Retail CFOs: 3 Reasons Why Procurement is More Important Than Ever

Charlotte Sutton
Charlotte Sutton,
The retail industry is being impacted by several major changes – and for many traditional retailers, it means there are more significant challenges than ever before.
The retail industry market share and growth is being dominated by the emergence of supercentres like Walmart, off-price retailers like T.J. Maxx and online services like Amazon – in fact, according to Fortune, Amazon’s e-commerce revenue rose 15.8% in the last 12 months to $82.7 billion. That is roughly the same clip as at Walmart which hit $12.5 billion. The same article points out that while 90% of retail shopping still happens in-store, the growth is heavily skewed to on-line.

Complicating matters further is the fact that razor-thin margins have put increased pressure on traditional retailers, leading to consolidations and mass closings. This makes it harder for retailers to implement the sort of significant changes needed to stay competitive in today’s market.

For retail CFOs, this means that improving margins and regaining financial flexibility is paramount to staying competitive – and active involvement in your organisation’s procurement process is a good place to start.

This doesn’t mean CFOs need to have control of all day-to-day procurement activities – but they can use their financial know-how and influence to help ensure that their organisation’s procurement strategy is properly aimed at improving the company’s overall financial standing.

Here are three ways retail CFOs can help procurement achieve their company’s financial goals:
  1. Focus on – and measure – both cost reduction and cost avoidance
For improved margins, cutting costs is a key first step, and your procurement team should absolutely be driving down both direct and indirect costs through sourcing tools and services. But that’s only the tip of the iceberg.

In order to fully maximise the value of your supply chain, procurement teams should be finding new ways to safeguard against rising cost down the road. For example, this could mean locking in prices for the long-term to avoid future increases, or securing favourable service level agreements that provide free or inexpensive repairs, maintenance, or replacements.

This requires the procurement team to think more strategically and long-term. As CFO, you’re in a prime position to help guide them to do so.
  1. Don’t overlook your payment terms
When margins are tight, working capital becomes increasingly important; how and when you’re paying suppliers becomes just as important as how much you’re paying.

Odds are that your suppliers can be flexible with payment terms, and you should work with your procurement team to make sure you’re securing payment terms that fit the needs of your business – whether it’s securing an early-pay discount, or taking advantage of longer payment times.

As CFO, this also requires you to communicate effectively with your Accounts Payables team to guarantee that your company’s payment strategy takes advantage of the terms secured by your procurement team.
  1. Ensure negotiated savings reach the bottom line
Once the deal is done, the work is just beginning. Ensuring that your supplier relationships remain beneficial to your organisation through the lifespan of the agreement is key to maximising supplier value, which can be achieved by: Of course, new savings and cost avoidances mean little if they’re not applied to improve the business. As the CFO, it’s up to you to ensure that the newfound financial flexibility is invested to new technologies and services that can better meet the emerging needs of today’s consumers. 

Visit our Spend Control for Retail page to find out more. 
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