Procurement in ecommerce retail industry is a lot like building a foundation in architecture, or selecting ingredients in baking; while it doesn’t guarantee you’ll achieve the outcome you want, doing it right goes a long way towards success.
As the first steps in the retail supply chain, procurement and sourcing are the backbone of your ecommerce operation’s profitability.
Whether you order products from a manufacturer or create products yourself from materials you buy, a smooth and seamless retail procurement process is key to sales down the road.
In this article, we’ll cover what retail procurement is, the different types of retail procurement, and how to both procure materials and fulfil orders with ease.
What is retail procurement?
Retail procurement is the process of sourcing and purchasing inventory for your business. For companies that make their own products, procurement involves acquiring the raw materials needed to manufacture finished products.
Types of retail procurement
There are a few different types of retail procurement, and the procurement type that best suits your business’s needs may vary depending on the sort of business you run and the products you sell.
Here are three kinds of retail procurement to help you determine the best fit for your business.
Direct procurement involves obtaining the items necessary for producing the products that you’ll eventually sell to your customers.
This includes raw purchasing materials that you later use to create the finished goods, as well as purchasing ready-to-sell inventory from a manufacturer or wholesaler.
For example, a dog food brand may procure ingredients like grain, vegetables, and chicken to manufacture its products. Alternatively, a clothing retailer may procure 500 pieces of the same t-shirt design from a wholesaler.
Indirect procurement involves obtaining items that are necessary for your day-to-day operations, but that don’t contribute to your bottom line.
For example, you may procure packaging materials and office supplies that your business doesn’t sell to customers, but uses to log inventory or fulfil orders.
This type of procurement focuses on acquiring people-based services. For example, you may work with a 3PL to fulfil your orders, or you may hire on-site security services for your warehouse.
What is the difference between procurement, purchasing, and sourcing?
While the terms procurement, purchasing, and sourcing are often used interchangeably, they are not actually the same thing.
Sourcing and purchasing are two subsets of the procurement process. Sourcing involves researching and deciding on the best products and suppliers for your business, whereas purchasing is the transactional stage where you negotiate pricing with the suppliers and actually purchase the product or service.
How to procure what you need
While the specifics of the procurement process will vary for each business, a business’s procurement strategy can typically be broken down into a few standard steps.
Identify what you need
Start with a clear idea of the items you need to procure. This may involve restocking items, introducing new SKUs to your existing inventory, or renewing a subscription to a product or service that you’re using.
Forecasting demand for certain items using the previous year’s sales data and SKU performance can help you accurately plan for the future, and understand what goods, products, or services you might need.
You may also need to consult different departments that your procurement process will affect so you can properly account for their needs.
We have a Shopify store but do not use Shopify to track inventory. In terms of tracking inventory, we use ShipBob for everything — to be able to track each bottle of perfume, what we have left, and what we’ve shipped, while getting a lot more information on each order. The analytics are super helpful.
We download Excel files from the ShipBob dashboard all the time and use them to analyse everything from cancellations, to examining order weights, to checking on whether ShipBob is shipping orders on time. Even the way their warehouse receiving orders (WROs) work for sending inventory is very straightforward.
Ines Guien, Vice President of Operations at Dossier
Create and submit a purchase request
Depending on the size of the company, you may need to make a formal request to notify key stakeholders or procurement teams that a need exists for the product or service.
This means you need to create an official purchase request that contains all the essential information such as the price, quantity, and time frame. With this information, you’ll be able to justify the need and your company will be able to make an informed decision based on budgets and performances.
You’d typically submit this purchase request through your procurement manager. Some businesses may also have financial teams and purchasing staff to handle these purchase requests.
Once submitted, the department that’s in charge of overseeing the purchase will either approve or deny your purchase request.
Keep in mind that certain supply chain disruptions can cause procurement delays. For example, the COVID-19 pandemic significantly slowed freight shipments of inventory to North America, causing massive delays for global retailers and even ecommerce giants such as Amazon.
To avoid stocking out due to supply chain management issues, make sure to build in extra time for inventory or raw material procurement.
