As summarized in this Strategy + Business Research Brief on a Harvard Business School Working Paper, laying off store employees is a tactic retailers use to cut costs but it’s likely to have a negative impact on the bottom line. The author spent four years studying a national retail firm with more than 260 stores and found a direct link between staffing levels and profitability.
Specifically, the author found that when a store maintained too few employees, which were overworked, conformance quality — which measures how well employees follow specific processes — suffered and this led to higher levels of customer dissatisfaction and lower profitability. More importantly, it only took a slight increase in conformance quality to generate a 4% increase in margins. Considering that some retailers, especially in grocery, operate on razor thin margins that are less than 10%, an improvement in conformance quality alone can result in a 50% to 100% improvement in margins.
So again, one has to ask, given the risks associated with cutting your talent (productivity, morale, quality, revenue, profits, and lawsuits), the benefits of keeping your talent, and the fact that there’s always better savings opportunities to be had with process transformation and strategic supply chain initiatives, is it really worth it?
A recent article by Mark Trowbridge in the Supply Chain Management Review covered seven ways to build your negotiating strength that should be considered a must read for anyone engaged in negotiations, especially if the relationship with the supplier is not a collaborative one.
- Involve Supply Management Early and Often
This tactic, employed by world-class sourcing groups, will assist in communication and coordination with internal customers.
- Differentiate Between Competitive and Collaborative Negotiations
Competition is a great way to level the playing field and drive suppliers down to market-efficient pricing, provided that there is competition, movement ability, sufficient volume, sufficient time, and a willingness to change. In comparison, competitive bargaining can assist in complex negotiations where you’re “negotiating out of a hole”.
- Prepare the Team to Fight the Tough Battles
As the author notes: 75% of negotiation time should be spent outside of the room preparing data, strategy, and roles.
- Empower Negotiations through Factual Data
There’s nothing more powerful than being able to call out a supplier in a negotiation when you have a well-researched should-cost model that backs up your claim that the supplier should be able to come down 20% if you consent to the volume necessary for optimal production runs.
- Negotiate ALL TCO Elements Before Entering a Relationship
Forget the transportation costs? That’s a shakedown. The holding costs? That’s a shakedown. The disposal costs? That’s a shakedown. The service fees? You bet that’s a shakedown.
- Shift the Supplier’s Paradigm
Even when a supplier thinks they have a deal locked up, it may still be possible to convince them otherwise and create a significant advantage. Starting renewal negotiations early, putting other products or services on the table, and tabling joint development can all play in your favor.
- Leverage the Buyer’s Performance
Use the supplier’s past performance as a lever in negotiating future product or services acquisitions.
And, whatever you do, don’t allow the following mistakes to be made:
- Letting a supplier know they have the business before the negotiation is done.
- Creating specifications that can only be satisfied by one supplier.
- Not allowing sufficient time to complete the requirements.
- Allowing colleagues and executives “on the supplier’s side” to be involved in the negotiations.
- Failing to recognize the scope and complexity of a multi-faceted, high-value acquisition.
- Letting business units make key concessions to the supplier.
- Allowing “inside information” to fall into the hands of the supplier.