The retail industry is one of the central contributors to global profit, representing over $28.2 trillion in sales each year. While over $20 trillion of this figure comes from physical retail stores, there is still an incredible $8 trillion flowing through online stores and e-commerce sites.
Businesses that operate in the retail industry need to establish a comprehensive network of suppliers, providing products for consumer purchase in a number of product niches. As a retail business grows, it must master retail sourcing, understand how to improve supplier relationships and create a sustainable, infallible retail supply chain.
By leveraging retail sourcing best practices, businesses can boost their bottom-line results, meet evolving consumer expectations, and establish a competitive edge in the market. In this article, we’ll discuss the power of effective retail procurement, demonstrating leading strategies that businesses can use to satisfy their customers, meet compliance obligations, and enhance profit simultaneously.
Understanding Business Requirements in Retail Sourcing
The retail industry is a global giant that’s continuously expanded over the past few decades. Especially with the rise of e-commerce and online shopping, retail businesses, now more than ever before, have to understand the process of effective procurement and stocking.
Retail businesses must balance both their online and physical storefronts, ensuring an ample supply of products for their costs. When a customer attempts to do business with a store and finds that the product they desire is out of stock, it can reduce their satisfaction.
On the other hand, if a physical or digital storefront orders too much stock to their retail store, they could impact the cost-effective nature of their business. Unused stock will generate additional expenditure costs, as well as increase the total amount that retail businesses have to spend on stock storage.
Effective retail sourcing goes beyond just selecting the right partners. It includes the full scope of understanding a retail market and deducing the right quantities of products to order for each store. The complexity of retail management is only increasing, with the past few years seeing a dramatic rise in total retail sales.
From the year 1992 to 2022, we’ve seen the total amount of retail sales nearly quadruple, moving from under 2,000 billion USD in retail sales per year in 1992 to over 7,200 billion USD in 2022.
As even more capital pours into this industry, the heightened demand for products translates into an increasing need for precision in retail sourcing, procurement, and stock distribution.
Source: Total retail sales in the US from 1992 to 2023.
Setting Clear Sourcing Goals
The first step toward creating an effective retail sourcing strategy is to set clear sourcing goals.
When a business understands its audience and its sourcing process, it is better equipped to place accurate orders with suppliers, create favourable contracts with providers, and consistently please its customers.
Here are three effective sourcing goals that retail businesses should consider:
- Understanding demand: Retail companies implement predictive analytics tools into their stock management style to more effectively plan for the future. Especially with the rise of AI and ML tools, high-quality predictive analytics are more accessible than ever before, helping businesses pinpoint the exact stock figures they need to order from retail suppliers.
- Enhance supplier collaboration: A retail business is only as successful as its suppliers, needing a constant influx of high-quality products to sell to its customers. By focusing on enhancing supplier relationships with PLM systems that analyse supplier performance, businesses can identify their best providers. In retail procurement, locating suppliers with effective processes and low levels of risk can contribute to a more sustainable, long-term business model.
- Enhancing product quality: Another benefit of retail procurement, which has strong links between retail stores and suppliers, is that businesses can work together to enhance product quality. Retail stores can collect product feedback from customers and share it with suppliers, creating a feedback loop that helps to improve products, reduce return rates, and create more sustainable retail product sales.
Sourcing in retail is an ongoing process, one that flourishes when suppliers and vendors work together toward providing the best possible final products to customers.
Transparency and Compliance in Retail Procurement
Another important aspect of effective retail sourcing is regulatory compliance and the ability of a business to adhere to transparent practices. As with any field, regulatory compliance is essential to the success of a business.
New regulations are constantly emerging that influence retail procurement. For example, the EU Deforestation Regulation for Sustainable Trade introduces product-based legislation that prohibits vendors from placing certain products on the EU market. Without a complete and up-to-date understanding of these regulations, businesses may fail to comply with necessary regulations and receive fines or temporary trade bans.
Retail organisations must endeavour to create transparent relationships with their suppliers to ensure that they, too, are aware of compliance requirements. Even beyond compliance obligations, businesses should ensure that their suppliers align with their corporate social responsibility goals. Especially if a retail business prides itself on adhering to global sustainability standards, it should be confident that its suppliers follow the same standards.
Leveraging Prewave is an effective method of enhancing transparency in the retail supply chain. Prewave offers real-time risk intelligence and supplier updates, improving visibility into supplier operations and providing businesses with an easy method of identifying and managing risks in their supply chain.
Prewave can identify if a supplier represents a risk to a retail company’s supply chain, giving the company enough time to locate potential replacements or diversify their chain of operations. Equally, Prewave can help identify retail suppliers that are not meeting compliance standards, simplifying the process of creating a stable and sustainable retail supply chain.
