Retail has been one of the hardest hit industries in the economic downturn. To survive (and indeed thrive), retailers will need to have a successful strategy in place. To help give you more in-depth analysis on retail industry trends and proven strategies, I’ve invited our Senior Vice President of Global Supply Chain Services, Valerie Bonebrake, to share her expertise.  

Here’s what she had to say. 

Jim

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When Jim asked me to write something on retail for his blog, I thought to myself, how am I going to cover this topic in a relatively brief post? Well, I decided that I would start by continuing to stress that creating a good strategy for today’s economic climate is more than making rash decisions like, as Jim puts it, “cut, cut, cutting” your personnel. 

Retailing has become increasingly competitive and supply chains more complex. With tight credit markets, slowing growth, and shrinking profits, retailers are operating in a world of great uncertainty, and they must have the right merchandise mix at the right time and the right price on their shelves. From a logistics viewpoint, this means competing on total supply chain performance in order to survive and thrive. Those who will come out on top are consistently re-thinking strategies and business models. Re-thinking is the best practice of retailers who will be successful in 2009 and beyond.  

Throughout global supply chains, there are considerable opportunities that retailers can re-think to help optimize costs and ensure profitable growth. Business leaders who understand the importance of competing on comprehensive global supply chain performance and who commit to operational excellence will be the winners of the future.  

One major area in which to look for cost savings and growth opportunities is sourcing. Companies with high performing global sourcing operations are characterized by the following attributes:

Automation to increase the effectiveness of the manual processes is still used by many global sourcing operations. This process impacts areas such as offshore vendor quoting and selection, purchase order management, logistics management and customer service. 

Accurate information is used to estimate true total delivered costs. This ensures that sourcing decisions consider all factors among different alternatives. 

Uncertainty is being reduced through improved flow across the long global supply chain. This results in reduced safety stock inventories without increasing expedited costs.  

Performance is being measured accurately and with great detail. Relevant metrics are necessary to look for additional cost savings opportunities, improve negotiating power with global vendors and service providers, and drive continuous improvement in global sourcing operations. 

As the companies with these attributes know, global sourcing is an effective strategy that normally reduces overall operating costs. However, as some costs are reduced, others will increase. Global sourcing can add weeks to the supply chain and can tie up as much as 30% of product price in working capital. But, improved performance and cost savings can still be achieved with better knowledge and control of accurate supply chain information on costs, time and events. 

As an example, a $2 billion retailer with a 68% cost of goods sold ($1.36 billion) realized a 0.5% improvement ($6.8 million) by applying an objective total landed cost calculation that resulted in reduced transportation and expediting costs. This same retailer realized additional improvements in inventory reduction as well as selling, general and administrative expense reduction. 

Knowing what to do with supply chains, and how to do it, should be on all retail executive agendas. As the Vice Chairman of Limited Brands Len Schlesinger once stated, “So, you do not understand the importance of supply chains to your business? I would love to compete with you!”  Schlesinger has a great point. Make sure you have a strategy that fits the current climate. Don’t try fitting a square peg into a round hole. It just won’t work. Take these few tips -- and you can learn more details by reading my recent position paper -- and as Jim says, Go!Go!Go!