Archive for June, 2010

Yesterday’s post created a lot of questions relative to attacking Gross Margin!

Wednesday, June 30th, 2010

The following position was offered relative to the title. “This has always been a great question for retailers”. Should we attack the bottom line by focusing on shrink, cost of goods or gross margin?

During the post we answered the areas of shrink and cost of goods and services. The question now is how would we focus on gross margin and what would the bottom line impact be?

Let’s begin by restated our gross margin assumption. If we assume that COGS or cost of goods and services is about 75% of top line revenue that would result in a simple gross margin of 25%. Now that we know our gross margin, it is pretty simple to measure the impact. The first step is to look at the categories which generally fall into gross margin reduction such as the expense category. Examples might include employee benefits, construction, insurance and not for resale purchases etc.

We already know that our gross margin dollars are equal to 25% of our fictional company’s sales of $1B or $250M. Therefore the impact to the bottom line at most could be a percentage of $250. The next logical step is to look for the largest category spends with in the gross margin area. Let’s assume that employee benefits are 15% of payroll costs and that payroll costs for our fictional company are 15% of revenue. For our $1B retailer payroll would be $150M and benefits would be 15% of that or $22.5M. If we attacked health benefits costs and were able to reduce them by 20% the improvement to the bottom line would be $4.5M or 45%. This would certainly be a worthy target, but would not impact net profit as much as our shrink or COGs models as discussed yesterday. To summarize the impact to net profit as discussed in both posts.

1. COGS  up to 300%
2. Shrink up to 100%
3. Gross Margin up to 45%

Please remember these numbers are fictitious.

We look forward to and appreciate your comments.

Share This Post

Keeping track of product recalls is a horrible task for retailers.

Monday, June 28th, 2010

SafeSourcing® takes daily rss feeds from dozens of agencies and other sites and scrolls that inforamtion daily for retailers use. By clicking on the links it will take you to the actual recall source. One of those sites is www.recalls.gov .

The products listed below represent just the month of June recalls to date from the United Sates Consumer Product Safety Commission

1. Scope® Original Mint Mouthwash Recalled by Procter & Gamble Due to Failure to Meet Child-Resistant Closure Requirement
2. Youth Tiara Recalled by Wilton Industries Due to Lead Exposure Hazard
3. Simmons Recalls to Repair Drop-Side Cribs Due to Entrapment, Suffocation and Fall Hazards
4. Million Dollar Baby Recalls to Repair Drop-Side Cribs Due to Entrapment, Suffocation and Fall Hazards
5. LaJobi Recalls to Repair Bonavita, Babi Italia and ISSI Drop-Side Cribs Due to Entrapment, Suffocation and Fall Hazards
6. Jardine Recalls to Repair Drop-Side Cribs Due to Entrapment, Suffocation and Fall Hazards
7. Evenflo Recalls to Repair Drop-Side Cribs Due to Entrapment, Suffocation and Fall Hazards
8. Delta Recalls to Repair Drop-Side Cribs Due to Entrapment, Suffocation and Fall Hazards
9. Child Craft Drop-Side Cribs Recalled Due to Entrapment, Suffocation and Fall Hazards
10. CPSC Announces Recall to Repair Child Craft Brand Stationary-Side Cribs with Dowel Due to Entrapment and Strangulation Hazards
11. Seven Manufacturers Announce Recalls to Repair Cribs to Address Entrapment, Suffocation and Fall Hazards.
12. Baby Walkers Recalled by Suntech Enterprises Due to Fall Hazard
13. Target Recalls Children’s Belts Due to Violation of Lead Paint Standard
14. Regal Lager Recalls Infant Carriers Due to Fall Hazard
15. Infant Apparel Recalled by Kiwi Industries Due to Choking Hazard
16. Comverge Recalls Communication Module Inside TXU Energy Thermostats Due to Risk of Fire Hazard
17. CPSC Announces International Initiative for Strong Safety Standards on Window Coverings
18. Entertainment Centers Recalled by American Signature Due to Fall Hazard
19. Crate and Barrel Recalls Succulent Plant-Shaped Candles in a Pot Due to Fire Hazard
20. Risk of Strangulation Prompts Recall to Repair Roll-Up Blinds by Chicology
21. Dritz™ Electric Scissors Recalled by Prym Due to Fire and Burn Hazards
22. IKEA Recalls Roller Blinds, all Roman Blinds and all Roll-Up Blinds Due to Risk of Strangulation
23. Rhino Toys Inc. Recalls Bead Toy Due to Choking Hazard
24. GE Recalls Front Load Washers Due to Fire and Shock Hazards
25. Bayside Furnishings Recalls to Repair Youth Beds Sold at Costco Due to Entrapment Hazard
26. McDonald’s Recalls Movie Themed Drinking Glasses Due to Potential Cadmium Risk
27. Violation of Federal Mattress Flammability Standard Prompts Recall of Mattresses by IKEA
28. Maytag Recalls Dishwashers Due to Fire Hazard

29. One Step Ahead Recalls Children’s Stacking Toys Due to Choking and Aspiration Hazard
30. Infant Death Prompts Recall of Ring Slings Made by Sprout Stuff Due to Suffocation Risk
31. VOX Amplification Recalls Amplifier Carrying Cases Due to Risk of Injury
32. BRP Recalls Snowmobiles Due to Fire Hazard.

