Three questions retail CFO’s should be asking their businesses
Embattled UK retailers facing a ‘double whammy’
As has been reported extensively, high street retailers are currently facing a double whammy of subdued demand (with inflation driving customers to tighten their belts) and the embracing of digital channels (otherwise known as the Amazonification of retail) hitting profit levels hard.
A growing number of well-known retailers have been collapsing under this pressure of sinking demand and rising costs, with profit levels stripped away and iconic brands closing their doors for the last time.
Addressing the storm
How retailers protect themselves in this ongoing storm, with no clear end in sight, is coming under increasing scrutiny. Adapting to changing customer behaviours and creating an effective solution to the digital revolution are clearly crucial.
But retailers must also examine the role of procurement in securing savings and cost reduction.
To that end there are three key questions CFO’s should be asking their teams:
Question 1: Who manages our indirect spend?
All retailers spend significantly on Indirect Expenditure – otherwise known as ‘Goods-Not-For-Resale’.
Spend categories such as Buildings, Installation & Fixtures, Logistics, Marketing, Facilities, IT & Telecoms and Utilities can account for more than 1/7th of a retailer’s turnover. Many retailers have dedicated buying teams for direct goods and services but not all have indirect spend centrally managed by a strategic sourcing team.
Where indirect spend is not being effectively managed, there are often big opportunities to create significant double-digit savings. In instances where internal procurement teams are in place for these areas, the quality of spend data is often still a challenge; creating enhanced spend transparency is a crucial enabler of procurement excellence (and cost savings).
Question 2: How much strategic sourcing is actually happening?
It’s one thing highlighting that goods and services are taken through a competitive tendering process, but this isn’t a straight forward activity and its full potential is often not realised.
Does the business actively research the market, embracing disruptive technologies, new entrants and the power of competition? Or is the reality that you continue to work with the same suppliers to get 3 quotations on a rotating basis? Teams that are overstretched in terms of resource, or lacking in capability often fall into the latter description and big savings opportunities are being missed as a consequence.
Question 3: When was the last time we changed suppliers?
Or more importantly, when was the last time a supplier came to you and offered a significant discount? On average, suppliers increase costs twice a year. If these increases go unchallenged (often due to under-resourced teams not having quality time to engage in strategic activity) the cost issue will never go away.
Points to consider
- Retailers face a huge financial challenge
- There are excellent opportunities to offset, negotiate, leverage, challenge and avoid rising costs
- Ensuring there is quality, dedicated, resource to oversee indirect spend (either by building internal capability or working with an external partner) is a powerful way of creating immediate financial enhancements