International Retail – Buying Structures

Procurement being one of the important functions of International Retailing industry, the Companies rely heavily upon their procurement strategies to drive their business. Accordingly the size and volume of buying as well as the strategy of the Company coupled with the size of the Company and its outlets have a bearing on the structure and functioning of Merchandizing department.

Generally we see three different types of structures of Buying Departments as followed in the Industry. Centralised Buying is often the strategy followed by medium and large size retailers with a sizable network of outlets. De-centralised buying structure is adapted by smaller retail Organisations that are family owned or local in nature. My professional Organisations as well as MNC companies tend to follow the third structure which is the combination of Centralised as well as Localised procurement function.

Centralised Buying

Most large size retailers who own sizable number of outlets prefer to follow Centralised Buying strategy with the Buying department being located at the Head Office. This gives the chance for decision makers to be closely associated with buying function. Secondly centralisation allows for consolidation of orders from the entire network and benefit from economies of scale.

Controlling and Managing Supplier relationship is easier when managed from one point of contact. Besides centralised procurement can have better control over supplier to ensure quality and timely supplies too. Centralised buying not only reduces operational cost but it allows the local outlets to concentrate on other matters pertaining to their local stores and customers than to chase the suppliers. When in case of international buying, there is no other effective way but to centralise procurements at Head Office.

However while Centralised purchasing does have its advantages, one cannot rule out the fact that it can turn insensitive to local store requirements on individual basis. Every store is likely to have a different set of product mix and customer behaviour. The local stores may not be in a position to demand the specific merchandise and will have to make do with whatever is supplied by the Central Merchandising Team.

De-Centralised Buying

Decentralised Merchandising is effective when the number of outlet stores is limited and the volumes are negligible making it unviable to have centralised buying department. In such cases the local store managers often take on the function of buying locally. When they do not have huge volumes to procure items directly, they can approach buying groups like Spar, UniChem and others to benefit from consolidated buying as well as access to leading brands and varied product range.

Combined Buying Policy

Over a period of time large scale Retailers especially those who have national and international operations as well as follow a Multi National style of Organisation have found it beneficial to adapt a combined approach to procurement.

Accordingly they have a centralised buying team that consolidates certain percentage of buying orders and volumes from the network and go ahead with procurement. Generally high priced items, items with huge volumes, high demand items and international procurements are managed by Centralised Buying teams. They also spearhead new product and branded product development activities for the Organisation.

The local outlets on the other hand are given the freedom to procure some of the identified items locally. Items that are locally available, low volume items are best procured locally. Such approach gives ample freedom and space for the local store managers to operate and develop their own flavour of products as well as develop customer loyalty.

Combination buying strategy works best in most cases for it gives economies of scale for centralised buying and at the same time provides opportunity to the local outlets to be tuned into the market, understand and anticipate customer needs and develop products locally to meet the demand.