Tag Archives: retail

Who’s Down, Who’s Up, and Who’s Up for a Challenge: Procurement in Retail

Wherever you sit within retail – essential v non-essential, online v offline – and wherever you sit in procurement – GFR v GNFR, strategic v tail spend etc., your experiences through the Covid-19 pandemic have been unusual, and challenging. It’s a good time to compare notes.


It looks like there is going to be plenty to talk about at the next National Retail Federation shows, so much so that they have organised one (virtual) for January and (fingers crossed) a second live event in June. There were already some interesting exchanges at a recent network virtual roundtable discussion we organised on surviving the current situation between procurement leaders in the United Kingdom. There was a lot of chat on the need to be agile and adaptable, to mitigate risk and to build resilience in supply chains, all as you might expect. It was a cross-industry affair but some of the liveliest exchanges took place between representatives from the retail sector.

It is not difficult to understand why. Whereas in most sectors it is easy to say what the overall effect of the pandemic has been, ranging across a spectrum from “catastrophic” to “beneficial” passing through “hmm, OK”. Retail, however, has experienced the full gamut. It’s been the worst of times for many, and the best of times for a few.

For high street department stores and many fashion brands – anything that falls under the definition of “non-essential” or “discretionary spend” in these Covid-19 times – it has been at, or near, the catastrophic end of the scale, with lockdowns and other restrictions. Debenham’s, one of the UK’s most famous department stores, faces administration (analogous to going into Chapter 11 in the United States). The Arcadia Group, which includes iconic brands such as Burton, Dorothy Perkins, TopShop and Wallis, is also in a desperate situation. The companies that are somehow hanging on in this sub-sector have had to focus on careful cost management and cost retention and reorienting the business around online sales; something the Arcadia Group has struggled to do.

A participant working in procurement with a high street chain underlined that it really does come down to a Darwinian struggle: “The pandemic has been all about survival of the most adaptable. We are trying to come out the other side of that with a viable business. But trying to be agile with changing customer needs and changes in government direction in what had been an extremely tough environment for us anyway has been very difficult. We had to take some tough decisions to ensure that our business remains viable for the future.”

Maintaining procurement’s profile after the downturn

For companies that are struggling but just about keeping their heads above water, it may seem like quite a good time to be in procurement, because in a recession, all of a sudden the business is all about cash retention and saving money. That’s all very well for a few months or a couple of years but how will you stay on the executive agenda when things pick up again? There is an opportunity to become a more commercial organisation and present yourself as a business partner. A trusted advisor. It’s not just about negotiating a contract. There’s a bunch of suppliers that you really need to manage, and a few, probably very few, that fit within SRM. One of our contributors offered the following advice: “Don’t miss the opportunity. Look at these suppliers as an investment, as an asset to your business bringing innovation, first to market, exclusivity or whatever.

“It is also worth considering alliance programs. For example, you might consider a marketing alliance with one of your strategic suppliers: ‘We’re an important client of yours, how about investing some of your marketing dollars with us?’ Or, ‘How about making your next product launch exclusive to us for a week or two?’ Alliance programs are one of the ways you will maintain procurement and supply management visibility when the economy revives.”

At the more positive end of the spectrum, grocery supermarkets have seen an uplift in sales but their supply chains were severely strained. Back in March and April their shelves were cleared of toilet rolls and staples such as rice and pasta. Plus there was the scramble to secure Perspex screens, sanitisers, and extra security personnel. When it came to the second wave, they generally managed to stay on top of things, but procurement was again under pressure, and there was some regret that little had been achieved in terms of automation. They were being forced to do more with less. A procurement director at one of the UK’s leading chains commented on why retail is behind the curve. “Supermarkets are a very high volume, very low margin business. This means that whenever we apply for an investment, we must show a very compelling ROI and I have not yet been able to do that for procurement software. They totally understand the benefit it brings in terms of better sourcing decisions and the indirect benefit of knowing where your money is spent, but the feedback you typically hear is, ‘That sounds like jam tomorrow’.” Yet when the Coronavirus hit, it could have provided greater agility and efficiency.

