Executive Briefings

Procurement Transformation and the Management of Retail Indirect Spends

More retailers today are looking at the way they manage their non-merchandising indirect spends, and procurement transformation is increasingly coming into the conversation.

Procurement Transformation and the Management of Retail Indirect Spends

Procurement transformation refers to the company's initiative to concentrate and realign resources and solutions dedicated to the procurement process to generate better margins and results for the business. Improved alignment between CPOs and CFOs should be a key objective as well.

Advanced sourcing solutions are helping many industries propel forward five critical procurement transformation efforts. In the retail industry, the opportunities for improved spend management abound, particularly for indirect spend procurement. The indirect areas include categories such as store facilities services and materials, merchandise displays and furnishings, transportation and logistics management, as well as corporate services. These categories traditionally have not been considered "strategic" sourcing opportunities, but transformational solutions are rapidly changing that perception and demonstrating significant savings actualized for many large retailers.

Here's where advanced sourcing can come into play with impressive results:

1) Spend Aggregation: High numbers of stores, multiple geographies and overlapping supply bases all lead to larger data sets for the retail purchasing team. Increasingly retailers are turning to advanced sourcing technologies to aggregate those spends toward the goals of maximized buying power, increased savings, supply base optimization, and improved efficiencies. A recent case study of one retailer having more than 800 stores describes how it sought to consolidate regionally-sourced spends for its stores' common area maintenance services (landscaping, lot sweeping, snow removal, etc.). The retailer used advanced e-sourcing to support a single aggregated sourcing event for these spends, which resulted in a 10-percent savings.

Many companies have declared a local, regional or global "only" strategy, having educated themselves on the strengths of their suppliers, but perhaps not considering the full reach of the suppliers' offerings. For a job like merchandising displays, for example, the chosen approach may still seem the most strategic, given concerns like the expense to ship large displays. The roadblock to evaluating  a change in the approach - to use a national display vendor and pay shipping, to use local and save on shipping, or to use  a hybrid approach - is the immense challenge of data crunching which is often too onerous to tackle in Excel. Testing combinations of geographic strategies is easier with e-sourcing optimization, even, for example, at a displays complexity level that includes more than 500 different display types and sizes. If the retailer has committed to a local, regional or global "only" buying, the sourcing team should at least test the strategy to be sure it's better than any hybrid alternatives - and they'll need scenario optimization for that. Retailers should keep in mind that many of their suppliers with national reach may not know yet what they can offer, simply because they haven't been invited to look at the aggregated picture of the business.

2) Supplier Collaboration and Innovation: Retailers must manage dynamic supply chain influences, such as fluctuating fuel prices, seasonality, ever-evolving store and distribution networks and sometimes unpredictable swings in consumer demand. By more descriptively sharing its business requirements with its suppliers in an advanced sourcing event, the buyer allows suppliers to be more creative with suggestions - which could include providing an intermodal solution, suggesting alternate delivery times, proposing a different facility material or service, and more -  that allow for an easy-to-analyze set of options. Collecting and analyzing not just price but also non-price supplier data can be aided with e-sourcing technology to make a best-value sourcing decision for the retailer's business.

3) Stakeholder and Business Alignment: How does a retailer communicate to its many stakeholders the impact of particular business objectives? Some stakeholders might be committed to specific sustainability goals to trusted incumbent suppliers. The impact can only be weighed if it can be efficiently analyzed. Advanced e-sourcing allows all stakeholder preferences and business goals to be evaluated for cost/benefit impacts. In another case study, a Fortune 500 company wanted to better manage its spend on in-store product displays, but found that multiple marketing teams were overly reliant on incumbents and unaware of the costs associated with their own preferences. The customer used advanced e-sourcing to reflect the marketing preferences for every stakeholder in a company-wide sourcing event, giving visibility into the costs of different scenario outcomes. The results included a significant 45 percent in cost savings ($72m).

