The retail industry has a need for speed. From fast fashion to 3-D printing, retailers are full speed ahead adopting the latest technology in the hopes of staying on top of the competition and keeping up with changing consumer demand.
There are countless factors that could affect a product’s cost before it reaches a customer’s door, and while most of these variables are relatively predictable, we live in a world of constant change. Mix certain unpredictable elements with an already complicated equation and retailers can lose millions due to unanticipated elements that impact the landed cost of a product.
Changing trade policy, shifting geopolitical landscapes, natural disasters and more keep retailers on their toes when it comes to meeting the demands of their customers. A labor strike could make it twice as expensive to source from a particular country or a hurricane could ruin a factory critical to production, but still consumer demand won’t let up. Retailers must be prepared to make quick, informed decisions to keep the business moving. While siloed operations often make it easier to respond to change, retail doesn’t have that luxury. There are too many participants and stakeholders involved that depend on each other to bring a product to market, making instant and constant communication crucial.
Instead of doing nothing, some brands have implemented a blanket markup to ease the burden of disruption, should anything go awry. While this may prevent underpayment to suppliers, initial estimates often don’t match the actual costs, complicating an already complex process. By focusing on the initial cost when purchasing goods from abroad—what suppliers are charging—brands won’t have visibility into the full cost after the deal is done. This may mitigate risk of loss, but the impact it eventually has on price accuracy could cause longer-term problems like maximized budgets, incomplete future projections and potential supplier distrust.
Luckily, digital technology has evolved to the point that brands can delve deeper into the link between merchandising and product development, keeping real-world factors in mind. A what-if costing approach allows retailers to view the financial impact of executing an assortment against a plan, calculate margins at the item, class, department, season or channel level, and provides a drill down capability at lower levels to adjust in real time.
Software that is integrated with the U.S. government’s Harmonized Tariff Schedule (HTS) and is updated regularly with data inputs from third-party companies like financial institutions and governmental trade organizations arms retailers with the information they need to aggregate potential costs and inform future decisions. With a wealth of data at their fingertips, retailers can compare the results of what-if costing scenarios to original forecasts to ensure complete accuracy throughout the product lifecycle.
With a what-if costing approach, not only can retailers gain more precise costing ability, they can also achieve additional savings. Using a cost-simulation tool allows companies to cut out trade partners who act as middle-men, automating the consultative work they provide and eliminating potentially expensive fees. By automating this analysis, retailers minimize the room for human error and can reallocate funds toward more beneficial projects or processes. At the same time, the ability what-if costing gives retailers to calculate and mitigate risks allows them to re-evaluate their supplier partnerships based on past experiences; they can engage in relationships that previously were too risky because it was difficult to accurately predict an outcome.
Today’s global economy is complicated, with endless points of exposure to risk. From Brexit to NAFTA and the potential of border-adjusted taxes, every retailer worldwide needs to have a way to prepare for any eventuality that could impact costs. There are many benefits to be gained by taking innovative approaches to calculating landed costs based on fees, services, geographies, markets and other unique conditions in real or near real time. Retailers that use this strategy to stay ahead of disruptions will be the ones that emerge as leaders in a changing global landscape.
Sue Welch is the founder and CEO of Bamboo Rose, a business-to-business (B2B) digital marketplace powered by trade engines that allow members of the retail ecosystem to collaboratively discover, develop and deliver great products to market. Bamboo Rose serves over 85 major retailers and 400 brands (including American Eagle, Family Dollar, Home Depot and more) and connects 35,000 suppliers and 150,000 user members. Learn more at bamboorose.com, or find Sue on Twitter at @SueWelch and Bamboo Rose at @GoBambooRose.