As customers, we expect to find fresh produce and inexpensive own brands on the shelves. This requires considerable effort on the part of retailers. They need to coordinate dozens of suppliers and absorb fluctuations in availability. With a strategic sourcing solution specifically for the retail sector, the processes for own brands and fresh produce such as organic potatoes can now be automated for the first time.
Just a few years ago they were seen as cheap copies of branded products, now they are a clever alternative: Own brands, products with the trademark or label of the shop that sells them, are experiencing a real boom and not just in discount stores. Recent studies back this up, with four in 10 customers citing own brands as an important factor in choosing where they shop. Eighty-five percent rate them as being just as good as manufacturer’s brands.
“With a strong own brand, retailers distinguish themselves from the competition and attain a profit margin that is 25 to 30 percent higher,” said Florian Seebauer, senior director of Procurement Solutions for SAP Ariba. “However, this only succeeds if they meet consumer expectations. At present, demand is primarily for local products and items that last as long as possible.”
Complex processes run behind the scenes to make sure the shelves are always well stocked. Especially since customers have become more demanding and expect high quality in addition to low prices. For retailers to achieve this, they need to oversee and manage their supply chain optimally.
Own Brands: Problem Child or Revenue Driver?
Collaboration with suppliers is the key to profitability with own brands. But this is also where problems often arise, as the supply chain is divided into many individual suppliers and downstream production plants. In the food industry, for example, often small agricultural enterprises deliver their products to various stores, which pushes up storage and delivery costs. If a retailer wants to sell local organic potatoes, they need to agree on the deliveries with several organizations and keep an eye on scalability if the sales figures rise.
In addition, prices and availability of fresh produce depend heavily on unforeseeable factors. According to Florian Seebauer: “Think about crop failures due to heat damage or flooding. Retailers must set up their supply chain highly flexibly to absorb such events and prevent bottlenecks or financial losses.”
In the non-food sector — for example, for clothing — the challenges are similar. Overall, there are many hurdles in coordinating own brands. Particularly time-consuming is when retailers need to request product properties such as size and ingredients from each supplier. Many are still working manually; they call the supplier or send them an email, and then transfer the responses to their IT system. This is not efficient.
However, in IT, is precisely where retailers can apply the crucial lever to get a grip on the organizational challenges.
Automating Own Brand Processes
The SAP Ariba Strategic Sourcing solution enables companies to significantly accelerate their entire procurement and plan it more easily. The supply chain becomes transparent, making it easy to view and manage in terms of quality.
The solution enables the own brand processes to be fully automated, from the tender to contract management. Item-specific questions simply flow into the tenders. Suppliers respond in a matter of minutes rather than days. Potential risks in the supply chain become visible and can be addressed immediately. And because all processes are integrated into the enterprise resource planning (ERP) or industry solution, compliance is also guaranteed. This gives retailers one less thing to worry about.
The first companies are already breaking new ground and managing their fresh produce and own brands as automated as they do indirect goods. This means that they always have well stocked shelves and happy customers. Companies are relying on SAP Ariba Strategic Sourcing solutions for this, with market research institute Gartner including them as a leader in the Magic Quadrant for the first time in August 2018.