UK retail sales experienced the biggest fall for at least 16 years, according to the latest BRC-KPMG Retail Sales Monitor. Total values in March 2011 were down 1.9% from March 2010.
With the top line under pressure, retailers should turn their attention to the bottom line, argues Tony Wilcock, business development manager at Expense Reduction Analysts, a leading UK expert on cost, purchase and supplier management.
Wilcock provides readers of Retail Times with five top tips to introducing the right cost and purchase management procedures into a retail business.
1. Alter your mind-set to think cost management not cost-cutting
It’s not so much about cost cutting than cost management, which needs to become an essential part of any retailer’s ongoing operational strategy – driven at board level. Managing the financial aspects of your organisation is, in many ways, similar to a personal fitness programme – you have to keep working hard at it to keep on course and to ensure your organisation is fit for profitability.
2. Get your housekeeping in order
There is enormous savings potential from addressing smaller items of business spend, which tend to fall into the bottom two-thirds of the purchase ledger. These items, which can often add up to significant amounts of money, often tend to go unnoticed and in many cases, haven’t been reviewed for many years. By being aware of the constantly changing supplier market and closely monitoring such costs; which can be as diverse as banking and insurance, utilities, fleet management, logistics, office supplies, and communications, organisations can make a real difference to their bottom lines.
3. Review your suppliers: savings, service and added value
We all know in retail you have to keep one eye on service levels at all times. It is no good switching suppliers to get an extra percentage point or two if the service standards of the new incumbent compromise your commercial activity. It always pays dividends to review your actual current requirements. So often we come across multi-site organisations where the supplier base is very unstructured – for example a head office may be using 200 suppliers, whilst the other sites are just drawing on a handful of suppliers. Centralising purchasing from an agreed list of suppliers can pay dividends for businesses.
When you’ve defined what you need, carry out a supplier audit to make sure you are procuring from an informed position. When conducting the audit, I would recommend you involve members of staff that liaise directly with the suppliers on a day-to-day basis. A procurement specialist or buyer may not be aware of the full value of the vendor – it may be delivering hidden benefits to a business, which do not appear on paper. As well as an internal audit, many companies find it useful to get comparisons against their competitors and other suppliers. It may mean using resources to do it but the results will pay dividends. It is critically important you remain aware of the constantly changing supplier market for the costs you are examining and any developments you may be able to capitalise on.
Think of your suppliers as potential strategic partners. A good supplier should be helping add value to your business rather than simply delivering on time and to a price. In my view there will be a rising trend toward Supplier Relationship Management (SRM) in order to control costs. SRM is all about the development of close working relationships between buyer and supplier for mutual benefit. This was exemplified by Premier Foods working with British Sugar – Premier achieved cost savings of £5.7m in two years, while British Sugar grew its business by 10% with the food manufacturer and gained improved adherence to payment terms.
4. Don’t get your fingers burned by Chip and PIN costs and penalties
After a few years of a softly-softly carrot approach, the stick has now appeared in the form of increased – and avoidable – transaction costs and penalties where businesses do not comply with the common standards for cardholder not present (CNP) transactions through mail-order, telephone or internet. We’re seeing an increase in tariffs on merchant cards acquisition fees – especially where the cardholder is not present – which in extreme cases can reach up to 69%. These reflect more than increased costs and are often enforced without notice. Do not accept these unchallenged, but consider specialist advice to help determine your transaction mix and the current market rate.
The other primary area of avoidable costs is to ensure cardholder data is handled in compliance with Payment Card Industry Data Security Standards (PCI-DSS), and when systems are compliant, to ensure the merchant acquirer is aware. Penalties can be as high as 0.85% of all transaction values and the solution can be as easy as filling in a form for smaller retailers with only face-to-face transactions.
5. Get the balance right
Ultimately the challenge will be to strike a balance between managing core spend while at the same time not losing focus on key strategies that will generate increased footfall and increased transaction spend. With the right balance, retailers stand in good stead to defend their position on the high street.
Expense Reduction Analysts has 170 consultants across the UK and numbers Paul Smith, Aquascutum, F Hinds and Scotmid among its clients. For more information visit www.expense-reduction.co.uk