Executives in the retail industry are currently facing conflicting pressures: the need to reduce costs on the one hand and a competitive imperative to improve their connection with shoppers using innovative processes on the other. A growing number of retailers are turning to outsourcing as a strategic tool to meet these challenges and build their company’s capabilities. Even firms like Walmart and Best Buy that have traditionally avoided outsourcing have embraced it. For example, Best Buy outsourced all of its IT operations to an established service provider in 2004, and continues to farm out some IT roles today.
Most companies are seeking game-changing solutions that can make their operations more efficient while gaining a competitive advantage and reducing costs. For some, working with an outside service provider is the best way to drive innovation and access industry-leading technology and processes. Through outsourcing, many retailers were able to re-engineer their efficiency platforms to generate cash quickly and position themselves ahead of competitors when the economy picked up.
According to a 2010 study, outsourcing remains underutilized by the retail industry compared to other industries. Retail outsourcing makes up only 5 percent of all offshore services, with information technology services the most commonly outsourced. Outsourcing continues to grow, but engagements are shifting away from large deals to smaller, portfolio outsourcing contracts.
Sears, Barclay’s Bank and Sainsbury’s have dropped huge transformational deals, and most retailers have adopted hybrid ITO and BPO models. According to DataMonitor and TPI, the number of retail BPO contracts increased 40 percent in 2009, but the average contract size was fairly modest at about $60 million. Only the largest and most established retailers like Target and Tesco were able to consider offshore captive centers.
Retail Industry Challenges
Outsourced Retail Solutions
Retail Outsourcing in the Philippines
Retailers today are confronting many hurdles, from high operating expenses to market saturation to disruptive technology to diminished buyer loyalty.
High operating costs. Retailers are contending with increasing overhead and operating costs, including rental rates, utilities and HR. To absorb the costs and plan HR campaigns more effectively, most retailers have no choice but to look internally.
Complicated logistics. Managing multiple suppliers and several fulfillment locations is a complex undertaking that is made even more challenging by stricter regulations and rising supply chain management costs. To further reduce per unit costs, many retailers are forced to carry the supply risk burden when they serve as suppliers in a collaborative supply chain model.
Saturated market. The retail industry is already saturated with brands, and companies that want to penetrate new markets require innovative strategies that can be hard to develop and implement in-house.
Rise of e-commerce and third platform technologies. The rise of the e-retail segment is intensifying the pressure for companies to optimize their online presence and offerings. Forrester Research estimated that U.S. online shoppers spent $327 Billion in 2016, which stretched many companies’ existing capabilities. Like companies in other industries, cloud services, mobility, social business and big data are impacting how retailers do business. With mobile devices and social media channels as points of purchase, companies without a digital transformation strategy risk being left behind.
Outsourcing among retailers remains a strong growth proposition because it offers solutions that do not require compromise. Here are just some of the ways an offshore partner can help a company become a top-performing organization:
Better flexibility and scalability. With outsourcing, retail executives do not have to choose between cost reduction or process improvements. Retail BPO vendors have access to better technology and greater scale and cost efficiencies. As companies save more through outsourcing, they can reinvest resources toward processes that will position them towards growth and competitiveness.
Better alignment of business goals. Third parties have the resources and effective processes in place that help retailers minimize losses. A third party analytics provider has sophisticated tools to make better forecasts, paint a clear picture of market trends, handle legacy systems and spearhead digital transformation.
Drive innovation. By partnering with a third party retail service provider, retailers gain skills and technological assets. For example, a vendor can design and implement a cost-effective and collaborative supply chain that shortens cycle times or a secure e-commerce website/application that reduces the incidence of online fraud, improves client-customer engagement and provides them with a personalized shopping experience. A vendor can also design business growth strategies that counter market saturation.
Drive business process efficiencies. Due to the nature of the retail industry, business process overhead tends to be high. Using agile and intelligent methodologies, an experienced third party can improve processes such as HR, IT and finance and accounting while bringing down costs and increasing productivity. Retailer Levi Strauss turned to a third party to improve its recruitment process using a cloud-based technology platform that also included sophisticated analytics capabilities. As a result, the company was able to beat the competition with a more effective hiring strategy during the holidays and back-to-school seasons.
Improved competitiveness. Small retailers can compete with larger and more established firms through outsourcing. When inventory started overflowing for Canadian clothing retail startup Tentree, for example, the company outsourced warehousing and distribution to a third party logistics provider so the team could focus on managing growth and keep up with demand.
Retail outsourcing in the Philippines with a service provider such as Sourcefit can help ensure long-term success for retailers by providing the services of highly-skilled but low-cost offshore professionals.
Please contact us to find out about Sourcefit’s custom outsourced retail solutions.