THE IMPACT OF RETAILER'S CENTRALIZED PURCHASING STRUCTURE ON VENDOR ORDER FULFILLMENT: A CASE STUDY ANALYSIS

To remain competitive in today's market and economy, retail companies must provide products and services in the form, time and place that their consumers demand. The rise in e-commerce and improved logistics capabilities have changed how products are sold. Companies are looking to decrease costs and lead times to remain profitable as competition and consumer demands intensify. Retailers are looking to lower costs in their supply chain. Using sales data and forecasting methods, retailers are placing smaller, more frequent orders to decrease inventory and associated inventory costs throughout their network. This faster replenishment model has led to small containers becoming more common in wholesale fulfillment than large containers.Though there has been a shift in order size and frequency, there has been little change in ordering structure. Many major retailers use a centralized purchasing structure. Within the structure, there are different product categories, or departments, with buyers that place orders for the entire company. This allows for departmental expertise. Under this structure, employees from each buying department are placing multiple orders per week. This has a huge impact on vendors that supply products that fall into more than one retail category. Different orders cannot be combined so vendors could potentially receive multiple orders from the same customers that originated from different buying departments.A case study on buying strategy and structure demonstrates that a change from current retailer ordering structure with multiple buying departments to a single source of orders can decrease vendor corrugate and labor costs by 16%. This change allows the vendor to deliver the same products while using less labor and packaging materials. A company’s supply chain can be a competitive advantage for those that constantly evaluate their current systems and practices. The process of placing and fulfilling orders will remain an essential activity in the supply chain, so these processes and practices should be evaluated.