What You Should Know About Supply Considerations and Contract Negotiations

As a nationwide convenience store chain you may be contemplating about having your own distribution network to cut costs but are you prepared for the huge capital outlay required for this exercise. It is advisable to form a profitable partnership with a nationwide distributor who has a strong supply chain of essential products to add value to your business. It is difficult for manufacturers to remain profitable by selling in small quantities to end customers like households, government and businesses. In these circumstances they need to collaborate with distributors or resellers who can take the responsibility of supplying their products in bulk to different markets.

For both distributors and retailers making the right choice of products is critical for success that can ensure that products are sold out and customers are happy with the products purchased. Wal-Mart which also owns Sam’s club now has its own distribution network but it had to face several hurdles to set this up and it too several years for the group to have a viable distribution chain for food items. Inspired by their success, other nationwide chains like Kwik Trip and Sheetz are now setting up distribution centers closest to their largest chain stores to maintain uninterrupted supply of perishable and nonperishable goods.

To give best deals for your clients in terms of products and prices, c store owners have to set up an efficient distribution network so product arrives in good condition and can be delivered to customer’s satisfaction. Retailers have to keep a wide selection of daily use convenience items like potato chips, soft drinks, vegetables, cooking oil, processed meat and fish, eggs, cigarettes as buyers compare both prices and brands before buying a product. If you tend to store only expensive branded items instead of providing customers a choice of bargain brands and expensive brands then the footfalls will be lesser.

Supply considerations for profitable retail – If you are a wholesale distributor supplying to several stores across multiple locations within a state there are several issues to be considered. Besides price and product availability you also have to work out pickup and delivery schedules with both manufacturer and convenience stores. Whether you are a single convenience store cum gas agency or a large c store chain your profitability is built around inventory management which can ensure maximum returns on investment and steady flow of customers.

Depending on your customers’ demand you have to find one or multiple distributors who can meet your requirements and understand your special needs though they may not be the largest distributors in the area. If you are restaurant chain then it makes sense to buy directly from a manufacturer to have fresh produce which can be picked up from the farm or attached factory itself or ask them to set up a supply chain which can deliver fresh produce to them and other customers in the area. This can help eliminate the middleman and bring better profits to both retailer and manufacturer.

Distribution channels for delivering products from manufacturer to retailer

Direct marketing by manufacturer – To eliminate middlemen, manufacturers sometimes take it upon themselves to distribute their products in local markets on their own through direct mail marketing, advertising via social networks and internet and media marketing. They directly interact with c store chains, grocers and other retailers to supply required quantity of products at specific prices and have long term contracts with them. This supply channel keeps costs low as only the manufacturer’s markup and retailers’ markup is added to cost price.

Middlemen Distributor and Dealer – In this channel buyer’s price will be 4 – 5 times more than manufacturer’s cost of production. The distributor and dealer here are taking on the responsibility of storage, distribution and supply in required quantities by c store chains and grocers. These require negotiations between distributors, dealers, manufacturers and retailers to keep the price at a competitive level for end customer to purchase it.

Big box store or warehouse retailers – This supply chain includes only one middleman which is the Big Box Store or Dealer who sells goods in bulk to end customers. The price level in this format is lower than middleman channel as only two markups will be added to manufacture’s price. Sometimes franchise operations also act as single middle person to sell products to buyers.

Handling Contract Negotiations

One of the most critical criteria for finalizing a vendor is ability to negotiate a profitable contract which can be sustained for a long time. While handling the negotiations you need to understand your priorities and direct costs that are likely to occur during the procurement, distribution and delivery process. These following issues need to be discussed and considered during the negotiation process to have a problem free convenience store operation which will bring in profits.

a. Clearly define all essential terms of payment and delivery schedules and conditions for replacement when required.
b. Setting up conditions for delivery quality of all goods
c. Compensation clauses with reference to financing terms, total payment costs, refunds or replacements for delivery of damaged goods.
d. Data maintenance of delivery dates, contract renewal and termination dates
e. Identification of potential risks and methods of rectification in case such accidents occur
f. Identification of expectations from both sides and drawing up responsibilities to ensure that there are no misconceptions between them.

A quick look at the large convenience store chains existing around us generally make us think that running this business is easy and profitable as it only involves identification of customer needs and money to stock these products. But only a store owner can tell you how they have to successfully manage distribution channels and negotiate prices with suppliers and dealers to provide competitive prices to their customers. To be profitable a retailer has to add value to the service he is providing to customers, as otherwise he will be relegated to a cog in the distribution wheel which delivers goods from manufacturers to buyers. This can be done by using technology and other value services to make the consumer’s buying experience a pleasant one.