What Categories should be considered for e-procurement? In the retail vertical, this is a very common question.
Compared to other industries, the retail industry has always suffered from low margins and resulting low profitability. With cost of goods generally between sixty five and eighty percent dependant on the sub vertical, the answer to what categories to source first should be all of them.
Unfortunately retail places much less of their spend under the management of these types of tools than any other industry. In fact in the mid to lower tier retail markets these tools are almost non existent.
Reality would dictate that retailers should keep an open mind and let a detailed discovery process determine the right categories and the timing. It may help to use a third party such as SafeSourcing to conduct the discovery in order to eliminate bias from the process. Bias is usually driven by an attitude of; we have always done things this way. Depending on whether the category of choice is expense related or in the cost of goods, it will have an impact on the bottom line providing all other lines of the P&L perform to plan. This author favors attacking above the line costs, but understands that certain below the line costs such as health care costs and all types of third party services can be very attractive targets.
The following categories all have attractive returns that have averaged over 22% for SafeSourcing customers during 2010 and should not be overlooked during the discovery process.
1. Seasonal Items
2. Private Label
5. General Mdse
7. Dry Goods
13. Office Supplies
A good way to begin is by asking your e-procurement solution provider how they would conduct the discovery process. They will let you know who they would like you to make available to them, what information they would like access to and finally how they would plan for a sustainable process moving forward.
We look forward to and appreciate your comments.