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How to Decrease Costs and Improve Visibility by Eliminating Middlemen and Connecting Directly to Suppliers

Increase Direct Sourcing

A STRATEGIC IMPERATIVE FOR RETAILERS

An expansive, global supply chain calls for longer transit routes and the involvement of many partners. Because of this, goods often pass through many agents from point of production to customer delivery. Costs accrue at each point along the way.

Impact of Poor Direct Sourcing StrategyWhen retailers are only using legacy ERP systems, they have two choices. One is to attempt to eliminate the middlemen without a cloud-based network in place. This can lead to major

headaches, including the need for increased manpower and the struggle in taking on direct sourcing duties. On the other hand, they can keep the middlemen in place, eroding margins and hindering visibility to factories. Without a way to increase vis-ibility and automate several functions, retailers can suffer from:

Increased time and costs dealing with inquiries

Increased duty costs

Reduced profi tability

The Root of the ProblemLong, global supply chains require a large number of suppliers. Traditionally, retailers use middlemen like agents to manage the connections with suppliers and fi nancial institutions, but often excess fees and costs eat away at profi t margin. Many retailers would like to employ direct sourcing as a means of saving money, but incur new costs when attempting to handle the tasks of the agents themselves.

1. It’s too expensive or diffi cult to cut out the middleman

Trying to eliminate middlemen without cloud is diffi cult. When agents are removed from the supply chain picture, the number of connections to manage soars. The amount of data to process increases, and the elimination of agent functions like PO confi rmation and invoice matching must be taken over by someone in-house. This can lead to:

Increased head count

Higher cost of communicating with partners

Reduced ability to identify issues

2. Eliminating agents means eliminating sources of fi nancing

In the retail supply chain, there is often uncertainty around supplier fi nancing. Suppliers have little to no access to the low fi nancing rates their larger buyers enjoy. These suppliers often rely on the fi nancing their agents can secure — however, when they don’t have that option, retailers can suffer from:

Delays in suppliers’ ability to deliver on-time goods

Higher fi nancing costs embedded in COGS

© GT Nexus, Inc.

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Middlemen like domestic importers and agents increase costs and impair visibility in sourcing.

The Challenge

Before cloud, direct sourcing meant retailers had to fend for themselves with hundreds of isolated supplier relationships. Now, they can connect in a single location – eliminating the need for middlemen.

Fees build up and cut into the profi t margin when too many middlemen are involved in sourcing.

Manufacturing Retailer

Data/Documents

Goods

MiddlemanMiddleman

Plant

Plant

NetworkConnectivity

Agility

Customers

Customer

DC / Warehouse

Plan

Actual At-Risk DelayDynamic ETA

B

A

Sense more accurately

Operate more efficiently

Respond faster

Make better decisions

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The SolutionA cloud-based supply chain platform can bring suppliers, fi nancial service providers, and retailers onto the same page. By using this technology, retailers can curb the effects of adopting a direct sourcing strategy. They can connect to each of their suppliers and offer them favorable fi nancing rates through the fi nancial institutions in the network.

Provide a standard sourcing platform with embedded fi nancial services.

Connect to all sourcing partners on a single, cloud-based platform

Manage purchase orders, shipments, invoices, and pay-ments online

Tap into a pre-existing network of factories, fi nancial insti-tutions, and global support

Gain real-time visibility to factory fl oor production and packing statuses

How to use a cloud supply chain platform for direct sourcing:

1. Collaborate with suppliers to ensure on-time delivery

2. Automate manual processes like document matching and invoice approval

3. Track item statuses and receive alerts to potential delays

4. Offer supply chain fi nancing programs to suppliers

Value PropositionsBy adopting a cloud-based platform that connects all of their suppliers and fi nancial institutions, retailers can solve the problems that come with direct sourcing strategies. The duties previously done by agents are done seamlessly on the platform. With this technology, they can:

1. Reduce COGS by eliminating middleman/agent fees

Cut out agent fees to buyers & factories that range from 3% to 8%

2. Avoid adding headcount to support the sourcing pro-cess (reduce SG&A)

Employ a paperless solution with automation and inte-gration tools

Use exception management tools to focus on the real issues

3. Maintain or reduce supplier cost of capital

Offer on-demand fi nancial services to maintain supplier liquidity without the agent

Reduce delivery delays that are due to lack of liquidity

Ensure cost of capital doesn’t impact cost of goods

4. Enhance supply chain agility with direct connection to factory statuses

Spot potential delays with real-time visibility

Enable customer responsiveness with late-cycle amend-ment processing

Direct Sourcing and the Networked CompanyTo increase direct sourcing, companies must transform them-selves from silo-based, inward-facing corporate operators to interconnected, highly agile business network orchestrators.

Communicate directly with every supplier and fi nancial institution on a single network, eliminating the need for extra costs or manpower to replace agents.

Manufacturing Retailer

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