective procurement requires high quality, on-time delivery, and constant coordination from suppliers and vendors. To successfully achieve strategic procurement, companies must maintain strong, collaborative, and mutually beneficial partnerships with suppliers. This includes negotiating clear and fair terms, establishing expectations from the beginning, tracking compliance, amending contracts as per both parties’ requirements, and creating a strong and transparent communication system between both organizations. Retailers can then control their costs, mitigate various supplier risks, develop a sustainable partnership, and improve the value received from partners over time through efficient relationship management. With robust business relationships and supportive partners, companies can significantly improve operations.

Focus on TCO: Strategic procurement requires a comprehensive understanding of all costs, internal and external impacting factors, costs and prices, and changing business relationships. When procuring a product, companies often make the error of calculating initial investment while choosing, purchasing, tracking, and budgeting. This leads to CPOs and other departments failing to see the Total Cost of Ownership (TCO), and incurring unnecessary costs at a later point. In many cases, an initial purchase may be less expensive than an alternative option, however, maintenance of the inexpensive option may be more demanding, costly, and challenging. Additionally, when comparing similar products, focus on initial price may cause mistakes regarding durability, value for money, and sustainability of a product through its lifetime. Therefore, to minimize errors, reduce overall costs, and select the best fit products and services for their business, companies must focus on total cost of ownership.

Leverage Technology: The rise of industry 4.0, digitization, and automation, and the incorporation of AI and ML has transformed every industry, and led to a plethora of new developments for the retail industry. Leveraging these tools is a certain way to reduce long-term costs, improve savings, support decision-making, and enable sustainable growth. The data and analytics procured from automated systems, AI, and ML can help companies analyze shortcomings, inefficiencies, and problem areas in real time. It also helps companies minimize the need for manpower to conduct repetitive manual tasks, and improve focus on decision-making, strategizing, and implementation of impactful plans. Additionally, real-time data helps companies minimize human error, improve overall service and quality, and remove challenges preemptively while ensuring customer satisfaction.

Implement Risk Management: Every industry is facing various risks constantly, and ever since the introduction of different technologies, these risks have evolved and require novel and unique approaches. For instance, the introduction of automation has led to a higher risk of cyber threats, and requires companies to invest in the implementation of long-term cyber-security solutions. Changing consumer preferences and demands, due to rapidly evolving trends can lead to various challenges during the production and distribution phases, and companies must prepare for any and all inventory related challenges. A sudden rise in demand for particular products may lead to shortages, whereas a rapid decline may lead to overages, ultimately causing losses for the company. Creating and maintaining an efficient risk assessment and management team is necessary for protecting the company, minimizing losses, and staying ahead of the curve at all times.

Success Story

A leading retailer in the US was struggling to keep pace with the rapid evolution of consumer demands, and sudden introduction to highly technology-oriented systems during the pandemic. This led to various challenges with implementing new systems into their supply chain, consequently causing a sudden drop in productivity, rise in customer attrition, and increase in losses. To efficiently implement strategic procurement, overcome these challenges, and re-establish themselves as industry leaders, the company chose to partner with SpendEdge. Through an in-depth study and close analysis, our experts identified the various shortcomings in the traditional supply chain approach of the retailer, and worked closely with the supply chain team to implement various major changes. This included incorporating new technology, improved communication systems, and a data-driven approach to strategizing within all departments. With accurate calculations of investment, strong supplier relationships, improved risk management systems, and highly efficient technological systems, the company quickly regained their market share and status within the retail market in the US.

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