21 November 2008

Jane Biddle of Eqos describes five ways retailers can improve their sourcing strategies to cope with the current trying economic climate and generate long-term growth and sustainability.

These days, we hear about the 'retail slump' almost daily. A recent headline reads: "As more major retailers report second-quarter earnings, it's clear that the slump in consumer spending is pinching retailers in every sector." Today's retailers are under siege. Not only is the economic situation eroding sales, lowering margins and stalling growth, but fickle, cost-conscious consumers and a market focused relentlessly on cost reduction have placed many retailers in a weakened, stagnant position.

No doubt, the going is tough for today's retailers looking to do more than sustain or survive in today's economy. But when the going gets tough, the tough get going. Let's explore how retailers can get tough by driving down costs and getting more out of their sourcing and import strategies, while improving margins, regardless of the economic forecast. Here are five ways retailers can put systems into place today that positively impact the business at large in a way that grows and sustains, independent of how economic indicators may try to take hold of the retail marketplace.

GET SMART
To contain costs, today's retailers must increase their knowledge about the business, customers and suppliers so they can make more timely and informed decisions. According to analyst firm AMR, business intelligence (BI) is defined as enabling technologies focused on gathering data from multiple operational systems that stores, analyses, and provides access to information in specific contexts to support the people making fact-based business decisions. What should this mean to the retailer? Gaining visibility across the retail value chain, delivering high priority items/tasks to buyers and sourcing teams, and providing the guidance and data needed to help identify and respond to issues most critical to the business at that moment.

User-configurable dashboards and scorecarding products provide decision makers with the ability to visualise the health of the business in single glance. Further investigation should enable them to analyse current sourcing activities, review suppliers' performance, and take action on high priority items. Tracking metrics-based performance enables executives to quickly hone in risks and opportunities.

According to a 2008 report by AMR Research entitled: Retail Business Intelligence: Moving Decision Making from Wishful Thinking to Wisdom, the imperative for retailers to embrace BI technology for performance management (PM) is clear. "Retailers can only improve by using business intelligence to drive better decisions faster and closer to the point of impact. Their long-term survival may depend on it," the report continues. "As more retailers globalise their operations on both the supplier side and the retailing side, business intelligence provides a way to maintain visibility, convey important performance goals and measurements, and identify problem areas early enough to take meaningful action. By constantly improving the ability to identify external changes, such as a shift in consumer buying patterns, or internal changes, such as the escalating costs of fuel that affect the ability to make a profit on expedited promotional products, BI tools provide a way for retailers to keep their fingers on the pulse of the business and make faster, better, and more confident decisions."

NEGOTIATE TOUGH
Retailers have more choice than ever before when it comes to selecting sources of supply from which they can import goods locally and from around the globe. The ability for buyers to better negotiate with suppliers can increase significantly as they extend their supplier network to include new regions, agents, and factories.

Private label is a winner’s strategy. And during these tough economic times, retail winners are deploying best practices to offer consumers less expensive product options

Jane Biddle, Eqos The adoption of the Web has significantly increased retailers' ability to on-board and work collaboratively with suppliers around the globe. Today's browser based sourcing systems provide the ability to source more intelligently by simplifying the product specification process, and streamlining the request for quotes (RFQs) process. The Web delivers the RFQ directly to selected suppliers, providing them with the ability to respond directly to the retailer. The retailer then responds via the Web to suppliers who can then go online and amend their bids appropriately.

This Web-based process not only saves retailers both time and money, but also creates a level playing field on which suppliers can compete fairly. Once the retailer has established the same consistent process, this best practice can easily be extended out to new suppliers, across sourcing initiatives, and out into other areas of the business.

Quotes are received and compared automatically, providing the buyer with the best options available based on the criteria that he or she set initially. Information about logistics options and various pricing implications for import and duty rates (where appropriate) provides a view of the total landed cost for each quote, improving the buyer's ability to analyse and compare quotes in order to conduct better informed negotiations with suppliers. What is often managed in complex spreadsheets requiring the manual input of large amounts of data is available online in a simple online report which can also use images and other graphical representations for a more comprehensive comparison.

PLAY IT SAFE
In addition to competitive prices, consumers also expect safe products manufactured in socially and environmentally compliant factories. These heightened expectations mean retailers cannot simply afford to select the lowest cost supplier, but rather suppliers that are willing to meet stringent ethical and quality standards. Smart buyers know that delivering safe products is not only the right thing to do, but it is also less risky and less expensive in the long run; product recalls, high levels of product returns, and damage to reputation all take their toll on a retailer's ability to succeed during these tough economic times.

The key to delivering quality safe, ethically manufactured products means establishing strict assessment criteria – on behalf of the consumer and to meet regulatory requirements – for selecting suppliers and agents, and enforcing these policies over time. Best practices dictate that evidence be gathered across the supplier's organisation (may include multiple factories) and audited by an external agency to meet the retailer's criteria. The stringent assessment of these policies may dictate that: no audit, no order. Retailers enforcing these programmes are also imposing best practices on supply chain partners by publishing international supplier codes of conduct. To be enforceable, these codes must contain sufficient detail to allow clear interpretation, and companies must be able to measure the extent to which suppliers are complying.

