A Store Brands web exclusive: When crops suffer, retailers dont need to raise prices
California is one of the nation’s most productive agricultural regions, and the drought it is currently experiencing is weighing heavy on farmers and retailers alike, said Brian Miller, vice president of services at Phoenix-based Intesource. California provides more than 80 percent of the nation’s supply of artichokes, celery, broccoli and cauliflower, as well as a large amount of almonds, livestock, milk and cheese. But with the drought, farmers have been forced to either significantly reduce how many acres are planted or drill expensive wells. For retailers, the impact could be significantly higher costs not only for produce, but also for store brand products that source ingredients from California.
E-sourcing as a solution
But retailers could mitigate or even altogether avoid drought-related cost increases. One way to do so is to work with an e-sourcing company, which gives retailers access to a much larger supplier base than they normally could work with on their own. For example, Intesource works with suppliers from areas ranging from Puerto Rico and Hawaii to Maine and Arizona. This large supplier base benefits both retailers and suppliers, Miller said, because it helps retailers find suppliers unaffected by the drought and helps suppliers gain recognition among a variety of retailers.
Additionally, e-sourcing provides category managers with a significant time savings, Miller says. They could field pricing from 15 to 20 suppliers in as little as 45 minutes instead of working the phones all day and speaking with only four or five suppliers.
“We’re in the business of saving money and making people’s jobs easier,” Miller said.
Cutting costs
Retailers could also look beyond just e-sourcing to cut costs to understand where their money is going. Besides offering e-sourcing, for example, Chicago-based BravoSolutions offers retailers the ability to see exactly where and how their money is spent so it can pinpoint ways to cut costs and consolidate expenses, said Chris Horacek, vice president of the company.
He pointed to three techniques to cut costs: leveraging, normalizing and rationalizing. With leveraging, retailers with two or more divisions buying from different suppliers are shown how to leverage more spend with fewer suppliers to potentially receive better pricing. With normalization, retailers streamline contract terms so that all departments source from the same supplier at the same price, and with rationalization, retailers leverage suppliers for similar items across categories.
Additionally, retailers could work with their suppliers to identify areas where both parties could remove costs from the operation and then share the share the cost of those improvements. This process is called collaborative sourcing, Horacek said
“If you can’t see where your money is going, you can’t take action on it,” he added.