Best of luck to you.

We look forward to and appreciate your comments.

Share This Post

In order to manage your retail supply chain, you first need to know what it is or isn’t.

Friday, June 25th, 2010

Managing a retail supply chain depending on how involved you want to become in the process includes your products and how they get to you, your consumer and the service you provide for the product post sale. This also includes all data about the product in a procure to pay process such as purchase order information, contract information and delivery coordination and status along the way. All of the above requires management of the related financial data such as payment terms and schedules and other financial data. A good place to start is to break this information down into manageable pieces and see how many people are involved in the process internally and externally and how they collaborate with each other if at all. To the extent that you can not connect the lines may include.

As a retailer, you are an obvious part of the consumers supply chain and in some cases also a supplier to other retailers. The network depends on the product but can include yourself,  raw material providers, manufacturers, wholesalers, distributors, third party logistic companies or 3PL’s, and other types of transportation companies. Managing the collaboration of your supply chain is what will ultimately differentiate you from your competition. It’s up to you.

As your procurement solution provider how they might tie all of these disparate organizations together for you.

We look forward to and appreciate your comments.

Share This Post

What is retail e-procurement?

Thursday, June 24th, 2010

In many cases the question might be better phrased as to; what is procurement?

It’s amazing as to the number of companies both large and small that have no internal procurement organization. It is even more amazing how small the groups when companies do have them. In either case due to a of lack of resources, disconnect from information resources, lack of authority and little collaboration an energy sucking power struggle exists that limits the effectiveness of the entire procure to pay process.

I like to think of this process as the procurement lifecycle. In general the lifecycle follows a pretty typical buying pattern, each step of which has its own set of difficulties. The first step which when generalized could be called information gathering. Inforamtion gathering can include collecting and producing product specifications as well as research and locating suppliers that can meet those speciations. While the last item in the list called renewal can include the entire order and fulfillment process as well as contract compliance.

The procurement lifecycle pretty closely follows this process

1. Information gathering
2. Supplier contact
3. Background review
4. Negotiation:
5. Fulfillment
6. Consumption, maintenance, and disposal
7. Renewal

If we cycle back to our original question of what is e-procurement? The answer is pretty simple, it is the electronic or internet based version of the same process much of which has its own unique terminology.

We look forward to and appreciate your comments

Share This Post

Retailers do you use or do you even have time to use punch-out software?

Wednesday, June 23rd, 2010

A Punch Out is a feature of e-procurement software applications that makes it possible for buyers to access suppliers Web sites from within the buyer’s solution provider’s procurement application. The buyer leaves their solution providers system and goes to an alternative supplier’s Web-based catalog to find and potentially order products. This is also a good way to conduct research and gather information. A vendor catalog that is enhanced for this process is known as a punch-out catalog.

This author has always felt that this is a good way to buy products that you currently buy from alternative sources, but it does not replace the possible price compression and other benefits of from taking these products through the normal e-RFX process.

Ask your solution provider their opinion on this process.

We look forward to and appreciate your comments.

Share This Post

Retailers, how do you source and select your construction site partners?

Tuesday, June 22nd, 2010

A great place to start is an organization called the The Construction Safety Council which was founded in 1989. Ask you conduction partners if they are a member.

The CSC is a non-for-profit organization dedicated to the advancement of safety and health interests in the field of construction throughout the world. It was chartered by a board of directors composed mostly of large construction company owners and operators whose vision and leadership made the organization possible. Since its humble beginnings in 1989, the organization has quickly grown to become a world class professional construction consortium with associations that span the globe. With an emphasis on quality and customer service, all of the construction safety and health resources and loss reduction tools developed by the Construction Safety Council have been designed to maximize positive impact on your safety program.

The SafeSourceIt™ Global Supplier Database has hundreds of construction companies that are held accountable to these types of standards. Are you asking all the right questions or is your solution provider?

We look forward to and appreciate your comments

Share This Post

Retailers we Dare you to Compare. We’ll run one event for you FOR FREE and if you don’t save a minimum of 15%.

Monday, June 21st, 2010

SafeSourcing has averaged over 30% savings for the entire time we have been in business across hundreds of millions in spend volume. This includes single event spends as small as $20K and as large event spends as large as hundreds of millions. You can rest assured that you can source all products and services with SafeSourcing regardless of how small or how large.
 
