Retail Procurement Strategies in Disruptive Environments: Concepts and Best Practices

Introduction

Retail procurement entails sourcing and purchasing: a) the products that are sold directly to the consumers, b) the input products that are required to make and sell the products, and c) the supporting products (e.g., cleaning supplies) for retail operations. Purchasing/ procurement managers working in retail are responsible for procuring a fraction or all of these products. Over the years, they have embraced digitalization (Gupta, 2019) for greater efficiency and transparency of their supply chains (SCs). The author considers retail procurement a more comprehensive term than purchasing in the context of SCs, as purchasing focuses more on the tactical aspects of acquiring goods, services, or work from an external source. In contrast, retail procurement encompasses the development of business strategies that align with the retailer's mission and goals. Managers can use widely adopted procurement strategies (cost-based, value-based, supplier-centric) and best practices (Sabri, 2019). These best practices can make the procurement process very efficient, resulting in cost savings, improved delivery lead times, and reduced overordering or underordering. However, they do not account for external or internal disruptions that can destabilize either supply or demand.

The COVID-19 pandemic, which occurred due to the spread of a novel coronavirus in late 2019 (World Health Organization, 2020), resulted in widespread and devastating supply chain disruptions for almost all types of goods across the industry. Due to the unpredictable nature of the pandemic as well as its massive scale and global reach, the resulting supply chain was disrupted substantially across all its nodes (supply chain members) and edges (ties) (Chowdhury et al., 2021). Many companies that traditionally relied on procurement techniques based on stable supply chains, such as single sourcing, off-shoring, outsourcing, just-in-time, lean, etc., made the supply chains even more vulnerable to disruptions and less resilient. In the early stages of the pandemic, public health experts advocated for physical distancing and crowd management measures to contain and subdue the spread of the disease. These social distancing measures had negatively impacted the demand at retailers with a brick-and-mortar presence and necessitated the creation of a digital marketplace or participate in an existing digital marketplace. At the same time, many companies that had invested in digitalizing and diversifying their supply chains fared better than their competitors in meeting customer demand and securing supplies. Many companies made immediate investment decisions for digitalization to operate in the new normal with social distancing and take procurement decisions remotely by building or participating in digital procurement platforms.

The COVID-19 pandemic has accelerated the trend toward Digitalization within the industry and the importance of engaging customers through multiple platforms, including e-business. – Andre Simha, Chief Digital and Information Officer, MSC. (Leonard, 2020).

Modern-day procurement processes have become increasingly complex due to globalization, volatile and uncertain global tariffs, complex supply chain networks (VUCA world: Volatility, Uncertainty, Complexity, and Ambiguity), digitalization including online shopping and e-commerce, changes in customer demands, shorter product life cycles, and a rapid increase in the number of stock keeping units (SKUs). Budgetary constraints on businesses and hyper-personalization of the content for customers, which further aggravates this complexity. This requires firms to use procurement processes as a key strategic tool to deliver profits at the tiniest operational and sourcing costs. Consequently, it is increasingly crucial for retail procurement managers to be able to preferably mitigate or otherwise resolve supply issues due to disruptions in such complex supply chains.