Why does retail lag other industries in the percent of spend assigned to e-procurement tools.

August 7th, 2008

As I visit with retailers throughout North America

As I visit with retailers throughout North America, one theme continues to prevail. The percent of spend that retailers assign to the use of e-procurement tools lags that of all other industries. In fact in retail companies with sales of less than two billion dollars, the use of these tools is almost non existent.

I have heard everything from we don’t do things this way at our company to we’ve already attacked most of the low hanging fruit and our buyers are telling us there are no additional savings to be had from these categories.

I’m not trying to suggest that retail is adverse to driving change, or in fact being early adopters of technology. After all, retail was the original user of the cash register which evolved to electronic point of sale systems, sophisticated scanning systems and ultimately today’s self checkout systems. Retail has been a leader in the use of all types of technology driving advanced products such as electronic shelf labels and other RF technology. So why does there seem to be a reluctance to driving more spend with e-procurement tools.

I believe the answer lies in the tools themselves. E-procurement tools such as reverse auctions have a rich history of board room proof of concepts attended by CEO’s and CFO’s with astounding savings sometimes as high as 30% to 40%. This to the delight of the presenting vendor when the attending executive says we should be doing all of our buying this way.

As a result the retail company assigns resources and moves ahead with passion and vigor. Slowly however they seem to lose steam and both the number of events and the savings either stabilize or drop off.

The following issues lead to low utilization but are certainly not the only issues resulting in lack of transition to more spend being assigned.

1. Proper Executive sponsorship with resulting corporate policy changes are not in place and reviewed for compliance regularly.
2. Proper discovery of every category with all buyers is not conducted
3. Stores, offices and distribution centers are not walked and reviewed as part of the discovery process.
4. Products within categories are not weighted, calendarized and prioritized.
5. Tools are not easy enough to use so that retailers can host there own events after they run successfully the first time.
6. Vendors direct retailers to not run events that may have limited financial success.
7. Proper discussion is not held to review strategy like the use of and RFI versus an RFQ or how to use both successfully within the same category.
8. Pricing for an event that drove large savings the first time is the same the second and third time the event is run.
9. Due to the complexity of the tools, options for self service and assisted service are not available without staff increases if at all.
10. Databases with adequate sources of supply are not readily available to bring new suppliers and their resulting energy to events over an extended period.
11. An overall business plan is not developed with savings targets, percent of spend, reward systems and other milestones necessary to drive corporate wide utilization.

I look forward to your comments.

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