Rethink the Sourcing Process

Retailers face a balancing act when it comes to the procurement of store brand products. High quality is critical, but so is price. Here, Chris Morrison, chief marketing officer for Trace One, Boston, and Chirag Patel, senior vice president, global account management for Gloucester, Mass.-based TradeStone Software Inc., discuss how retailers could keep sourcing costs down without compromising quality and other important product attributes.

Store Brands: Today’s private label procurement professionals are tasked with achieving a number of goals in the sourcing process. In your view, what are some of the obstacles to achieving these goals and keeping costs down at the same time?

Chris Morrison: It’s really a fine balance between achieving product quality, social responsibility, etc., and keeping cost down. … The trend is to focus on sourcing the world market rather than limiting options to exclusive partners or domestic vendors. However, supply chain sourcing outside of the home country can be a big obstacle. This method may lower the cost, but product quality, safety and brand integrity can suffer.

Today’s procurement professionals must understand where the products are being made, the conditions of the facilities, facility audits and compliance documentation, product testing information, the origin of ingredients/ingredient info and much more.

Chirag Patel: Retailers are keenly aware of today’s trends and [are] typically users of the latest consumer technologies; however, many sourcing and merchandising groups are burdened with dated, artificially isolating business technology that doesn’t reflect their social, collaborative and fast-paced mobile world. Social trends are transcending to the retail world, where the ability to connect and collaborate in real-time within communities can create competitive advantages. Pressure is mounting for retailers to source products at optimized cost, ensure quality and handle market-specific requirements, all at a faster pace than in the past. They need to ensure all market-level regulatory, compliance and other risk factors are properly met. Some of the key challenges we’ve observed in this area include:

• The strategy and structure in managing product quality and compliance activities are immature, which significantly increases brand risk.
• Networking with external partners such as inspection companies, vendors and factories has been a disparate and decentralized process, making it time-consuming and arduous.
• The global system is still driven by manual and inefficient processes, tools and out-of-date systems like disconnected emails and spreadsheets.

Store Brands: What are some strategies for overcoming these obstacles?

Morrison: There are a few strategies that have been utilized, but not always worthy of overcoming the obstacles:

1. Hiring a global sourcing broker to inspect the many facilities used, which can be very costly, not to mention the documentation is not always accurate or up-to-date. However, as many countries become increasingly more involved in the global marketplace, they are incorporating more global requirements into their exporting strategies.
2. Having your own internal teams conduct regular factory walkthroughs. This method works for small supply chains; however, as the supply chains grows, it becomes too much to maintain.
3. A combination of factory visits and a means to share and manage the factory/sourcing documentation on each particular facility. Once again, however, as the supply chain grows and product portfolios increase, the information becomes a lot to maintain.

Our most effective recommendation is to integrate a platform by which all information can be obtained and shared real-time. Certification, compliance, country of origin, audits, etc., can be closely managed and monitored within every level of the supply chain.

We’ve worked with companies that have very complex supply chains and know that by including online private label supply chain management tools that are specifically designed for the industry, [retailers can] create an immediate, real-time and streamlined approach to mitigate sourcing obstacles and challenges.

Patel: In order to be successful, retailers must first assess their technology toolkit to ensure that it supports their ability to meet today’s social, collaborative and fast-paced environment. Tools that intelligently embed their process while reflecting how they naturally think and interact allows them to be more responsive and focused on product versus reactive and focused on process.

We are seeing sourcing organizations achieve world-class performance by first embracing three key elements:

• A clearly defined global sourcing strategy where, at a macro level, there is a constant evaluation of risks on cycle time (development, production), costs (materials, labor, supply chain) and quality (impact on brand value). A flexible strategy that can be adjusted based on findings and trends ensures such factors are continually optimized.
• A centralized function for qualifying, on-boarding and managing vendors and multitier vendor-to-factory relations for complete traceability This helps ensure that regulatory and other necessary compliance certifications are met and properly reported.
• Brand and quality management programs that drive close collaboration with inspection companies, product quality standards, protocols and processes, and are fully defined and executed, providing retailers with accountability and traceability.

These strategic imperatives are complex and require proper alignment and visibility across global communities, departments and processes. This is compounded by the need to operate in an extremely fast-paced manner. Therefore, is it critical to have powerful, reliable systems and tools for retailers to accomplish their goals. An ideal platform should provide real-time mobile collaboration across global internal and external teams, analytics to make accurate and quick decisions, efficiencies to minimize administrative time-consuming activities and a complete repository of documents and data to provide total traceability.

Store Brands: What are some costly mistakes you see retailers make here, and how could they be avoided?

Morrison: It can be very costly to not understand the full supply chain. Oftentimes, retailers have good visibility of direct suppliers of private label products. However, they do not have visibility to the rest of the supply chain such as the ingredient suppliers that flow into a particular product. By not fully understanding the ingredient supplier part of the supply chain, costly mistakes can be made [such as] product contamination. Also, undeclared allergens can slip into the supply chain. Due to lack of communication/collaboration, these allergens won’t be captured on the product ingredient statement, which can lead to very costly product recalls.

The best way to avoid these obstacles is to have a collaborative network (collaborative approach) with inspection/auditing firms, manufacturers, raw material suppliers, farms and retailers all working within the same information source and sharing the most up-to-date validated data, in real time. The collaborative network will uncover a transparent supply chain in real time and mitigate very costly risks.

Patel: All too often, retailers attempt to manage processes with an ad hoc, decentralized approach, and the consequences are costly. For example, if products are not procured in such a way that actual costs meet target landed costs and margins, or products are not delivered in time to meet market-specific timelines, the impact to brand value and retailer sales performance is detrimental.

The global retail landscape is changing, and those with a clearly defined global sourcing strategy that recognize the value of a centralized system that can fluidly manage the entire cycle — market-specific product design, procurement and compliance, supply chain, imports management so as to optimize speed, cost and quality — will have a competitive advantage.