Effective Communication Channels for Retail Sourcing
Creating strong supplier links won’t happen overnight. Successful retail procurement in which retail stores and suppliers have extended, and fruitful relationships can take years of work. To expedite the process, businesses can focus on establishing effective communication channels.
There are numerous ways of opening the door to a more productive relationship with a supplier. Many of these practices begin with transparency on the side of the retail business themselves, with suppliers then following suit. For example:
- Establish clear communication pathways: Retail businesses can clearly outline their preferred method of communication, opening several potential channels that providers can use. By accommodating retail suppliers and providing them with multiple ways of interacting with your business, you can create clear pathways for data exchange. Once these are in place, you’ll have an easier time creating a flow of supplier data into your retail business.
- Build trust and mutual understanding: Many retail businesses create one-way systems where suppliers send information but get nothing back. Creating a two-way street where you also offer transparency into your business practices can inspire your suppliers to be more generous with their internal data. After all, a partnership is exactly that – something that should favour both businesses.
- Cultivating long-term partnerships: Creating extended relationships will naturally come from the first two strategies we have outlined here. However, inviting your suppliers to renew their contracts with more favourable terms can also create a sense of loyalty. Over time, a retail business can create stable partnerships which can last for decades.
Optimising Sourcing Strategies With Technology
Embracing technological solutions and innovations is vital in the pursuit of more effective retail sourcing strategies. As new tools hit the market, businesses can leverage systems like AI to improve their workflows, streamline compliance, and boost their bottom line.
The retail industry has a constant flood of new data, making it a phenomenal industry for technological enhancement during the procurement process. Here are a few technologies that retail companies can take advantage of to improve decision-making and decrease risk in the retail supply chain:
- AI risk management tool: Prewave’s AI-driven risk management insights will pinpoint risks in the retail supply chain and allow businesses to implement strategies to mitigate them. Artificial intelligence tools can process huge volumes of data at once, computing numerous risk factors to calculate overall supplier risk scores. Early detection of risk is the first step toward effective management.
- Data-driven decision-making tools: Prewave’s data-driven decision-making tools will help enhance strategic procurement decisions, helping a retail company’s bottom line. After establishing transparent flows of data between retail businesses and suppliers, a company can use this information to conduct data-driven analysis, identifying the best course of action to enhance profits and improve customer satisfaction.
- Automation technologies: Where possible, incorporating automation technologies will streamline workflows and decrease the labour associated with many manual processes in retail procurement management. By minimising manual processes in the supply chain, retail businesses can create a highly reliable system that delivers the best to them and their customers.
Businesses can enhance procurement in retail by optimising their sourcing strategies with technology. More tools are becoming available every single day that companies can use to streamline sourcing, enhance relationships, and improve stock management.
Adopting Sustainable Sourcing Practices in Retail
Another central consideration that retail sellers should be aware of is the increasing need to address social, environmental, and ethical risks in the supply chain. Beyond the rising demand for companies to meet certain conditions from regulatory bodies, consumers of retail products are also more inclined to shop with sustainable brands.
According to the World Economic Forum, around 65% of consumers are looking to purchase sustainable options, with many individuals considering sustainable practices a make-or-break factor. By adopting sustainable supply chain practices, businesses can meet demands—and expectations.
Retail providers are often the touchpoint between consumers and the retail supply chain, making their decisions have huge weight in the overall retail supply chain. If a retailer decides to stop stocking a product – perhaps due to finding out it is produced without adherence to social, environmental, or ethical standards – this will have a direct impact on suppliers, forcing them to change their products.
Retail businesses must also be able to monitor and report on sustainability metrics. Effective reporting and documented due diligence processes are a central part of many compliance initiatives, like the CSDDD and CSRD. Although businesses will be aware of the most prominent legislation in their area of operation, there are actually hundreds of ESG regulations across the globe that they may have to be aware of.
Source – Regional Breakdown of ESG Regulations.
Final Thoughts – Strategic Insights for Retailers in Procurement
Strategic sourcing is vital in the retail supply chain, allowing businesses to enhance their processes, build stronger relationships with suppliers, and cultivate sustainable supply chains that can last for decades. Without strategic sourcing, businesses may be unable to gain visibility into their supply chain, which can cause compliance issues and leave a company susceptible to disruptions.
As a leader in the supply chain management space, Prewave helps retail businesses better understand their suppliers. By providing insight into supplier operations and enhancing transparency in the retail supply chain, Prewave helps build compliant, secure, and sustainable retail supply chains—ensuring operational resilience for retail organisations.
By engaging with the strategies and suggestions outlined in this article, businesses can use these best practices to streamline growth, drive efficiency, and meet ethical standards in retail sourcing strategies.
