Process efficiency is good. In fact, it is one of the most frequently cited objectives of the procurement profession. But it cannot have a real impact unless we understand the bigger picture…
As we expand the impact of procurement beyond savings, one of the most frequently cited objectives is process efficiency. In theory, if procurement can help the company execute internal processes more swiftly, they can… something, something, something…
Process efficiency is good and so is savings. But neither will have any real impact if we do not understand why we are driving them. The retail industry is a perfect example of the need to understand the big picture impact of process efficiency.
When you work for a B2C company, customer satisfaction is the answer to every question. In retail, the benefit of every project must be traceable all the way to the store.
The goal of retail is customer experience and satisfaction
Sourcing project teams usually sit down and articulate their goals and objectives at the outset of a process. Too often they focus on the impact of the product or service on the company and its employees when they should trace that efficiency forward to the value that it creates for customers.
This perspective provides the context for many decisions made during the sourcing process, such as:
Why do office supplies need to be easy to order?
So that Marketing does not have to interrupt their work on a new ad that will drive shoppers’ grocery lists this week.
Why are we going through a lengthy equipment-testing process?
To prevent customers from being inconvenienced at the deli while we (again) repair the slicers.
To which supplier should we award the fixtures and millwork contract?
The one whose product best evokes the farmer’s market, ultimately increasing produce sales.
Retail spend and process efficiency
In a retail environment, one of the most dangerous lines that procurement can draw is between direct and indirect spend. This division is practical enough, especially for categorisation purposes, but it creates the impression that indirect spend matters less than direct spend.
Even indirect spend must create value for the end customer. Every dollar that the organisation spends – whether it is an investment in inventory or to purchase copy paper for headquarters – should efficiently advance the interests of the customer. That is what defines valuable process efficiency in retail.
Placing a value on retail intangibles
Case in point: Kemper Freeman, Owner of Bellevue Square, a multi-level mall in Seattle, Washington. He is a brick-and-mortar king in an increasingly digital commerce world.
Despite the lacklustre performance of retail chains, such as Macys, J. Crew, Sears, Charming Charlie and J.C. Penney, his business is booming. He characterises his approach to customer attraction as “emotional fulfilment” and that is something that E-commerce businesses cannot compete with.
As was recently explained in a Wall Street Journal article about Freeman, emotional fulfilment is “the joy customers take in seeing, touching, sniffing and testing the product before they pull out the credit card”. For a retail business to be driven by the creation of emotional fulfilment, every employee – from store clerks to corporate procurement to janitorial staff – has to buy in and place the customer at the centre of every effort that they make.
Given this context, what does process efficiency mean in retail?
Procurement-enabled retail process efficiency removes barriers between demand and supply, so that value can be created for customers. Process efficiency is not getting to the end of a sourcing project faster and it is not about making corporate roles easier.
Efficiency ensures that the flow of products and services are not interrupted and certainly does not take customer-facing roles away from their primary focus. Even in procurement, the customer should remain the central focus and the goals for every project should be tied to a barrier removed or a benefit advanced. These are the only efficiency gains that matter.