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Staying Afloat

Guest Blog By Chris Horacek

It’s no surprise that brick-and-mortar stores have been suffering a slow decline for years. Recently, Radio Shack announced that it will be closing more than 1,000 stores. Staples: more than 200. Increased competition from online retailers means less foot traffic and revenue, making it more difficult to justify expansion and growth.

Now more than ever, retailers need to identify where they can squeeze extra value and where hidden cost savings lie. The most comprehensive way to do so is by examining their supply chains, end-to-end, to understand all current costs, by category, department, supplier and brand.

To start this process, here are four methods that you can use to optimize a retail supply chain and as a result, improve profitability.

Purchase as a Company
Like with anything, the fundamentals are the most important, but often overlooked, ways to achieve savings goals when sourcing retail merchandise. Three procurement or supply management techniques that separate the retail leaders from the laggards are:

* Leveraging: When two different divisions or departments combine volume of purchases with the same supplier to get better pricing or terms.
* Normalizing: Ensuring that if different division or departments are sourcing the same product, that they’re all paying the same price.
* Rationalizing: Using one supplier for similar items across several categories.

It all depends on how aggressively you manage your supply base, but most retailers using these techniques see double the savings, at minimum, with the most aggressive seeing a tenfold cost reduction.

Revaluate Transportation
Once you begin to purchase smarter, it’s time to dig into the specific categories that are costing you the most. These days, many retailers find that transportation, logistics and shipping costs can easily total upwards of 20 to 30 percent of the entire cost of goods sold. In the most extreme cases, it skyrockets to 50 percent.

Transportation is one of the hardest aspects of the retail supply chain to manage because it’s so dynamic – rates change daily across hundreds (or thousands) of carriers.

To tap into this savings opportunity, retail teams must understand not only the cost difference, but other, critical decision-making criteria, including on-time delivery rate, fuel surcharges, handling costs, etc.

The solution: use technology to do the heavy lifting for you. E-sourcing tools give you full visibility beyond just pricing and allow you to analyze all the factors that can impact a transportation strategy, by seeing an apples-to-apples comparison of what each transportation provider offers.

Lower Maintenance Costs
In addition to transportation, retailers have a huge opportunity to drive savings when it comes to store maintenance and operations. On average, this category accounts for seven to 10 percent of the cost of goods sold.

In order to avoid passing rising product costs onto your customers, there are a few techniques you can use to save on facility services. First, make sure that you compare national and local suppliers on the same criteria during the proposal process. Ask each of them to list specific costs for each region rather than just an average price. Drilling into these details will help you make the most cost-effective decision.

Another technique is to consolidate services so that you’re using fewer suppliers. For example, you may find that the vendor who does the nightly cleaning for your store may also have capabilities to manage security. Why not use one supplier for multiple services and benefit from volume-based discounts?

Lastly, bring in as many suppliers into the proposal process as you can. The more suppliers you end up evaluating, the better idea you will have of the average pricing for that specific service.

Improve Capital Spending
And finally, the stretch goal. Most retail procurement operations don’t get involved in capital spending – but the truth is, they should, in order to stretch this approved money and then reinvest it back into the business.

Every brick-and-mortar retailer knows the challenges of today’s economy; however, it’s often difficult to pinpoint the solutions. Procurement and supply management teams have a major opportunity to help their businesses not only survive, but thrive.

Chris Horacek is vice president at BravoSolution

This story originally appeared in the summer 2014 issue of Supply Chain World

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