The past several months have been challenging for retail. From an 8.7 percent dip in sales in March, to the recent back-to-school shopping season experiencing reduced demand — the COVID-19 pandemic has rolled in setback after setback for retailers. Retailers have found a pillar of strength in procurement, with innovative strategic sourcing teams helping navigate through the pandemic and creating the basis for a stronger recovery through risk management.
Using digital solutions to collaborate with suppliers and enable real-time, data-driven decision-making for leadership, procurement has empowered retailers with much-needed agility — allowing them to weather uncertainties and forge a strategic path ahead. This has been possible via strategic sourcing’s ability to deliver value in three priority areas: maintaining business continuity, realigning supplier relationships and supporting the transition to a business model for the “next normal.”
Fortifying business continuity
From the early days of the pandemic to the present day, a universal priority for businesses has been employee safety. In advising retail companies on their coronavirus response, Accenture recommends ensuring the safety of frontline, in-store employees as a first step. Retailers have had to extend the same measures for workers in distribution centers and last-mile delivery as well, particularly as consumer demand for at-home delivery has grown in the wake of the pandemic.
Effective procurement teams have been able to aid businesses in their employee safety efforts, using their view into enterprise spend data to ensure they operate in alignment with leadership’s financial priorities.
These teams are helping quickly identify, vet and establish supplier relationships to secure personal protective equipment supplies for workers. In its COVID-19 guidance for retail staff, the Occupational Health and Safety Administration advises the use of PPE, in addition to frequent cleaning and disinfecting. By taking on such measures, retailers can maintain and optimize physical operations in the current circumstances, while keeping their employees safe and rising to the challenge of meeting e-commerce and delivery demands.
As reopenings have progressed across the country, retail businesses have had to take on greater responsibility for the safety and health of customers visiting stores. Many have adjusted their operating hours, establishing intervals to clean store premises and services throughout the day. At a time when cleaning materials and services are in incredibly high demand, retailers have been able to rely on strategic sourcing to find and forge trustworthy relationships to bring routine cleaning and sanitization to their brick-and-mortar locations — ensuring customers can enjoy as safe and secure a shopping experience as possible while keeping employees safe in parallel.
Procurement’s capacity to support business continuity extends beyond the frontline, helping retail companies preserve other facets of their operations as well. As office workforces have shifted from central workplaces to working remotely, retailers have been able to tap strategic sourcing to make the transition more seamless — with tech-enabled teams quickly identifying and sourcing products and services related to voice and chat communications, video conferencing, IT infrastructure support and more. With tools and solutions that can enable a working experience on par with in-person collaboration, retailers can manage a shift to virtual office operations with minimal friction. The resulting benefits may also extend beyond the pandemic, particularly as companies begin to shape hybrid virtual models for workers for the long-term.
Realigning strategic supplier partnerships
As COVID-19 has disrupted retail supply chains, impacted revenues and complicated consumer demand, companies have been left needing to take a hard look at their supplier relationships and quickly make changes to better support their business through the crisis. But this can be challenging for many — a May 2020 survey found that 93 percent of procurement and supply-chain leaders had experienced the adverse effects of misinformation about their suppliers. Understandably, McKinsey & Co. recommends creating transparency on multitier supply chains as the first action retailers should take in developing their short-term response to the coronavirus.
Procurement teams backed by comprehensive supplier data, full contract visibility and sourcing automation have helped retailers not only establish that transparency, but rapidly recast their supplier base in response to the pandemic. With a powerful strategic sourcing function in tow, retailers have been able to evaluate their supply chains and make changes to relationships and partners to better address risk, contract exposure, distressed suppliers and more — enjoying a level of reliable, agile supply network management that empowers them to weather uncertainty and minimize impacts from disruptions.
These strengths give retailers the ability to play both defense and offense in their crisis response — allowing them to delineate in-demand products and goods during COVID-19 and forge the relationships necessary to secure a supply stream that supports on-shelf availability and quick replenishment. Additionally, as retailers navigate a situation that already warrants a reassessment of their supply network, they can work with procurement to take advantage of the opportunity it presents: to make good on aspirations to achieve a more diverse supplier base and make sourcing more sustainable and responsible.
In fact, in a May 2020 report, McKinsey suggests the fashion industry especially use the COVID-19 crisis to fundamentally reshape its sourcing practices to become more agile and sustainable.
Another critical element of retailers’ pandemic response strategies has been cutting costs. For companies with robust procurement functions — which ideally create a more collaborative infrastructure and workflow between sourcing, business unit leaders and the supply base — cost-cutting measures can be strategic, calculated and effective, as opposed to frantic attempts to trim whatever items carry the biggest price tag. These businesses have been able to quickly conduct contract reviews, assess payment terms and project expenditures with key suppliers, identify opportunities for cost reductions and determine areas of spend and suppliers that can be placed on pause or dropped entirely.
The razor-sharp view into the supply chain allows retailers to efficiently calibrate supplier relationships with immediate business objectives. Furthermore, the sound decision-making and cost savings aren’t limited to the pandemic context — retailers prioritizing strategic sourcing generally benefit from improved cash and working capital.
Building a new, resilient business model
With a handful of months having passed since COVID-19 shook up the global business landscape, retailers have realized that many of the short-term adjustments made in early stages may need to become permanent. For example, supporting digital shopping experiences for consumers — fulfilled via contactless delivery at-home or curbside — will likely need to be prioritized beyond the pandemic. A new report suggests the shift to e-commerce has been accelerated by five years due to the coronavirus. In fact, PwC recommends nonfood retailers leverage the opportunities afforded by this crisis to pursue deeper organizational changes, including implementing continuous cost improvement, transforming their operating model and digitizing business processes, among other things.
These areas are precisely where procurement — powered by advanced software capabilities — has delivered remarkable impact. Collaborating closely with business leadership, strategic sourcing teams have helped retailers identify partners and suppliers who can support a shift in operational emphasis from brick-and-mortar to e-commerce, at-home delivery and curbside pickup. Working with category planners, sourcing teams have been able to help retailers adapt for the next normal of consumer shopping habits, and assemble the supplier base and infrastructure necessary to execute against desired plans.
Beyond aiding the transition to a new business model, procurement can help fortify it as well — enabling long-term planning to equip retailers with strategic suppliers that have reliable secondary suppliers. This helps position companies for success, particularly in a future that hybridizes brick-and-mortar retail and e-commerce.
Overall, aligning strategic sourcing with business strategy allows companies to advance digital acceleration and agility for the enterprise, yielding a flexible and scalable model that helps retail businesses respond to uncertainties and crises with resilience moving forward.
Strategic sourcing for the road ahead
In its 2019 survey of global chief procurement officers, Deloitte found that an economic downturn was identified as the top risk impacting procurement. That an economic downturn would become a reality so soon is not something anyone would have anticipated — but a scenario that some were prepared for. Retailers that have integrated procurement priorities with overarching business strategy to serve a common purpose have experienced the immense value of strategic sourcing during challenging times.
From keeping their businesses running in a radically different commerce landscape to rebuilding their supply chains and reinventing their operational models for the next normal, retail companies that prioritize procurement have set themselves up to emerge from the COVID-19 pandemic stronger than before, with success within reach.
Stan Garber is the co-founder and vice president at Scout RFP, a Workday company, which is a leading cloud-based platform for strategic sourcing and supplier engagement.