Tracking quality throughout sampling, production, and the final inspection process remains the primary challenge when it comes to minimising the risk of non-compliance and ensuring product quality/safety. Integrated factory auditing systems can support interaction with audit and inspection companies, enabling the retailer to proactively manage factory inspections and audits. Integrated systems give suppliers, factories and inspectors easy access to appropriate code of conduct documentation and certification requirements, ensuring the delivery of compliant components and finished goods. These systems also drive and schedule appropriate actions based on audit recommendations.

Tools that manage critical functions and enable collaboration with a large number of suppliers not only minimise risk, but also significantly increase visibility across the supply chain, resulting in streamlined sourcing and supplier management processes. These tools can help accelerate lead times, reduce costs, and leverage customs duty advantages afforded by manufacturing/assembling products in certain geographies. For example, one of the world's top international retailers, Tesco, today proactively manages critical path activities to standardise processes across all sourcing hubs and operating companies. With additional supply chain control and visibility, Tesco has expanded store brand merchandise, simplified communications between sourcing offices and suppliers, improved price negotiations, and created better business practices.

IMPROVE VELOCITY
During the past decade, many retailers have seen an increase in the number of seasons from very few to several. At the same time, consumers are becoming more diligent shoppers, often doing online comparisons. All this is conspiring to increase shopper expectations resulting in the need for more competitively priced merchandise that is trendy, fashionable, and reliable.

But for many, the issue is that merchandise and line plans are done more than a year in advance, which often means they need to make plans for next year before the final results are in (this is what happened to many retailers at the beginning of this year which is why many were caught with too much supply chain inventory). So, being able to reduce traditional lead times (in some sectors, hovering around 12 months for private label and 6 months for branded merchandise) will decrease the amount of inventory and give the buyer more time to develop better informed line plans.

Today, nearly every retailer is a general merchandiser, particularly with the online channel to market. As a result, retailers must harmonise processes across channels and coordinate merchandising strategies, aligning marketing, pricing and promotional plans. From a sourcing perspective, buyers must be able to manage product data and content consistently across channels, aligning critical paths and monitoring the performance of sourcing activities. The ability to consolidate requirements across channels also gives retailers buying leverage with suppliers.

Decreasing lead times means understanding the process, the timelines, and control points for developing and importing for each product category. Automated workflows based on critical path technology enable buyers to lay out their own import processes, not only within the retail organisation, but also externally to include suppliers, agents and third-party logistics providers.

GO PRIVATE LABEL
The number of shoppers who say they are buying more store brand items has been steadily rising, now up to some 60 per cent, according to recent findings by The Food Marketing Institute. Many of today's shoppers have become savvier as a result of the tough economic climate. Consumers' perceptions about product quality are a factor as well. A recent survey for leading UK grocery retailer, Sainsbury's, revealed how consumer perceptions of supermarket store brand have shifted, as private label no longer means compromising on quality in the eyes of the consumer. Indeed, brand snobbery has become a thing of the past, with 73 per cent of people surveyed happy to buy store brand products. What's more, nearly two thirds of shoppers said they are more likely to buy supermarket store brand now than a year ago.

As such, today's most successful retailers have discovered that by expanding their private label offerings, they are better positioned to increase gross margins, while meeting, and often beating, national brands when it comes to pleasing consumers' tastes and wallets The world's top five retailers have all shown an increase during the past year in their share of private label sales, including Tesco, at 48 per cent. In addition, Tesco just recently reported that store brands account for 75 per cent of Fresh & Easy (a US-based Tesco subsidiary chain) sales. It stands to reason why the company plans to add more than 250 new Fresh & Easy brand products to its stores during the next several months.

Private label is a winner's strategy. And during these tough economic times, retail winners are deploying best practices to offer consumers less expensive product options. Successful private label merchandising are proven to not only improves sales and margins, but an also build the retailer's brand and contribute to enhancing customer loyalty.

Once orders are placed, buying departments need to maintain control over purchase orders and amendments, regardless of whether their chosen suppliers are large, small, IT savvy or with minimal access to technology. They also need assurances that correct information is transmitted throughout the company and its trading partners. Advanced order management technology proactively manages purchasing-related information flows, automatically alerting suppliers about new and updated order information, encouraging on-time shipments and deliveries. This level of functionality also enables last minute changes prior to confirmed orders, eliminating the need to cancelling and then re-issue a purchase order, or worse, not being able to cancel out-of-date purchase orders, making reconciliation difficult.

BEYOND SURVIVAL
When the going gets tough, the tough get going. No doubt, the going is tough for today's retailers looking to do more than sustain or survive in today's economy. Getting tough means retailers take control for the purpose of shaping the marketplace, not the other way around. Getting tough means controlling processes that can become profit centres rather than liabilities. Getting tough means turning the opportunity of global sourcing into a means by which profits are maximised and product innovation is reached. Getting tough means emulating what leading retailers are doing to minimise risk so the focus can remain on the customer, brand and bottom line. And getting tough means putting systems in place that enable decisions for positively impacting the business at large in a way that grows and sustains, independent of how economic indicators may try to take hold of the retail marketplace.

ABOUT THE AUTHOR
Jane Biddle is vice president of US operations and chief marketing officer for Eqos, a global sourcing and supply management solutions company.

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