Tuesday 28 May 2013

Improving the buyer's Net Margin, without giving more Gross Margin

B:  I’m glad you’re here. Following last week’s release of our latest annual report, I’m getting a lot of grief from upstairs about our overall margin being lower that other retailers, so we need extra margin on your lines

S:  Yep, interesting reading, especially your 3.5% net vs. most of your competitors hitting 5%, minimum. One of the reasons I booked our appointment this week was so we could build your latest data into our discussions and explore possible synergies

B:  I said more margin…

S:  OK, let’s clarify a couple of basics. As you know, your report P&L is showing your overall Net Margin, having covered all costs in the business. First we need to be clear that our selling prices to you, compared with your selling-out prices, gives you a Gross Margin of 27%, the same margin we give to all other retailers. Second, I am not able to increase your Gross, it is just not going to happen, we are already operating on a knife-edge, what with the trade funding, free credit and the time I spend on your account

B:  Well, if it’s too much trouble looking after your biggest customer…

S:  Not quite our biggest, but certainly one of our more important ones, especially because of the potential to help you improve your net profit on our lines..

B:  Tell me more

S:  Fine. As you know, our different business models mean that you have to focus in-depth on your 400 category business, whereas we being a supplier focus on our category operating in every route to consumer. In other words we need to be expert in every possible way of retailing our particular category. We need to know a lot about a little, while you need to know a little about a lot…

B:  Well, if you are going to waste the final few minutes of this meeting doling out clich├ęs…

S:  Apologies, just been on a workshop, was dying to try that one out…

B:  Five minutes!

S:  OK, we can help by pointing you at what other retailers do to optimise our category

B:  I hope you don’t tell them our secrets?

S:  You know me better than that, we are talking about broad principles of retailing, if only to reassure you that others have found different ways useful, without compromising any of us

B:  OK. How can you improve my net margin?

S:  Great! Essentially, like other retailers, it costs you 15% of your sales to run a shop, add 2% for thieving and wastage, 5% for Head Office, leaving 5% from our 27% gross margin as Net Margin. You should be making at least 5% on our lines ( give me more detail and I can be more specific)

B:  Keep going…

S:  As I see it, your problem is you are carrying too much cost in the system, in other words, your operational costs are taking up too much, vs other retailers

B:  How come?

S:  We have a pretty efficient delivery system, and other retailers get more out of it by letting us have guaranteed forecasts early enough to schedule deliveries optimally. They also share a lot of insight with our people to help mesh the two systems and reduce overlap and the need for excess buffering. Also, by knowing more about your systems we can configure our shipments to help you have easier, more economic process at your end, all the time cutting your costs. The improved integration means less damaged or defective stock, easier handling, more economic use of labour, and ultimately, more economic use of space

Buyer:   What do you need from me?

SuperNAM:  Great!  First we all need a meeting involving our distribution and logistics teams, so we can set the parameters and then let them get on with it. You and I can then focus on the really interesting stuff like how our category plans can drive your top line…

Adventures of SuperNAM (20)

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