How Retailers Can Kick Their Supply Chain Up A Notch
What is a retailer’s top priority? Get consumers what they want and when they want it. While it seems like a straightforward concept, there’s actually a lot more to it. In addition to meeting customer demands, retailers also have to keep costs down and profits up. But, achieving these goals isn’t possible without the right set of suppliers. One weak link in the mix can be a recipe for a supply chain disaster.
Here’s an in-depth look at the common supplier sourcing mistakes made by retailers and how to avoid them down the line:
Forgetting to include risk clauses in contracts
Contracts are a key component of risk prevention. A detailed contract outlining supplier guidelines and expectations is good to have on hand should anything go wrong. Unfortunately, many companies don’t thoroughly review these contracts and exclude important clauses that would otherwise protect them.
As retailers expand their sourcing to more diverse supplier networks, they need to be cautious about partnership agreements. Holiday seasons and product launches are when brands are most vulnerable and in need of some sort of fallback. Defective products or services, intellectual property loss and product availability are just some critical contract terms companies should consider—whether it’s with a new supplier or an existing one.
Not using a diverse supplier network
It’s risky for retailers to rely heavily on just a handful of suppliers. Yes centralized production is more manageable and eliminates certain risks, but it also leaves all your eggs in one basket. A true risk-management strategy will balance the benefits of a single supplier with the benefits of using a broader network of vendors.
Apple, for instance, decided to take the single supplier route when producing its highly demanded iPhone 6 and ended up facing a slew of challenges. Using one manufacturer to produce the majority of the iPhone 6 and iPhone 6 Plus resulted in low output, and Apple was unable to keep up with demand. Retailers, including Apple, should have a wide range of suppliers to choose from at all times. That way, they have a back-up plan if and when things take a turn for the worse.
Getting careless with seasonal supplier sourcing
It’s typical for retailers to beef up operations right before busy times such as the holidays or back-to-school. While seasonal supplier contracts are helpful, crafting a long-term strategy around these seasonal relationships puts added pressure on the supply chain. Retailers may be forced to pay premiums with companies that work exclusively in short-term arrangements.
Retailers need to do some shopping themselves before deciding on a seasonal supplier—particularly one that is reasonably priced and has a strong fulfillment track record. Retailers should also have a set of suppliers on standby to avoid any last minute fiascos.
Failing to perform due diligence on subcontractors
Suppliers often look to their own set of subcontractors when sourcing finished goods. But, retailers cannot overlook this extra supply chain layer. Brands end up paying the price—with violations or fines—if they don’t take the time to thoroughly assess subcontractors.
In 2013, after Walmart came under fire for unauthorized subcontractor facilities, they decided to cut ties with suppliers that subcontracted to unapproved factories. Retailers should include similar subcontractor clauses in supplier contracts, and perform supplier checkups to ensure standards are met.
Relying too heavily on long-term supplier relationships
The ideal situation for any procurement officer: build and sustain long-term partnerships with suppliers who understand your business. Relationships are the foundation of supply chain management, but they can negatively influence bias supply chain decisions.
No matter if the partner is a new or existing one all suppliers should be evaluated regularly. Companies should review a supplier’s price, delivery performance, quality, subcontractors, disaster recovery plans and credit standing. Doing so will keep the supply chain in check and help procurement officers determine areas for cost savings and growth.
Avoiding any or all of these mistakes doesn’t have to mean extra piles of paperwork for sourcing and procurement officers. With the appropriate technology and practices in place, retailers will be able to use information they already have to cut down on risks and strengthen their bottom line.
Contributed by Paul Noël, SVP of Procurement Solutions at Ivalua. As SVP of procurement solutions at international spend management and procurement solutions provider Ivalua, Paul is responsible for product development, solution design and implementation for clients in the Americas. Paul holds a Management Degree from Santa Clara University in California and studied international business at Sofia University in Tokyo. His entire career has been about improving corporate profitability through efficient operations and Management of Spend. From his work at Ariba, Softface, and Blackhog, Paul’s specialty has been to harness standard software and services to create specific solutions for companies large and small, local and international.
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