Managing efficient cost structures will always be critical to the success of retail organizations; especially in the post-recession environment in which consumers are constantly seeking more value for their spending. Procurement optimization projects present an easy and swift opportunity to reduce cost. These cost reductions have a direct impact on EBITDA with projects delivering a 10-12% decrease in the annual spend on goods and services. In comparison to process re-engineering and headcount reduction efforts, procurement optimization projects are popular with retailers for their quick implementations.
Tefen recognizes two main opportunities to optimize procurement efforts in retail organizations. The first one relates to the existing network of store locations and headquarters, where we review the total list of expenditures from COGS and supplies, to third party service providers. The outcome is lean, centralized and transparent purchasing that reduces overhead spending, as well as COGS. Both the retailer and the final consumer receive more value for every dollar spent. The second improvement opportunity relates to growth strategy. For retailers expanding their reach/market, the procurement of new store materials and services is an area often neglected by management, but presents a significant opportunity for cost reduction. For rapidly growing retailers, 3 – 4 months of intense procurement support could mean significant savings on materials and services.

Our Approach

Tefen employs a two-phase approach to optimizing retailers' procurement efforts. In Phase I, consultants focus on identifying and realizing ‘quick wins’ in order to bring immediate cost savings to the bottom line. Phase II seeks to sustain these ‘quick wins’ by addressing the underlying causes of these inflated costs. Tefen analyzes and re-designs procurement processes and procedures and works with internal project management teams to implement optimized procurement standard operating procedures.

Main Activities and Deliverables:

• Detailed analysis of primary spending buckets
  • Implementation of ‘quick wins’ such as…
     • Cancelling unnecessary contracts
     • Re-negotiating contracts
     • Adjusting budgets
  • A-Z tender management 
     • Analyze and optimize tender strategy
     • Document tendering procedures
     • Deploy tender strategy and re-negotiate where necessary
  • Re-organized vendor list
  • Test and implement new supplier strategy
  • Align budget with optimized supplier strategy
  • Create and deploy a multi-year efficiency plan with key suppliers
  • Define new procurement activities and responsibilities
  • Design and implement tools, procedures, manuals, etc. to support new procedures
  • Integrate the procurement strategy with key supply chain, budgeting, and cost control processes

Benefits

Typical procurement optimization projects yield annual savings of 10-12% and, in some cases, up to 20-25%. Implementing the optimized strategy will align every-day operating practices with the newly optimized processes resulting in a more lean and agile organization. Internal teams will be empowered with the tools to continually seek, recognize and act upon improvement opportunities.

The most important asset of any retail organization is its customers. Those who interact most closely with the customer base are the store employees, therefore these employees must provide the best customer experience possible. Management must also support this endeavor by implementing procedures that give employees the best chance to provide a positive customer experience. 
Tefen’s goal in optimizing store operations is to make the labor force more efficient (aligning staffing levels with demand and applying lean practices to standard operating procedures). In doing so, store employees find themselves with more time to interact with customers and provide a memorable shopping experience. Management will realize these benefits by seeing increased store revenue and potentially reduced labor costs.

Methodology and Implementation

Tefen’s strategy for improving store operations begins with a detailed analysis of a single store, or selection of stores, and is followed by company wide data analytics, benchmarking and focused interviews with key staff members. Following these activities, improvement opportunities and new standard operating procedures are consolidated into a runbook to be utilized during rollout and implementation.

• Create store optimization blueprint at targeted store(s)
  
  • Diagnostics – Tefen consultants will observe current store processes and collect data to evaluate the efficiency of these processes. Aside from observing employees, consultants may perform interviews, review existing reports and procedures, and work with HR to review planning and scheduling tasks.
  • Locate Opportunities – Once the diagnostic phase is complete, Tefen consultants will gather the information they’ve collected and analyze the data for inefficiencies and opportunities. Using its findings, the team can define new roles and responsibilities to better meet the needs of the store and the customer. To sustain these improvements and ensure management visibility, consultants will develop a program to control, measure and report on the efficiency of store employees. The completed program will then be prepared for implementation.
  • Consolidate Plan into Blueprint – The team will consolidate all components of the new plan (procedures, reports, KPIs, etc…) into a single blueprint which will act as the runbook for every store. The blueprint will be structured in such a way as to allow for variability between the stores while still implementing the same program. Using the blueprint to develop the runbook for the first location, consultants will oversee the implementation and document lessons learned upon completion. Tools to replicate the implementation will be created and a full change management program will be developed to roll out the improved store operations program amongst all locations.