Here is an example of just how complex sourcing scenarios can become, while still being easy to analyze:  a 50-percent preference to suppliers who can provide service to entire network of stores; favor incumbents by 10 percent; 20-percent preference to suppliers who guarantee a specified material; 10-percent preference to suppliers with transparency on their carbon footprint; 20-percent preference to those who can boast a specific level of insurance; split the award between a mix of 35 suppliers.

The buying team may want to adjust those preferences and business rules to re-analyze different scenarios, especially in responding to the "what-ifs" proposed by various stakeholders. With advanced e-sourcing, those adjustments are quick, and allow for side-by-side comparisons of various stakeholder preferences, facilitating consensus based on real data.

4) Staff Efficiencies and Innovation: E-sourcing cycle times can be reduced by 30 percent to 60 percent with advanced e-sourcing, because teams let the powerful technology do the data normalizing and crunching that is so often done manually with spreadsheets. Retailers are finding that this improved efficiency leaves more time for strategic thinking. No more agonizing without the necessary data, and no more "back to the drawing board" delays while new scenarios are created and run - instead of weeks, scenarios can be built in minutes. By way of example, the 800-store retailer mentioned earlier realized a three-week reduction in sourcing time by using advanced sourcing, as well as a tenfold reduction in analytics time.

5) Spend Under Management: Retail indirect spends can be difficult to get under central management, due to the long-standing practice of handling these spends on a regional basis or sourced from within different business units, as opposed to within procurement. But that also means that the opportunity for improving cost-savings, service levels, efficiencies of scale and innovation are just waiting to be discovered. For example, growth in many retail businesses' e-commerce channel is also impacting procurement on the fulfillment side, particularly in terms of small parcel logistics. Getting more of these non-merchandising spends strategically sourced should be a key goal, particularly spends that are critical to supply chain and store operations. Advanced sourcing technology can be of significant leverage in procurement transformation initiatives for today's larger retail chains.  With ever-increasing spend under management, there's likely a wealth of opportunity yet "in store."

Source: CombineNet


Keywords: retail procurement policies, retail sourcing strategies, retail supply chain retail sourcing solutions, collaboration in retail procurement, supply chain management IT, value chain IT

Procurement transformation refers to the company's initiative to concentrate and realign resources and solutions dedicated to the procurement process to generate better margins and results for the business. Improved alignment between CPOs and CFOs should be a key objective as well.

Advanced sourcing solutions are helping many industries propel forward five critical procurement transformation efforts. In the retail industry, the opportunities for improved spend management abound, particularly for indirect spend procurement. The indirect areas include categories such as store facilities services and materials, merchandise displays and furnishings, transportation and logistics management, as well as corporate services. These categories traditionally have not been considered "strategic" sourcing opportunities, but transformational solutions are rapidly changing that perception and demonstrating significant savings actualized for many large retailers.

Here's where advanced sourcing can come into play with impressive results:

1) Spend Aggregation: High numbers of stores, multiple geographies and overlapping supply bases all lead to larger data sets for the retail purchasing team. Increasingly retailers are turning to advanced sourcing technologies to aggregate those spends toward the goals of maximized buying power, increased savings, supply base optimization, and improved efficiencies. A recent case study of one retailer having more than 800 stores describes how it sought to consolidate regionally-sourced spends for its stores' common area maintenance services (landscaping, lot sweeping, snow removal, etc.). The retailer used advanced e-sourcing to support a single aggregated sourcing event for these spends, which resulted in a 10-percent savings.

Many companies have declared a local, regional or global "only" strategy, having educated themselves on the strengths of their suppliers, but perhaps not considering the full reach of the suppliers' offerings. For a job like merchandising displays, for example, the chosen approach may still seem the most strategic, given concerns like the expense to ship large displays. The roadblock to evaluating  a change in the approach - to use a national display vendor and pay shipping, to use local and save on shipping, or to use  a hybrid approach - is the immense challenge of data crunching which is often too onerous to tackle in Excel. Testing combinations of geographic strategies is easier with e-sourcing optimization, even, for example, at a displays complexity level that includes more than 500 different display types and sizes. If the retailer has committed to a local, regional or global "only" buying, the sourcing team should at least test the strategy to be sure it's better than any hybrid alternatives - and they'll need scenario optimization for that. Retailers should keep in mind that many of their suppliers with national reach may not know yet what they can offer, simply because they haven't been invited to look at the aggregated picture of the business.

