The retail industry is facing a sea of changes currently. How the strongest of retailers adapt and innovate under consumer pressure offers lessons for all industries. The most compelling and instructive strategies target the supply chain.
In a survey of retail procurement executives earlier this year by C2FO, nearly 90 percent said they are focused on improving profit margins. Nearly 75 percent feel part of the solution lies in boosting supply chain technology, and 43 percent of retailers surveyed plan to invest in supplier collaboration enhancements in the year ahead.
Leading retailers understand their supply chains hold the key to cut costs, improve efficiencies, and deliver products faster to customers. Many have already begun making the right moves to improve supply chain efficiencies and win over more satisfied brick and mortar and e-commerce customers.
Two retailers that have spent considerable time and money building stronger supply chains are REI, the Seattle-based outdoor adventure, equipment, and clothing company, and grocery store giant Albertsons Companies based in Boise.
What’s their supply chain strategy? How are they implementing it? How have they overcome rough spots?
To hear their experiences, C2FO followed up its survey by hosting a webinar with Lorraine Steed, REI’s Senior Manager, Treasury, and Joe Vaiente, Senior Director, Accounting with Albertsons.
The panel also included Colin Sharp, the London-based Senior VP for C2FO, who provided an international perspective to supply chain trends.
The hour-long program, moderated by C2FO Managing Director and retail expert Amanda Mathes, covered a range of topics, including the rise of e-commerce, managing relationships with suppliers, and pursuing winning strategies not only at U.S. markets but abroad.
Among the takeaways:
To succeed, start with a strong supply chain
That these are challenging times for retailers is an understatement. Companies are looking for ways to gain a competitive edge, and one essential piece involves building a stronger supply chain.
Since its merger with Safeway, Albertsons has focused on simplifying its vendor payment system, said Vaiente. That’s no small matter for a company that operates 20 distribution centers and 18 manufacturing plants — and is still trying to mesh two corporate cultures.
“We want to take advantage of optimal buying practices to maximize our efficiency and our (suppliers’) efficiencies,” Vaiente said.
REI also recognizes the interdependence between retailers and suppliers and has made some key investments in its supply chain. Among them, opening a large distribution center in Goodyear, Ariz., to more efficiently serve its markets in the Southwest. It has also embarked on a strategy that other retailers have employed; treating each store as a distribution center so products can be moved quickly to meet demands.
European retailers face the same supply chain challenges in a very competitive environment. “It’s a turf war,” said Sharp, and that’s prompted retailers to look for ways to better manage relationships with suppliers.
Realize operational efficiency and cost savings by standardizing terms and payment platforms
From Vaiente’s perspective, switching vendor payment platforms was Albertsons biggest strategy change over the past year. He expects it will take another 18 months before the new single payment system is fully integrated.
There’s a second part to the grocer’s strategy. After rolling out its terms standardization program, Albertsons about six months later offered a relief valve to suppliers in the form of on-demand access to cash at a price and at terms that make sense to them using C2FO.
REI’s approach pushed vendor payments to a 60-day schedule from 30 days to better manage its cash, but it also introduced C2FO’s dynamic discounting option to help suppliers who needed to be paid early to meet payroll or other demands.
“To me, this underscores that best practices really should be tailored through the lens of your unique business and what’s right for you and your supply chain,” Mathes said.
Added Sharp: “No one wants to be punitive anymore with suppliers and ask for discounts for no good reason.”
C-suite buy-in across departments is critical
As C2FO highlighted in its survey, stakeholder buy-in is essential in launching new supply chain initiatives.
At Albertsons, that meant working with a consultant to determine standard vendor payment practices. Next came pitching C2FO’s payment system to its C-suite.
“They saw it as a win-win” for the company and its vendors, said Vaiente.
But Vaiente also said Albertsons faced a “big struggle” to convince its procurement team that they were not losing control of their supplier relationships.
Said Vaiente: “We’re trying to get procurement out of hand-holding suppliers who need immediate payment,” he said, “and we now have a system to take care of it.”
Implementing C2FO allows each supplier to offer a discount for early payment on demand at a rate they determine. The solution provides flexibility for suppliers without requiring effort on the part of procurement.
There were challenges within REI’s procurement and financial teams as the company launched its terms extension and C2FO payment platform at the same time.
In rolling out the dual initiatives, Steed said, the merchandise buyers needed to be sold on the idea of “negotiating the best product deals (while) taking their hands off the payment terms.”
What helped drive home the changes? Having leaders at REI with an open mindset to working around budget and information technology constraints.
“Our leaders understand the need to be nimble,” she said. “They don’t sit around and analyze to death. They realize they might make mistakes, but they don’t have time to be frozen … there’s a sense of urgency.”
Trade finance innovation simplifies collaboration with suppliers and strengthens your supply chain
Albertsons’ Vaiente said C2FO has simplified its supply chain financing headaches and eliminated much of the hand-holding with vendors.
“We set the parameters (for early payment processes), and C2FO does all the work,” Vaiente said.
For example, Vaiente’s team gets a daily email from C2FO about cash management and supplier payments. “It takes us 10-15 minutes a day to review, whereas before it was a vendor-by-vendor process,” he said.
“Now we tell our vendors to click on a link that shows them how to get paid early,” Vaiente said. So far, he added, the payments program has been well-received by suppliers, partly because C2FO’s payment platform provides “more flexibility and better options for vendors than traditional bank financing.”
Steed said having C2FO’s payment system in place has made a big difference. “Knowing we had the tool to help suppliers went a long way when switching to terms extension of 60 days.
Plus, she said, C2FO knows REI’s supplier base. “We’re not a giant retailer banging down our fists … C2FO fits with our culture.”
A strong, efficient supply chain is the foundation for innovating
There is no sign that consumer-driven pressure on retail will subside. This continuous demand will be felt the strongest at the supplier level.
As retailers ask more from their supply chains, they need to take steps to ensure that even the weakest supplier link is strong enough to withstand the current conditions. Resilient suppliers can better collaborate and partner with you on the challenges ahead.
Learn from practitioners in the retail sector on how they:
- Overcome challenges in managing supplier relationships
- Plan to maintain or improve margins
- Use supply chain technology to gain a competitive advantage
Lorraine Steed, Senior Manager, Treasury, REI
Joe Vaiente, Senior Director, Accounting, Albertsons Companies