Online retailers have seen an uplift, of course, but they too have faced unexpected challenges, and in particular the problems of securing facemasks, PPE etc. to carry on with business as usual in logistics centres and offices, as well as issues around supply chain resilience in the short term. But questions have also been raised as to whether the business model is fully fit for purpose in the longer term as competition from new entrants forces management to look at possible business transformation projects.

GFR and GNFR should talk

One area of concern for procurement, and in sub-sectors such as fashion in particular, is the split between goods for resale (GFR) and goods not for resale (GNFR). “Procurement” tends to be responsible only for the latter, and “buyers” or “merchandisers” for the former. Trying to  bridge the gap and create a conversation that both can learn from is challenging. They tend not to talk the same language. Literally. Fashion buyers tend to reflect the demographic they serve, i.e. overwhelmingly younger people, while the procurement folks tend to be older and focused on driving down price. A participant on the call told us that his company’s buyers are often 19 and 20-year-olds straight out of fashion school, with no formal procurement training. Yet they are sent off to places like India and Vietnam with £20 million in their back pockets to buy clothes. They tend to see what they do as an art, intuitively knowing what pair of jeans will look good on someone next year. Our contributor said he tells them, “Yes, but selecting factories, managing suppliers, understanding materials and negotiating price requires a more studied and scientific approach’.”

So they set up a procurement academy with a view not only to educating the GNFR crowd, but also making common cause with the retail buyers’ team. Some progress has been made. But a cross-discipline project like this needs executive sponsorship.

Across the entire retail spectrum, it seems relatively hard to get investment in procurement software. In a large enterprise in a non-retail environment, where there are hundreds of people in procurement and they are making double-digit margins, it is far easier to reach for automation Nirvana. In a business where the focus is on high volume and small margins, it is difficult to grab executive attention. Yet the reality is that at most retail companies there is considerable tail spend, so there are opportunities to take the first steps on the automation ladder, such as shifting to purchasing from catalogues, using p-cards etc. This will enable procurement teams in retail to look at the more strategic and big-ticket buying.

That said, some point out that there is a real capability issue. It is not easy to tell someone who is used to wallowing around in price negotiations to go and “talk to stakeholders strategically”. You need to think about your operating model as a department. You may need to move away from strict category structures. Before making investments you need to think about the unique needs of your business and not try to force things on people that are not going to work in your environment without significant change management effort and won’t get the advocacy of senior decision-makers.

TGINF- Thank God Its Not (Black) Friday

We should probably  all be grateful that Black Friday is over and done with for another year. But what have we learnt from the biggest shopping day of 2017? 

There’s nothing quite like the cold panic of a missed opportunity. Particularly if said opportunity comes in the form of a heavily discounted HD television, bargain flights to Majorca in  mid-January (who wouldn’t?!) or a half price sofa-bed (ideal if you can carry it out of the store mid-customer stampede).

Media hype surrounding “Black Friday”, which slowly seems to be evolving into “Black Week” and surely soon to be “Black Month”, increases year on year.  Retailers face intense and  increasing pressure to slash prices and offer the biggest and best best deals to entice Christmas shoppers and out-perform their competitors. As such, the fuss and excitement leading up to the biggest shopping day of the calendar year is palpable. The world’s consumers anticipate great things.

But does the propaganda live up to the reality? And what are the downsides of events like this for our supply chains, our procurement organisations and SMEs?

Black Friday 2017: The stats examined

Spend: It’s hard to argue against the importance of Black Friday to the economy. According to the National Retail Federation’s 2015 report,  up to 30 percent of a retailer’s annual sales occur between Black Friday and Christmas. Last year 101.7 million Americans braved the crowds, an increase of 37 per cent from the previous year and spent $655.8 billion over the four day weekend. This year, that figure is expected to have increased to a whopping $682.0 billion, and that’s just the U.S.!

Savings: The debate rages on over the true value, to the consumer, of Black Friday. Are you really nabbing a bargain? Aside from the obvious fact that many consumers wind up purchasing un-needed items, statistics show that many items, as much as six out of ten, are actually cheaper at other times throughout the year.

An Underwhelming start to UK’s Black Friday: Some members of the British public were seemingly raging on Twitter on Friday morning over the perceived anticlimax of Black Friday.