2) Supplier Collaboration and Innovation: Retailers must manage dynamic supply chain influences, such as fluctuating fuel prices, seasonality, ever-evolving store and distribution networks and sometimes unpredictable swings in consumer demand. By more descriptively sharing its business requirements with its suppliers in an advanced sourcing event, the buyer allows suppliers to be more creative with suggestions - which could include providing an intermodal solution, suggesting alternate delivery times, proposing a different facility material or service, and more -  that allow for an easy-to-analyze set of options. Collecting and analyzing not just price but also non-price supplier data can be aided with e-sourcing technology to make a best-value sourcing decision for the retailer's business.

3) Stakeholder and Business Alignment: How does a retailer communicate to its many stakeholders the impact of particular business objectives? Some stakeholders might be committed to specific sustainability goals to trusted incumbent suppliers. The impact can only be weighed if it can be efficiently analyzed. Advanced e-sourcing allows all stakeholder preferences and business goals to be evaluated for cost/benefit impacts. In another case study, a Fortune 500 company wanted to better manage its spend on in-store product displays, but found that multiple marketing teams were overly reliant on incumbents and unaware of the costs associated with their own preferences. The customer used advanced e-sourcing to reflect the marketing preferences for every stakeholder in a company-wide sourcing event, giving visibility into the costs of different scenario outcomes. The results included a significant 45 percent in cost savings ($72m).

Here is an example of just how complex sourcing scenarios can become, while still being easy to analyze:  a 50-percent preference to suppliers who can provide service to entire network of stores; favor incumbents by 10 percent; 20-percent preference to suppliers who guarantee a specified material; 10-percent preference to suppliers with transparency on their carbon footprint; 20-percent preference to those who can boast a specific level of insurance; split the award between a mix of 35 suppliers.

The buying team may want to adjust those preferences and business rules to re-analyze different scenarios, especially in responding to the "what-ifs" proposed by various stakeholders. With advanced e-sourcing, those adjustments are quick, and allow for side-by-side comparisons of various stakeholder preferences, facilitating consensus based on real data.

4) Staff Efficiencies and Innovation: E-sourcing cycle times can be reduced by 30 percent to 60 percent with advanced e-sourcing, because teams let the powerful technology do the data normalizing and crunching that is so often done manually with spreadsheets. Retailers are finding that this improved efficiency leaves more time for strategic thinking. No more agonizing without the necessary data, and no more "back to the drawing board" delays while new scenarios are created and run - instead of weeks, scenarios can be built in minutes. By way of example, the 800-store retailer mentioned earlier realized a three-week reduction in sourcing time by using advanced sourcing, as well as a tenfold reduction in analytics time.

5) Spend Under Management: Retail indirect spends can be difficult to get under central management, due to the long-standing practice of handling these spends on a regional basis or sourced from within different business units, as opposed to within procurement. But that also means that the opportunity for improving cost-savings, service levels, efficiencies of scale and innovation are just waiting to be discovered. For example, growth in many retail businesses' e-commerce channel is also impacting procurement on the fulfillment side, particularly in terms of small parcel logistics. Getting more of these non-merchandising spends strategically sourced should be a key goal, particularly spends that are critical to supply chain and store operations. Advanced sourcing technology can be of significant leverage in procurement transformation initiatives for today's larger retail chains.  With ever-increasing spend under management, there's likely a wealth of opportunity yet "in store."

Source: CombineNet


Keywords: retail procurement policies, retail sourcing strategies, retail supply chain retail sourcing solutions, collaboration in retail procurement, supply chain management IT, value chain IT

Procurement Transformation and the Management of Retail Indirect Spends