The last year and a half has been tremendously disruptive to all kinds of businesses, particularly the retail industry. For most types of consumer retail stores, the pandemic scared regulars away, diminished traffic from visitors, altered consumer preferences, snapped formerly reliable supply chains and required dramatic shifts in the way stores serve their clientele. But through this disruption, retailers began to see that their procurement process is in many ways the linchpin for maximizing revenue and reducing spend as the economy recovers post-pandemic.
For most stores with multiple locations, procurement has largely been a centralized process, with each location requesting and receiving inventory from the parent corporation, as needed. But supply chain disruptions resulting from the pandemic forced many store managers to go rogue and do whatever was needed to stay in business.
Sometimes that meant purchasing goods locally, even using their personal credit cards and asking corporate offices to reimburse them. In addition to difficulty in securing new merchandise for sale, broken supply chains had many retailers scrambling for alternative sources of equipment, materials, and services.
Those disruptions, and their ripple effects on shipping, distribution and warehousing, are expected to continue for months to come and into 2022, meaning that decentralization will remain a core strategy for ensuring business continuity. However, instead of relying on individual store managers to navigate local purchases, corporate procurement teams can add value by organizing the effort, evaluating and sourcing local suppliers, negotiating best pricing and delivery options, and automating the process by using technology to simplify local inventory management. But that’s only part of the story.
The business model that most of us were raised to believe was normal for retail commerce — brick-and-mortar shopping locations — became a bit of an anachronism during the pandemic. Shopping in physical stores, which had been the dominant retail model for generations, was abruptly nudged out of that position by online shopping — a pattern that had been steadily growing long before COVID-19 but which surged at the pandemic’s peak.
According to a recent consumer behavior report by Raydiant, fewer than half of their survey’s respondents now say they prefer to shop in person. That’s a sea change, and it was only made possible by the accelerated adoption of digital technologies that enabled ecommerce.
But investing in technology, and determining how to balance as well as how to integrate digital with in-person shopping behavior, requires analysis, judgment and purchasing acumen. Do the stores and their parent company allocate spending to focus on interactive displays and other in-store features that encourage customer engagement? Do they invest in automation technology to enhance data-sharing between sales channels? Do they invest in emerging business models such as buying online and picking up in-store, or doorstep delivery, or expedited return programs? What about enhanced health and safety measures? Retailers will need to decide where to cut back and where to invest — and those are decisions where procurement, using current technologies, can generate real dividends.
Specifically, procurement can help retailers optimize their spending on goods and services that are NOT for resale, also known as GNFR. These involve things like packaging, signage, personal protective equipment, office supplies, off-site warehousing, utilities and housekeeping services. They’re the essential expenses that effectively set the table for conducting any retail business. And, according to KPMG’s 2018 Retail Trends Report, they account for up to 14% of the retailer’s overall cost of doing business.
Using the appropriate technology platforms, corporate procurement teams can empower their stores to manage GNFR by setting up direct-to-supplier relationships for goods and services — arrangements that eliminate middlemen. Procurement can also increase visibility into local or diverse suppliers, help to diversify the supply chain, reduce shipping costs, and minimize delays.
Beyond that, by providing a digital catalog of local, national and global suppliers, procurement teams armed with the right technology can expand the retailer’s choice, increase its flexibility and help to mitigate any future disruptions that lead to supply shortages. Modern procurement technology platforms can also use data to inform business decisions and eliminate wasteful practices that hold merchants back.
There are other ways too in which procurement can play a pivotal role for retailers that are looking to recover from the pandemic. It can help to maximize their revenue opportunities and reduce their expenses. It can improve supplier relationships, support diversity in supplier selection, create savings, negotiate better terms, improve spending analysis, enable local buying channels for GNFR, mitigate supply chain risk, and enable store owners to deliver exceptional customer experiences — all while improving their margins.
Vishal Patel is VP of Product Marketing and Technology at Ivalua. He has spent the last 15 years in various roles within the procurement and supply chain technology market. As an industry analyst, he researched and advised organizations in various industries on best and innovative practices, digitization and optimization. He brings a thorough understanding of market trends and digital technologies that can help enterprises be more effective with their procurement and supply chain strategies. He works to ensure that organizations are empowered with technology platforms that enable flexibility, innovation and agility.