Retail buying: simplifying the terms of purchase
The terms of purchase are integral to a retailer’s supply chain and the more simplified this process is, the easier it is for retailers to maintain tighter margins and optimise profits. The role of a retailer buyer is essential in making this work.
Retail buyers have the difficult task of negotiating with suppliers and getting the best price for products. Traditionally, buyers have negotiated prices by factoring variables, like marketing spend, into the purchase and then deducting this amount from the overall cost of the order, essentially making the supplier pay for its promotional activities in-store.
Walmart’s aggressive approach to EDLP allows it to break down this complicated web of negotiating and purchasing. Here, it simply asks suppliers to give their lowest price for the next 90 days while, internally, making sure that goods are priced cheaper on-shelf than anyone else.
Once South African suppliers become accustomed to this assertive approach, they can ensure that they remain, both competitive and profitable within their own categories and perhaps going as far as reducing their SKUs. While it may be some time before EDLP forms part of our retail landscape, there are lessons to be learnt from the EDLP purchasing practice used by international retailers.
In order to reduce costs and increase efficiency in South African retail the mindset of purchasing and negotiating must be simplified. The partnership retailers have traditionally had with suppliers needs to exist on a much deeper level, meaning that it’s not only about what suppliers can do for retailers (and retailers for them), but also about working together to reduce costs and supply products as a team.
At the end of the day, all retailers want to close the gap between the competition and stay ahead. This means adopting new approaches and re-thinking existing ones no matter how established the prevailing ones may be, otherwise they may see suppliers voting with their feet.
Wendy Smith
P.S. Look out for this editorial on our editor’s blog.
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Retail Analysis: price optimisation
