Retailers Can Gain Efficiencies and Profits Through Their Supply Chain

Supply Chain Management Must Be Reviewed Every Six Months

Every retailer’s supply chain offers ongoing opportunities to improve operational efficiency and improve profits. Increased labour and energy costs have now made examination of retail supply chains a critical exercise for all contemporary retail operations.

In simple terms, activity in the supply chain usually increases overhead. Reducing activity in your supply chain can generate some significant savings. Many retailers have daily inventory shipments from their warehouses to their stores. However in many chains, some stores may only require shipments two or three days a week. Reducing shipments will reduce transportation costs and labour hours. Furthermore, receiving three larger shipments a week will likely increase efficiencies as opposed to five smaller weekly shipments.

Reducing supply chain activity has another benefit that can save costs. Lower levels of supply chain activity can also reduce possible costly errors. Receiving errors are a major cause of shrink in stores when receivers accept on paper, merchandise that is not physically received. If your stores receive goods directly from the vendor, be even more cautious. Studies show that shipping shortages from vendors average 2% and in some years have been as high as 4%. Being charged for these errors that accumulate year after year can be devastating to a store’s profit position. Make receiving employees also aware of the unit prices that they should be charged based on your agreement with the vendor. In many cases, vendors will agree to a specific unit price and then increase the price in small increments blamed on inflation. If they are contrary to your vendor agreement, employees that catch these increases can help you keep unit costs fixed, at least for the term of the contract.

In today’s value driven market, customers are less dazzled by vast selections of similar goods and more with lower prices. Maintaining small quantities of many different products is far less efficient than a narrower breadth of products. A narrower selection of well priced goods will also sell better and improve your supply chain turnover. Even marginal improvements in merchandise turnover can generate substantial bottom line profits for your organization.

In support of improved turnover and better profits the selection level of the entire store should be scrutinized. Every four to six months, a review of all inventory for sales and turnover should empower your sales team to decide on the elimination of slow moving items. Today, retailers need to be more ruthless and focused on increasing turnover and freeing up funds tied to slow selling merchandise. Reducing supply chain activity and increasing merchandise turns can significantly increase profits through lower costs in overhead.

Lastly, retailers should renegotiate costs with suppliers every six to twelve months with a goal to reduce unit costs or at least keep them flat to the previous year. By using multiple suppliers, you’ll have more strength to negotiate with less dependency on one source. You’ll need to calculate the benefits of the negotiating power of multiple suppliers for you versus volume discounts by using fewer vendors with larger individual orders. It’s likely you’ll fare better with the negotiating power you’ll have with multiple suppliers.

Your supply chain can be a key source of improving profits, while enhancing sales through a better line of more focused value priced merchandise to your customers.

Take Action Today:

1) Examine your inventory and eliminate slow turning merchandise. Consider a narrower product line with lower pricing.

2) Consider reducing supply chain activity so that employees are conducting fewer tasks even if they are larger in scope. Efficiencies will be realized.

3) Continually negotiate with suppliers for better pricing as a credible client of theirs. Consider multiple suppliers for more negotiating power.

4) Increase vigilance with vendor-direct shipments. Have staff scrutinize units shipped and their invoice pricing. Make sure it is consistent with your contract with the vendors.

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