Next, it’s time to research vendors until you find the best one for your business. While cost is usually a major factor in the final decision, you should also look at the vendor’s reputation, supplier performance, quality of product or service, reliability, and speed of fulfilment.
Additionally, you should also consider whether or not the vendors align with your brand’s identity and core values. For example, you may want to look for suppliers that take environmental responsibility seriously if sustainability is a part of your brand values.
If you have a variety of choices when it comes to vendors, narrowing the list based on value alignment can help speed up the selection process and make supplier relationship management easier in the future.
Get multiple quotes
Once you’ve whittled your list down to a few select vendors, request for a quote from each vendor so that you can compare pricing. Being able to compare multiple quotes will help you make an informed decision and select a vendor that best matches your budget. Ideally, you should get at least three quotes from different vendors before making a decision.
Consider negotiating wherever possible to achieve cost savings — but if a deal falls through, having multiple quotes ensures that you have alternative options.
Inspect and document
Once you receive an initial shipment of materials or finished products from your manufacturer, supplier, or vendor, carefully assess the shipment to make sure it matches what you’ve specified in your purchase order.
Check to make sure there aren’t any damaged products, and document any inaccuracies or quality issues. This will help you decide whether the supplier is suitable to work with on a long-term basis, or whether you should continue looking for other options.
Getting stock to the Manchester fulfilment centre has been smooth as well, thanks to ShipBob’s flexible receiving process and warehouse receiving orders, or WROs.
We don’t always know exactly when our inventory shipments will arrive from our suppliers, and other 3PLs told us they would reject our shipments if they didn’t arrive on a certain time and date.
ShipBob is a lot more flexible because of their technology, and our representative helped explain how receiving works, which was a big plus.
Adelina Zotta & Connor Westby, Co-Founders of NutriPaw
How to fulfil what you procure
After you’ve procured sufficient inventory, you can start fulfiling orders as soon as they come in. The fulfilment process typically involves receiving and processing orders, picking and packing items in boxes, and then shipping them to your customers.
For smaller operations, self-fulfillment may make the most sense in the short term. But storing the procured inventory, packing orders, and shipping them out is often time-consuming, and is ultimately not scalable.
Businesses selling in the retail sector that handle larger order volumes should consider outsourcing order fulfilment to an omnichannel logistics platform like ShipBob. ShipBob allows you to leave your ecommerce fulfilment to the experts, and transform fulfilment into a competitive advantage.
This means that once you put in a purchase order for inventory from a manufacturer or supplier, or produce finished inventory yourself, you can ship your inventory to one of ShipBob’s fulfilment centres to be stored until an order comes in.
You can integrate the ShipBob software directly with your ecommerce platform, so that orders are automatically forwarded to a fulfilment centre once they’re placed online. The fulfilment team will then begin the picking and packing process, choosing the right boxes and packing materials, printing out shipping labels, and shiping the orders to your customers.
ShipBob’s dashboard allows merchants to follow these orders in real time, track key metrics, and share order updates with their customers to maintain visibility throughout the post-purchase experience.
If you want to explore more about how ShipBob can help your business with its retail logistics, click on the button below to request a quote.
For the first several months of our business, we fulfiled all of our orders ourselves. We’d have U-Hauls packed with thousands of products making endless trips from our large storage unit to the post office. It wasn’t a scalable, long-term solution that would facilitate our growth.
Because our business was growing at lightning-fast rates, we needed a solution that would provide flexibility and that we could communicate with easily to solve problems. ShipBob was that solution for us.
Aaron Patterson, COO of The Adventure Challenge
Retail procurement FAQs
Here are answers to the top questions about retail procurement.
What is the difference between procurement and purchasing?
Procurement refers to the entire process of researching, evaluating, negotiating, and ultimately purchasing the items or material needed to run your business.
Purchasing, on the other hand, refers to the transactional process of negotiating pricing and placing a purchase order for those materials.
Can ShipBob help with procurement?
ShipBob helps businesses to fulfil wholesale B2B orders, allowing you to seamlessly get your procured items to the appropriate warehouses or fulfilment centres.
What are the steps after procurement?
The steps after procurement are inventory management and storage, order receiving and processing, and order fulfilment (including picking, packing, and shipping).