By Blacks Senior Consultant Steve Pruitt
As a retailer, it’s essential to know which vendors are contributing the most to your profits, and which are contributing the least. Vendor analysis is the only way you can figure out which vendors to fund, and which to cut, if you want to foster growth.
I’ve known some retailers who go with their guts when it comes to vendor analysis, relying on what they think sells the most, and their estimated margin. However, I always recommend that you go straight to the data to figure out which vendors contribute the most to your business. This will give you an insightful and objective view of your vendor structure.
The Basics of Vendor Analysis
First, start with a precise period of time in which to compare vendors—either a month, season or year.
Then choose a category or department to analyze. Let’s say you choose to look at your denim vendors. The first thing you need to do is gather the sales data for all of your denim vendors over the same period of time.
Calculate how many sales dollars each vendor contributed to total denim sales for the period. Then calculate how much margin each vendor generated from their sales over the period.
The real question is which vendor produced the most margin. This will essentially determine which vendors to continue funding, and which to cut.
You also want to look at the inventory and on-order for each vendor to see if, for instance, an under-performing vendor is taking up a lot of your floor space or OTB. If this is the case, you may have to take some markdowns to clear the slow-selling product, and reduce orders.
In an ideal world, each vendor in a category should be contributing an equal amount of margin to sales for your vendor structure to be balanced.
Automate Your Analysis
Of course, you probably don’t want to pull information out of your POS system and create spreadsheets every time you want to do a vendor analysis. Your best option is to employ an analytical tool that can take data directly from your POS system and present you with live analytics of your vendor structure.
Here at Blacks, we have a vendor analysis tool that allows clients to compare vendors in any category of their business by sales, margin, inventory, and on order, right from their desktop. They can even analyze sales by size and color, if they like.
Adding this kind of insight is invaluable. It means you can make corrections in your vendor and inventory structure at any point of the calendar year, helping you to reach your business goals.
If you want to learn more about how to do a vendor analysis, and how Blacks Analytics can help, contact us at firstname.lastname@example.org.
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