Sourcing : Why Do We Still Rely On Middleman?

October 11, 2017

How to save money and go factory direct.

 

How can retailers scale their businesses without adding head count? How can you source directly from the factory without the people and processes in place? Can you successfully cut out the middleman while increasing margins and adding hundreds of thousands of dollars to the bottom line?

 

In today’s retail landscape, it’s about doing more with less and using middleman is the way of life. But what if there’s a way to simplify the information, compliance, audits, sampling and processes that constitute supply chain and sourcing? If you could break away from your trading partners without adding head count, would you be interested in this approach?

 

Most of us in the retail industry spend a lot of time and energy emailing back and forth and exchanging spreadsheets with our sourcing agents (middleman). We also spend a great deal of money and put immense trust in these middleman. Why? “It’s the way we’ve always done it.”, “It’s easier.”, “We don’t have the head count.”, “We don’t have the bandwidth to find, vet and manage the growing supplier base.”, “We don’t have systems in place to manage the reams of factory and product information needed.” Do these excuses sound familiar?

 

The long march to globalization is not without its challenges. While globalization may give companies access to lower prices and a larger supplier base, it also exposes businesses to sourcing, quality, and supplier management complexities. Supply chains today are big, complex, and global. Keeping them humming is an enormous challenge and the thought of sourcing directly from factories can be terrifying.

 

 In today’s retail environment, competition is fierce, and the need for lower cost goods and product diversity is a must. This demand gives way to an ever-increasing number of suppliers who add to supply chain complexity.  If we take a step back and look at the bigger picture, supply chains are not getting any simpler. In fact, supply chains are expanding and growing more and more complex. As the complexity grows, reliance on the middleman increases and the ability to bypass them in the future becomes increasingly difficult. However, if your strategy includes increasing margin, profit, and speed to market through your own direct sourcing, then the time to act is now. Emerging regions are starting to make their mark with highly competitive, multi-skilled, and employable talent while production and delivery timelines can be accelerated by digital information and AI (Artificial Intelligence) technologies.

 

Powered by a new generation of technologies, the retail and CPG world is entering the era of speed, scale and simplicity. I extensively studied this topic and have come to appreciate the workflow efficiencies between the retailers, brands, and supplier community.  A great example can be found in the RIS News article titled “Pet Smart Dramatically Improves Efficiency and Visibility.”  It is a direct indication that Pet Smart is on the cutting edge of global sourcing and is poised to make a run at competitors such as Petco and Pet Valu. But what about everyone else?  Is it time to invest in the future?

 

If so, what should you look for in a sourcing technology solution?

  1. Global distribution logistics critical to success – The right solution must be able to track production activities all the way to

  2. Globalization means growing supply chain complexity – Critical path visibility and management must be a key component to any solution

  3. Brand Quality, Compliance & Protection – The right solution should not only focus on planning, development and sourcing but also have strong controls around testing, compliance and supplier score-carding.

  4. Choose the right business partner for your business needs – Proven industry experience is vital to rapid implementation and user adoption.

If today’s retailers invest in the right business solutions to develop and source faster, and smarter, would there still be major retail closings as highlighted in this Clark.com article? We may never know the answer for all retailers but for Kmart Australia, the proof is in the numbers.  Kmart Australia went from nearly going out of business in 2008 to increasing profits by 100% this past financial year. Commenting about the turnaround and success, Michael Fagan, Head of Operations, said, “Our software partner has helped us reduce time-to-market and drive costs out of our supply chains, thereby helping us to deliver on-trend fashionable products at a great price to our customers.”

 

The supply chain makes up a significant part of the standard retail cost structure with direct impact on the bottom line.  Luckily there is significant opportunity for improvement. In the marketplace, I have come across many solutions for sourcing but only a few have been proven to deliver the speed, scale, and simplicity needed to achieve supply chain automation and bypass the middleman. To find out more about these solutions, please contact me here. If you want to learn more about today’s global sourcing trends and industry best practices, please subscribe to Global Sourcing Society.

 

 

 

 

 

 

Written by Mark Hudson, Global Sourcing Society contributor – October 11, 2017

 

 

 

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