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Retail Express\u2019 Ed Betts reveals how retailers can use algorithmic tools to refine the negotiation process and use it as a springboard for pinpoint planning, product innovation, and future profit growth<\/strong><\/p>\n \u00a0<\/p>\n Larger grocery <\/span><\/span>r<\/span><\/span>etailers <\/span><\/span>are inextricably driven by<\/span><\/span> year-o<\/span><\/span>n<\/span><\/span>-year (YoY) growth. Rightly or wrongly, it is the basis of the metrics which define success to stakeholders and business leaders alike. But YoY growth very rarely happens organically<\/span><\/span> – it<\/span><\/span> is an active process which demands that every small efficiency is <\/span><\/span>optimised<\/span><\/span>, and negotiating with suppliers is a key piece of th<\/span><\/span>at<\/span><\/span> puzzle.<\/span><\/span><\/p>\n \u00a0<\/p>\n Through shrewd negotiation, retailers can secure the kind of<\/span><\/span> assortment,<\/span><\/span> deals and promotions which will <\/span><\/span>improve<\/span><\/span>volume sales and raise revenue, all while potentially lowering the base cost of goods or discovering <\/span><\/span>added<\/span><\/span>promotional spend. Suppliers <\/span><\/span>also <\/span><\/span>want the chance to negotiate<\/span><\/span>, because a<\/span><\/span>ttention on their product lines helps increase their own efficiency and drive<\/span><\/span>s<\/span><\/span> incremental sales growth. Successful negotiation is a win-win \u2013 but overburdened<\/span><\/span> retailers can <\/span><\/span>leave a lot on the table<\/span><\/span> by not engaging effectively<\/span><\/span>.<\/span><\/span><\/p>\n \u00a0<\/p>\n Download the whitepaper: <\/span><\/span>The Digital Transformation of Supplier Collaboration<\/span><\/span><\/p>\n \u00a0<\/p>\n Dealing with regulatory demand<\/span><\/span><\/p>\n With the potential <\/span><\/span>for <\/span><\/span>imbalances in power between <\/span><\/span>r<\/span><\/span>etailer and <\/span><\/span>s<\/span><\/span>upplier<\/span><\/span> there are <\/span><\/span>regulat<\/span><\/span>ions<\/span><\/span> in place<\/span><\/span> like the Groceries Supply Code of Practice (GSCOP)<\/span><\/span>,<\/span><\/span> an<\/span><\/span>d its worldwide equivalents<\/span><\/span>,<\/span><\/span> to govern the nature of the conduct between the negotiating parties.<\/span><\/span><\/p>\n \u00a0<\/p>\n For large retailers, breaching GSCOP can lead to fine<\/span><\/span>s<\/span><\/span> of up to 1% of annual turnover<\/span><\/span>, an unthinkable figure considering the tightness of today\u2019s margins. Staff must be trained, reminded, and trained again to avoid any action which could go against the Code of Practice regulations. <\/span><\/span>But if <\/span><\/span>supplier negotiations are <\/span><\/span>given a layer of automation to ensure they are <\/span><\/span>performed in a systematic, <\/span><\/span>reliable<\/span><\/span> and consistent manner<\/span><\/span>, this burden can be reduced<\/span><\/span>. That <\/span><\/span>kind of depth and<\/span><\/span> reliability is the lynchpin of algorithmic retailing, the process of linking a big data model with automated and AI-assisted processes to connect all parties with the information that matters. <\/span><\/span><\/p>\n \u00a0<\/p>\n Ensuring small suppliers are not left <\/span><\/span>out<\/span><\/span><\/p>\n J<\/span><\/span>oint business plans made with major multi-line vendors demand frequent and careful attention, <\/span><\/span>which can lead to major suppliers being given a disproportionate amount of time, while<\/span><\/span> some small suppliers may struggle to secure a meeting even once a year. Failing to negotiate with smaller suppliers makes no sense \u2013<\/span><\/span> they may not present the same <\/span><\/span>big-ticket<\/span><\/span> headline<\/span><\/span> products<\/span><\/span> that larger companies do, <\/span><\/span>but <\/span><\/span>there is plenty of money to <\/span><\/span>be <\/span><\/span>made through smaller scale relationships. Smaller suppliers can present new, innovative products, and are often ready to offer significant deals. But they do not have the deep pockets of larger <\/span><\/span>suppliers<\/span><\/span>, nor do they typically have the <\/span><\/span>access <\/span><\/span>to push for promotions to happen.<\/span><\/span><\/p>\n \u00a0<\/p>\n The burden of negotiation, in this situation, is <\/span><\/span>currently <\/span><\/span>the wrong way around. To keep up with market trends retailers must find the time<\/span><\/span> to listen to every incoming request or, better, reach out to smaller <\/span><\/span>suppliers directly. To do so requires a change in the structure of negotiation processes, <\/span><\/span>to which <\/span><\/span>AI-driven automation is a strong solution. It may be <\/span><\/span>used<\/span><\/span> to ensure margins are met, and to speed up smaller-scale negotiations with larger suppliers, allowing <\/span><\/span>senior<\/span><\/span> staff to make high-level decisions surrounding innovative lines rather than being mired in minutiae. <\/span><\/span><\/p>\n \u00a0<\/p>\n Acting with foresight<\/span><\/span><\/p>\n The negotiation stage is not only an opportunity to secure better deals<\/span><\/span>; i<\/span><\/span>t is the time to ensure every possible advantage is discovered and activated. To do so requires some significant foresight. Making volume purchases could save on per-item costs, for example, but a retailer must have some certainty that it will be able to sell those products before a deal is finalised. <\/span><\/span><\/p>\n \u00a0<\/p>\n This is where a keen understanding of past, present, and predicted future markets becomes vital \u2013 and it is another instance where AI tools and predictive models can provide the backbone of a sturdy negotiation process as well as reducing the time and effort load on those making the deals. With predictive AI in place, retailers can be certain of the strength of a deal as it is made, rather than finding out when it is too late. It may also highlight the truth by comparing, say, an offering of a vendor with initially deep pockets <\/span><\/span>against an alternative<\/span><\/span> which may generate more money in the long run.<\/span><\/span><\/p>\n \u00a0<\/p>\n Securing every possible advantage<\/span><\/span><\/p>\n If a vendor is willing to offer some promotional activity<\/span><\/span>, it must be activated. <\/span><\/span>Marketing pots can be quite large but are not always central to the negotiation conversation<\/span><\/span>. Automated<\/span><\/span> systems <\/span><\/span>can help ensure all trade funds are collected efficiently, without fail \u2013 and this reliable automation lowers the need for expensive auditing<\/span><\/span> and<\/span><\/span>reduc<\/span><\/span>es<\/span><\/span> potential collections costs<\/span><\/span>.<\/span><\/span><\/p>\n \u00a0<\/p>\n Knowing one\u2019s capacity <\/span><\/span>for action<\/span><\/span> allows algorithmic models to help generate a detailed plan at the negotiation stage, defining not only the terms of any proposed promotion but also <\/span><\/span>the viability of a promotion before it happens<\/span><\/span>