Procurement Challenges in Retail Industry and How Technology is Solving Them

Gaurav Baheti
Aug 22, 2022·5 min

Today’s retail industry has become more dynamic and demanding than ever before. Retailers must be swift, flexible, and adaptable to changing consumer needs. Furthermore, the new digital age has redefined customer expectations from stores. They are no longer just ‘destinations’ where they go to buy things. They have become ‘experiences’ that customers shop online or offline depending on what they want.

To deal with these changes in the retail industry, the procurement system has been undergoing a silent transformation. This article sheds light on the current state of procurement in the retail sector with an insight into its key challenges, trends, roles, responsibilities, and skills.

Key Challenges Faced in the Retail Industry

The procurement industry, valued at $5.94 billion, is expected to grow at a compound annual growth rate of 10.4% between 2022 and 2030. As the industry grows, existing architecture is coming under strain, leading to failures that have not been seen in decades. Here are a few key challenges that the retail industry is currently facing in terms of procurement and will likely continue to face in the future:

  • Inventory Visibility

The demand for transparency in inventory management is rising, with customers becoming more aware of the ‘where’s, how’s and why’s’ of the products. Retailers are now expected to provide transparency around their inventory, including warehouse location, product availability, quantity on hand, and the number of days of supply (backlog). Over the last few years, these demands have revolutionised how retail procurement works.

  • Supplier Relations

With the rise of the internet, customers are more selective and demanding about the products they buy. They want more personalised products at the best price. Therefore, retailers must work collaboratively with suppliers to negotiate better terms and conditions to keep their business running smoothly. In addition, they need to create a healthy working relationship with suppliers, especially regarding timely payments.

Reimagining Retail Procurement

In the context of the challenges discussed above, organisations have felt the need to reimagine and re-strategise retail procurement. Here’s how they are adapting to the changes that are underway.

  • Partnership Orientation

To keep up with the changing trends and demands of customers, procurement needs to understand and collaborate with other functions, such as marketing, sales, and finance.

  • Self-service

With the advent of technology, customers are expecting to be able to buy from anywhere and at any time. Therefore, retailers must provide self-service channels to customers in all possible ways.

  • Achieving an Optimum Inventory Level

Retailers must strike a balance between too much and too little inventory. Purchasing an optimum inventory level ensures there is no wastage of products, but it does not burden the organisation.

  • Rethinking the Sourcing Strategy

Retailers need to keep themselves updated with the latest trends and forecasts, as well as any policy or structure changes related to sourcing.

  • Acknowledging The Importance of Compliance & Sustainability

Compliance and sustainability are two critical aspects of procurement that are essential to include in the sourcing strategy.

  • Efficiency With Technology

Procurement organisations are adopting new technology to increase their level of efficiency. They can easily integrate these technologies with the existing system to enhance their operations.

Rise of Artificial Intelligence

With the rise of e-commerce and the explosion of data generated from social media, online stores, and inventory systems, the need for more data and insights has become increasingly important. AI has emerged as one of the most promising technologies for solving this challenge. It is being adopted for several reasons, including:

  • Accuracy and insights
  • Ability to scale to meet increased demand
  • Cost-effectiveness

It has also led to the development of a new and innovative procurement solution for the retail industry worldwide. It uses computer technologies that enable machines to learn and make decisions by themselves, just like humans do.

Increasing Demand for Transparency

The retail industry has always depended on its supply chain partners to meet business demands. However, it has now realised the importance of transparency in its supply chain relationships. This has led to the adoption of a collaborative sourcing strategy with suppliers.

Transparency in the transactions between retailers and their vendors helps reduce the risk of fraud and non-compliance, as information is freely available and can be rechecked at all nodes. Retailers have started demanding supplier information such as product specifications, quality testing reports, and certifications. It has increased the supply chain’s transparency and helped retailers improve their relationships with suppliers.

Customisation, Collaboration and Flexibility

Customers want products that meet their individual needs and expectations. They also want to be able to customise the products they purchase to make them suitable for their preferences. This has changed the traditional procurement system in the retail industry, where buyers are no longer dictating terms to vendors. Many are now adopting e-procurement to make the process transparent. Moreover, they are collaborating with supply chain partners to offer customers a wide range of options.

With changes underway, purchasing organisations are becoming flexible and collaborative in their approach to sourcing products. Vendors are being offered incentives to meet the retailers’ requirements. Together, customisation, collaboration and flexibility are helping retailers adapt to the changing procurement patterns.

Emerging Developments

The retail industry has evolved from just being a place to buy products to an experience that engages customers and makes them come back for more. As a result, it has seen significant changes in customers’ buying behaviour and has also responded to those changes by adopting new technologies and upgrading the skills of its employees. As a result, procurement practices have undergone significant changes, and retailers are scrambling to catch up.

Procol offers the retail industry an efficient, secure and cost-effective way to manage their procurement process. Schedule a demo to understand how it will work for your business.

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