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3 Tips For Retailers To Get Better Deals From Their Vendors

Image of a person saving money in a piggy bank

The cost of vendor contracts could make the difference between making a profit and losing money. When retailers evaluate their vendor contracts, they must consider factors in addition to inventory price, including delivery discounts, on-time shipments and the handling of returned or damaged goods. An ERP system can help retailers negotiate vendor pricing by providing an analysis of historical operational costs, such as shipping or distribution.

Here are a few tips on how retailers can work with vendors for better pricing.

  1. Define the relationship: Retailers must know their needs and decide how much business they want with a specific vendor. A blog post on Retailpurchasing.com  refers to this as deciding the negotiation outcome. Retailers must decide what they can and can’t live with in a deal so they knew when to accept the terms or to continue to negotiate. If the two parties can’t come to an agreement on specific criteria, such as customer service, pricing or shipping, then the retailer needs to walks away. For instance, the vendor not agreeing to provide free shipping could be a deal-breaker for some retailers.

    Benefits such as better pricing or volume discounts lead to a preferred vendor relationship. The Retailpurchasing.com post explains that retailers and vendors share a common interest to increase sales volumes and profits. That’s why preferred vendor relationships are not just about inventory prices; these relationships can lead to opportunities that boost business in other ways.

    For example, a post on the American Express OPEN Forum blog explains that vendors can help retailers sell their product in addition to supplying it. Also, vendors are often in a position to send other potential customers to the store.

    “The ability to work together with your vendor allows you to create a team effort that can allow both of you to increase profits, no matter what price you’ve agreed on,” the OPEN Forum post says.

  2. Reduce shipping costs: When retailers have good logistics already in place, they’re in a better position to negotiate shipping costs with vendors. Consider this scenario: you have 25 stores, each stocked with different inventory orders. If your vendor has a facility near each of your 25 stores, it won’t cost much to ship directly from the vendor to the store. However, the vendor may not have as many facilities as you have stores, so you can end up paying high shipping costs. Also, the vendor may not offer quantity breaks on inventory orders when items are shipped to different places. That’s when it may be more cost-effective to have a central warehouse. In that case, you can aggregate inventory orders to get a quantity break.
  3. Track distribution methods: Retailers need to make sure they’re not spending more on distribution costs than they’re saving in price breaks on inventory orders. The best distribution model will depend on the retailer’s business model, of course. Some retailers with many vendors may find that it’s cheaper to use their own truck system to distribute inventory rather than relying on a vendor to directly supply the retail chain’s individual stores.

If a retailer enters distribution transactions in an ERP system, the software can track operating costs and analyze which factors impact overall profitability. Retailers can use the data to decide an effective logistics scheme.

The above tips can help retailers work with vendors to increase profitability. In business, every dollar saved is important, making vendor contracts a critical area for retailers to focus on.

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