Retailers must learn to replicate the efficiency of their goods for resale purchasing when buying non-critical supplies and services, says Daniel Ball, e-procurement expert

Retailers must learn to replicate the efficiency of their goods for resale purchasing when buying non-critical supplies and services, says Daniel Ball, e-procurement expert

Consider that retail industry champion Sir Philip Green is the government’s efficiency tsar and you’d think that retail had purchasing efficiency in the bag. But, according to Daniel Ball, marketing manager of on demand e-procurement specialist Wax Digital, in some respects you’d be very wrong.

“When it comes to goods for resale, retailers are unrivalled in negotiating good margins with their suppliers,” he said. “But because a retailer’s business is so focused on shifting products with margin they can sometimes overlook the size of the bill, the lack of compliance and therefore the opportunity for cost-reduction that lies in their operational purchasing.

“Strong sales without a focus on ‘efficient operating,’ can render revenues, shop footfall, clickthroughs, customer marketing and other investments all but irrelevant, as the business will be leaking like a bucket operationally.”

Centralise to save costs

“It’s a problem faced by business in all sectors, but the pain of inefficient purchasing of goods not for resale is particularly pronounced in retailers where the tendency to operate large networks of distributed and individually managed stores exacerbates the effects,” continued Ball. “This can dilute buying power, generate high maverick spend levels and reduce staff productivity. For large retail chains where the cost of goods not for resale runs into hundreds of millions of pounds, austere times means such levels of expenditure must be balanced very carefully against revenue to achieve profitability.

“Process automation and purchase-to-pay solutions can provide clear and accurate visibility of opportunities to reduce off contract spending and deliver the means to reduce costs throughout the entire buying cycle.

“E-sourcing events, for example, are widely used in the food sector to drive best value contracts for ingredients but must also be used to generate savings on operational items, such as stationery and carrier bags. Often this simply isn’t where strategic procurement skills are focused in the sector because they are in high-demand sourcing products for the shelves and raw materials.”

Ball said High Street confectioner Thorntons is one retailer that has already made the leap and understands the benefits that e-sourcing events can have when it comes to reducing costs across the entire business. “Thorntons has a long term e-sourcing strategy, which aims to drive down cost on indirect items as varied as diesel, air conditioning units and carrier bags, as well as direct items like ingredients,” he explained.

“While e-sourcing can provide the catalyst for significant savings, nothing is realised until everyone in the organisation is in the habit of buying the right goods and services from the right suppliers, at the right price. For retailers with staff spread across a network of stores, this can present a significant challenge.

“Best of breed purchase-to-pay solutions respond to this challenge by adding the layer of compliance essential to actually deliver on the promise of e-sourcing outcomes. Through buying process automation they control every stage of the purchasing lifecycle from product selection and ordering to accurate goods receipting and invoicing.”

Ensure user friendliness

He added: “They are also designed with users in mind, a critical benefit to large retail organisations where purchasing is handled by many different people – often numbering in their thousands – from store staff to accounts staff to the finance director. All need to engage with the system in completely different ways. Only purchasing systems that address the entire user community will really drive full adoption and deliver the best ROI [return on investment].

“One of the UK’s major high street electrical retailers uses web based e-procurement across its network of 800 UK stores and operations to manage up to £800-million of indirect spend annually.

“In the midst of troubled times and faced with very little room to improve margins on core goods for resale purchasing, retailers that are willing and able to grasp the operational expenditure nettle still have somewhere to go to find savings and bolster the bottom line. They must replicate the efficiency of their goods for resale purchasing on the other side of the coin – on all non-critical supplies and purchases, from staffing through to signage,” Ball concluded. “Driven by an integrated purchase to pay strategy it can be just as efficient giving retailers extra protection for their bottom line and the very fabric of their business.”