We believe there are very important reasons for these results. A few are as follows.

1. Our Event Template Library.
2. The SafeSourceIt™ Supplier Database with over 380,000 sources of supply.
3. Our customer services to assist buyers in building quality specifications quickly.
4. Event setup strategies that drive the best results.
5. Time to event.
6. Percentage of new suppliers per event.

So, here is the offer. Source any product or category regardless of the size of the spend and if you don’t save at least 15% THE EVENT IS FREE. Experience the difference for yourself in retail e-procurement leadership.

We look forward to and appreciate your comments

Share This Post

Retail Contract Leakage. Where does it come from and how can we stop it?

Friday, June 18th, 2010

This is probably the most difficult part of the entire procurement lifecycle. The first part is to understand your data and where it is kept, that includes understanding what constitutes contract leakage so that you know what you are looking at. Once you have the data needs to be looked at on a regular basis in order to insure leakage is not occurring. This should be at least monthly depending on contract language. Most contract management systems have alerts that can be triggered as frequently as required.

The following list although not all inclusive speaks too many of areas in which contract leakage can occur. This happens in all companies large and small. If you are aware of them, capture them and report on them there is a good possibility of controlling them.

1. Buying without a contract. 
2. Expensing something outside of a contract
3. Having multiple contracts in place:
4. Executing a new agreement when one is already in place
5. Paying a price different from the contract
6. Delivery variances
7. Quality specifications variances
8. Making payments at a prices different from the contract
9. Scope creep
10. Invoice discrepancies
11. Missed volume discounts  
12. Insurance discrepancies
13. Shipping discrepancies 
14. Expired contracts resulting in price uplift
15. Evergreening
16. Overtime Violations
17. Material discrepancies
18. Sub Contractor discrepancies

Don’t work hard to drive benefits from your procurement organization and then lose much of what you have gained to contract leakage. Ask your e-procurement solutions provider how they can help.

We look forward to and appreciate your comments.

Share This Post

Contract Management 101. “Is what you thought you said what I think I heard?”

Thursday, June 17th, 2010

Contract Management 101 is as much a foreign language as Spanish 101. Beyond storage and understanding the Meta data that will mitigate your risk relative to contract leakage, understanding the terminology in your contracts and how they are organized is a daunting task.

There are many law dictionaries available in hard cover and over the internet that can help, but remember just having one does not make understanding these documents any easier. Here is a list of many of the most popular.

1. Anderson’s Dictionary of Law (1893)
2. Bouvier’s Law Dictionary 1856 Edition
3. Criminal Justice Today Glossary
4. Criminology Today Glossary
5. Criminal Law Glossary
6. Canadian Bankruptcy Glossary
7. Divorce Law Dictionary
8. Duhaime’s Law Dictionary
9. Everybody’s Legal Glossary
10. Glossary of Commercial Fraud
11. International Law Glossary
12. INS Glossary of Immigration and Naturalization Law
13. Law Glossary
14. Merriam-Webster’s Law Dictionary
15. Legal Lexicon’s Lyceum
16. Merriam-Webster’s Law Dictionary
17. Oxford Law Dictionary Top of Form

Certainly one could argue that some of these might be eliminated for business use, and this author would agree. However others might argue that separating from an unfavorable contract or supplier relationship  can be as difficult as a divorce so maybe we should leave that one on the list.

Be careful out there.

We look forward to and appreciate your comments

Share This Post

Retail procurement needs to step up. Your Investors, Consumers and other Stakeholders demand it!

Wednesday, June 16th, 2010

What troubles this author most about this is that the industries included in the Aberdeen Group study such as education, manufacturing, energy, utilities, financial services and others are all using these tools to trim their costs and improve earnings. Retail has had at best terrible earnings numbers historically with the supermarket industry averaging net earnings of below one percent (1%).

I was just talking with our CFO today about the impact of these tools. I used a very realistic example of a $2B supermarket company with one percent net earnings of $20M.  I can see the board now. If the same retailer were to source as little as $10M of their budgeted spend and reduced costs by just 20% or $2M, net earnings would improve in the budgeted year by 10%. If you are a CFO and can’t get excited about that, I’m not sure what would excite you.

This is not just rhetoric. We have customers with savings that are almost double that with a huge resulting impact on earnings. I know that there are a lot of bloggers and others out there that doubt the impact of e-procurement tools or think that reverse auctions as an example have run their course. Quite frankly that thinking is misguided because in the  retail industry the large majority of companies have never used these tools and have been doing business with many of the same suppliers for more than two years. These are both indicators of the fact that you are overpaying for products and services.

You can be comfortable and be busy or you can grab the bull by the horns and improve costs, earnings, stock price and even the bonuses of your management team.

We look forward to and appreciate your comments.

Share This Post