Others meanwhile, poked fun at the distinct lack of chaos in stores across the UK, noting the ever-present, ever-respected British culture of courteous queuing!

 

Debt: According to a 2016 survey by TD Bank, 25 per cent of Americans will take three months to pay of the debt racked up on  Black Friday and the remainder of the holiday season

South Africa: South Africa has been hailed this year as the nation most devoted to Black Friday.  Last year “South Africans made 226 per cent more purchases [than at any other time of year] on [Picodi]‚ more than twice as large a percentage increase as that of any other country.” And the frenzy doesn’t seem to have lessened this year with media reporting the mayhem inside shopping centres.

The demand of black Friday on our supply chains

As the BBC pointed out, whether they like it or loathe it, “most retailers on – and offline – will find it difficult not to join in” with Black Friday. If they don’t partake they’ll lose significant custom, which places enormous pressure on smaller, or struggling, organisations with tighter margins and less turnover.

However YouGov research commissioned by Amazon found that nearly 1 in 4 UK SME retailers intended to participate in Black Friday 2017 and 82 per cent of those participating are expecting to sell more stock on Black Friday than on an average day. The key to success for these SMEs is getting the pricing and forecasting right.

The anticipated frenzy also makes it difficult for organisations to accurately forecast volume of stock. According to data collected by Love the Sales, there was an unprecedented 43 per cent increase in the volume of items on sale in October this year compared to last year. Buy too little from suppliers, and  they’ll run out of stock, buy too much and face having to do further discounting in the new year to shift products.

In these circumstances, buyers must ensure their supply chains are strong enough to cope with the increased demand for products and, most importantly, that their suppliers meet their compliance requirements.

According to courier insurer Staveley Head, more than 82,000 lorries will be on the road to deliver on Black Friday, with Royal Mail bringing in an additional 6,800 vans just for the peak period.

Edie.net urged organisations to run traceability checks to identify any exploitative labour practices within their supply chain and recommended  using the Internet of Things to track supply chain processes and spot any unusual patterns of behaviour.

In other procurement news this week…

Apple’s Illegal Labour

  • Apple’s main supplier in Asia has been employing students illegally working overtime to assemble the iPhone X, as it struggles to catch up with demand after production delays
  • 3,000 students from Zhengzhou Urban Rail Transit School were sent in September to work at the local facility run by Taiwan-based Apple supplier Hon Hai Precision Industry, better known as Foxconn
  • They were told that a three-month stint at the factory was required “work experience” that they had to complete in order to graduate

Read more at Financial Times

50 per cent of procurement pros are unhappy with salaries

  • The latest procurement salary guide by recruiters Hays found 56 per cent of procurement employees reported a high level of salary dissatisfaction, and almost a quarter of those surveyed stated they intended to leave their current job because it lacks future opportunities
  • The average procurement and supply chain professional’s salary has increased 2.1 per cent over the past year, above the overall UK average of 1.8 per cent, Hays found. This rises to 3.6 per cent for procurement managers and senior buyers and to 4 per cent in the public sector
  • Hays salary guide is based on job listings, offers and candidate registration, as well as a survey of almost 17,500 employers and employees, including more than 700 working in procurement

Read more at Supply Management

A Whole (Foods) New World For Amazon

Whole Foods: it’s fresh, it’s organic and it comes with a hefty charge. So where on earth does Amazon fit in? Procurious investigates…

hacohob/Shutterstock.com

Last week, to the public’s surprise and the retail world’s horror, Amazon announced that it was buying organic supermarket chain, Whole Foods. For the meagre (in Amazon terms) sum of U.S.$13.7bn the retailer will take ownership of the United States’ first certified organic grocer.

It’s a bold and unexpected move given that Amazon is well known for its cheap price points, which have traditionally  undermined brick and mortar stores. Whole Foods, by contrast, is a reasonably exclusive and fairly expensive, organic retailer.

Jeff Bezos, Amazon founder and CEO said “Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO. Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

The annoncement has sparked much discussion and speculation ; What are Amazon’s intentions? How will other supermarkets be impacted? Will Amazon reinvent Whole Food’s supply chain?