• • Rollout store optimization blueprint

   

  • First Group – During the initial rollout, the Tefen team will work very closely with internal team members to ensure a smooth transition. Team members will be assigned to each step of the process and a checklist of activities will be provided to ensure all steps of the rollout plan are met. For each rollout, an analysis will be performed to assess performance and KPIs. A tracking of these KPIs will provide management with goals to achieve for all future rollouts. Rollouts will be complemented by all necessary change management materials and continuous improvement activities will ensure that the rollout plan will be successful when Tefen consultants are no longer around to support implementation.
  • On-going Coaching and Support – The goal of this phase is to transfer the rollout responsibilities from the consultants to the internal rollout team. Consultants will run knowledge transfer sessions to support the transition, as well as additional training and coaching sessions where needed. All necessary tools and documentation will be handed off to the internal rollout team.
  • Final Handoff – Once comfortable, the internal rollout team will assume full responsibility of the program. Management will be trained on store auditing and reporting procedures to ensure that rollouts continue to achieve the store operation improvements identified at the beginning of the project.

Benefits

Each store operation improvement project is unique and the approach described above is often tailored to meet the specific needs of the client. Based on our past experiences, retailers can expect performance improvements between 8-10% on the agreed KPIs. The rollout team responsible for implementing the improved store operations plan will be equipped with tools and documents that all stores and store employees will find valuable. In addition, knowledge gained from the Tefen consultants will allow them to continually seek improvement opportunities and roll these opportunities out to the expanding network of stores.

Supply Chain and Logistics improvement projects are at the core of Tefen's culture and track record. With years of experience and knowledge, Tefen prides itself on the success it achieves for clients in these areas. Across a variety of industries, and in particular, the retail sector, Supply Chain and Logistics engagements yield such benefits as increased visibility, reduced costs, and improved sales & service. Of course, each organization has different goals and consultants are mindful to approach each project with a broad set of tools and methodologies.

Sample Goals

• Increase Logistics Visibility – clients will gain a complete understanding and ability to track full landed costs of goods.
• Reduce Cost of Logistics – clients can reduce costs in a variety of areas.
  
• Inventory holding costs
• Transportation (shipping) costs (on average, 20-25% of current costs)
• Labor costs (store, distribution, corporate, warehouse, etc…)
• Cost of late/unreliable deliveries
• Increase Revenue – clients will better be able to forecast when a product is needed, where the product is needed and how much of the product is needed. Understanding the answers to these questions and achieving increased communication between vendors, shippers, stores, buyers, etc. will reduce the lead time for a product to reach the consumer.
• Improve Service – clients will be able to reduce the number of late/missed shipments and be able to accommodate the needs of consumers by optimizing both forward and reverse logistics. 
   

Deliverables and Methodologies

Deliverable 1: Current State Logistics Model – Model of the current supply chain state and benchmark of current costs

1. Review Current Logistics Model

• Interview stakeholders
• Complete process mapping exercise with teams of stakeholders
• Perform cost analysis
• Analyze current model

Deliverable 2: Identify Potential Solutions – including potential new supply chain models, shipping strategies, partners, constraints, and ways to reduce lost sale opportunities

2. Evaluate Potential Solutions

• Cost-benefit analysis of different models
• Evaluate relevant shipping strategies
• Analyze internal demand management practices and quantify improvement opportunities
• Assess lost sale opportunities
• Define KPIs
• Research 3PL, procurement solutions and viability

Deliverable 3: Mixed Model Logistics Optimization and Implementation Plan – customized future state supply chain model with an implementation plan

3. Develop Best Fit Supply Chain Model

Determine optimal mix-model logistics solution
Calculate ROI based on actual costs and expected benefits

4. Deploy and Support Implementation

• Define roles, responsibilities, and reporting structure
• Update KPIs per future state supply chain model
• Prioritize low hanging fruit and quick wins
• Run competitive tender for transportation and supply chain services; test and implement new service providers (where applicable)
• Collaborate on a change management program with PMO representative

Technology implementations are becoming even more common in the retail industry, and even more troublesome for retailers to successfully complete. The biggest challenge for retailers is assigning the necessary resources to the project and being able to communicate business needs to a technology provider. Tefen has the resources and experience to understand the needs of the client, in particular retail clients, and translate those needs into detailed instructions for technology providers to execute. Whether at the onset of a technology venture, or in the midst of struggling with the implementation of a project, Tefen consultants can quickly come in and act as an intermediary between the technology provider and the business, ensuring both parties’ needs are met.
Often overlooked by clients are the necessary plans and changes that must accompany implementation in order to achieve success. With the deep understanding of current and future business processes, Tefen can identify organizational gaps that must be addressed in order to achieve success. These gaps might be filled with such plans and changes as: process and procedure re-design, updated role and responsibility definition, change management programs, user support resources, communication plans, consumer education plans, etc… Tefen helps design and deploy these programs, ensuring that the client's day-to-day business requirements are met without disruption and the implementation effort will achieve the desired ROI.