Is the Retail industry downsizing or right sizing? If so, how can e-procurement tools help reduce this huge loss of jobs?

October 29th, 2008

In a retail business, downsizing is reducing the number of employees on the operating payroll. Rightsizing however is downsizing with the belief that a retail business really should operate with fewer people.

Unfortunately the answer is that even with holiday hiring programs; the number of store closings, delayed new store openings, store remodels and lower holiday spending will result in fewer retail jobs as well as fewer jobs for those providing the goods and services targeted at these locations. We may not call it downsizing or rightsizing, but that is exactly what it is.

So how can the use of e-procurement tools help? Let’s look at the information from one of my previous blog posts.

If a super market company’s total cost of goods were 72% of revenue which is near industry average, and supermarket net profitability averaged the same 1% it has for the last decade. What type of net profit improvement might we anticipate if a $500M supermarket retailer were to assign just 10% of their total spend to these types of tools? The math is pretty simple. Existing net profit at 1% would equal $5M. Present cost of goods at 72% would equal $360M. If 10% of total spend were assigned which is $36M to these tools and savings averaged only 10%, this retailer would reduce cost of goods by $3.6M or an astonishing improvement in net profit of 72%. Theoretically these savings should drop straight to the bottom line minus certain switching costs associated with new suppliers and savings timing based on actual delivery timeframes. These savings might also cause an increase in jobs or at minimum limit job losses.

These are real numbers. For those retailers that are not seeing these types of results and have implemented internal e-procurement programs the answer is pretty simple. Some of your old habits have been introduced to the utilization of new tools. If you would like to see these types of results, contact a vendor that that deliver these results in less than 30 days.

The cost of these types of tools, are so minimal in a hosted environment that they almost do not impact the financial example listed above. Remember in best practices companies 56% of available spend are assigned to these tools. Their financial models may differ somewhat based on the industries they serve. What are we waiting for in retail?

Let’s not downsize or right size. Let’s not offer more financial incentives and other costs to reduce jobs that will just be added back to your payroll once the economy recovers. That will continue to impact your results negatively for years. Let’s improve retail profitability now. Together we can do it quickly regardless as to whether or not you have e-procurement tools already in place. Immediate action driving these types of results will save jobs and invigorate the economy now.

We appreciate and look forward to your comments.

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