John Mackey, Whole Foods Market co-founder and CEO believes “This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers.”

What does this deal mean for other retailers?

Whole Foods is most prevalent in the U.S. with 431 supermarkets. Unsurpsingly, rival retailers were dealt a hefty blow following the announcement.. Walmart’s shares fell 4.7 per cent, Target’s fell 5.1 per cent Costco’s fell 7.2 per cent and Kroger’s  by 9.2 per cent.

The impact was even felt in the UK, despite there being only nine stores as Tesco and Sainsbury’s by some 4-5% on Friday.

Raanan Cohenn, CEO of last-mile delivery software provider Bringg asserts that “Amazon has become a leading player in the grocery industry overnight. It’s crunch time for the industry.”

“In one word, it means pressure” he continues. “Profit margins are traditionally razor-thin for grocery chains and Amazon will have a greater ability to squeeze margins throughout the supply chain even further.

Latest news implies that Walmart could enter into a bidding war; it’s certainly true that the biggest competitors will do their utmost to make this deal as tricky as possible for Amazon. Given that Whole Foods stock is trading significanlty more per share than Amazon’s $42 offer, a counter bid is entirely conceivable.

The Supply Chain challenge for Amazon

“The challenge for online grocers is that freshness and variety are hard to combine — if they sell one type of tomato, their stock will turn over fast and be very fresh. If they offer 20 types, the choice is wider but the tomatoes will sit in warehouses longer. The supply chain for groceries is trickier and costlier than for non-perishables”says , writing for the Financial Times.

It might be the cost-effective reigning champ of online efficiency but fresh, organic produce is a whole new ball game, and not one that Amazon has been good at winning in the past.

Jason Busch and Pierre Mitchell, Spend Matters, speculated that “Acquiring Whole Foods is perhaps proof that Amazon is willing to buy its way into managing adjacent supply chains in which it has struggled or not focused on yet. It also could provide a fascinating localized test-bed for Amazon Go bridging the consumer and B2B divide.”

If, bidding war allowing, the offer is accepted, Amazon is in a favourable postion to redfine the retail market. They’ll be able to sell fresh groceries online and give customers the option to collect  their deliveries from Whole Foods stores, which would  become instant fulfillment centres. Perhaps Amazon’s ultimate aim will be making same day delivery for groceries the norm.

And, as ZDNet pointed out, “Whole Foods’ roughly 30 million (typically affluent) customers are also likely to be Amazon Prime customers already, which further strengthens the connective tissue between the two brands.”

What do you think about Amazon’s purchase of Whole Foods? How will retail supply chains be affected? Let us know in the comments below. 

IBM Announces Blockchain Truck-Tracking

  • A partnership has been announced between IBM and AOS, a Colombian provider of logistics solutions, which finds the two firms developing a new blockchain and Internet of Things (IoT) solution for the logistics business
  • IBM Blockchain and IBM Watson will be able to track the provenance and status of trucks and their goods using RFID tags that contain the vehicles’ data
  • The solution integrates with IBM’s Watson IoT system to check in on factors like weather and temperature, which can impact the journey and the estimated delivery time

Read more on Coin Desk 

AI to spot Slavery Site From Satellite Images

  • Online volunteers are helping to track slavery from space. A new crowdsourcing project aims to identify South Asian brick kilns – frequently the site of forced labour – in satellite images
  • Nearly 70 per cent of the estimated 5 million brick kiln workers in South Asia are thought to be working there under force, often to pay off debts
  • So far, over 9000 potential slavery sites have been identified by volunteers taking part in the project. The volunteers are presented with a series of satellite images taken from Google Earth and they have to click on the parts of images that contain brick kilns

Read more on New Scientist

Norway Bans Palm Oil Procurement

  • The Norwegian Parliament has voted to introduce a ban on the procurement of palm oil and palm oil products for use as biofuels
  • Rainforest Coalition Norway, which had been lobbying for the ban, welcomed the move. It said: “Palm oil-based biofuel is a bad choice for the climate and drives rainforest destruction”
  • The organisation believes this is the first time a country has banned all use of palm oil biofuel by public bodies

Read more on Supply Management