Retail's Profit Killer

High blood pressure may be the silent killer in health, but for retail profits, the culprit is process costs hidden in paperwork, approvals, tracking and other activities that no accounting system can ever capture. To cut process time and cost out of their operations, retailers such as Barnes & Noble have turned to e-procurement.

"It's a better and more efficient way to manage store ordering," says Jack Kelleher, VP of operations at Barnes & Noble. "Acceptance by store managers has been great."

From Fax to Keystroke

Barnes & Noble formerly used faxes and phone calls to communicate with Office Depot and four other major suppliers where the company orders approximately 80 percent of its commonly used items such as office and cleaning supplies.

The manual system, in use at Barnes & Noble's approximately 580 namesake stores nationwide as well as over 300 B. Dalton bookstores, created several issues that ate away at profits, including the different forms used by each supplier. When orders were lost, which happened easily, there was the expense of priority shipments. In addition, store managers had difficulty tracking orders and keeping tabs on upcoming requirements. Through it all, time was required to compare purchases to budgets.

Supplier Support

Working with encouragement from its top five suppliers, Barnes & Noble installed an e-procurement system from SupplyWorks on an existing intranet. The system, which required minimal customization, went live in September 2001 after a six-month selection, test and rollout process that included a trial run with about 45 stores. Through the end of 2001, approximately 18,000 transactions were processed through the system.

At Barnes & Noble, e-procurement has generated numerous benefits, both for the stores and headquarters. At store level, the number of "lost" orders has declined dramatically. In addition, the system is designed to help store managers reduce the risk of incorrect orders and stay on track with replenishment of required items. To accomplish that, lists of commonly ordered items and images of required items are available to managers online. The standardized lists have reduced the number of maverick purchases system-wide and have also greatly reduced the costs associated with "correction" orders and orders for missed items.

Material costs have also been lowered, although only Office Depot is currently providing Barnes & Noble with a discount for online ordering. A store-level report, which is also available to district managers, tracks the sequential order totals against a store's annual budget making tracking more efficient. At headquarters, the company receives a comprehensive overview of purchases system-wide, which helps the company keep expenses down, according to Kelleher.

At this point, the system is not integrated with other back office systems, however it is capable of handling EDI.

Additional benefits are anticipated in the future. As store managers become increasingly familiar with the system, order frequency is expected to drop to once or twice a month, saving additional process and shipping costs. Accessible ordering histories will also enable managers to compare current purchases with previous purchase history. Ultimately, even floor personnel will be able to access the system.

e-Procurement Challenges

The most difficult goal will be getting all suppliers onto the system. "We're hoping to make it all-inclusive," says Kelleher. Many suppliers however, are small and lack the technical and other resources of an Office Depot.

Expanding the base of suppliers is a challenge for everyone implementing e-procurement. According to a Conference Board survey of 43 major European and North American companies, 45 percent said supplier resistance was a major impediment to e-procurement. Seventy percent of those surveyed, cited a lack of standard online catalogs.

Currently, a Forrester survey of 361 companies indicates that less than 10 percent of indirect goods are being purchased via e-procurement systems. However, that percentage is expected to increase substantially as more companies seek to simplify and automate the routine using the Internet. Already, reports Forrester, 24 percent of companies are collaborating more with suppliers during the current quarter than they were the previous quarter.