A STRATEGIC IMPERATIVE FOR RETAILERS

Increase Direct SourcingHow to Decrease Costs and Improve Visibility by Eliminating Middlemen and Connecting Directly to Suppliers

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.

Manufacturing Retailer

Data/Documents

Goods

Middleman

Fees build up and cut into the profit margin when too many

middlemen are involved in sourcing.

Impact of Poor Direct Sourcing Strategy

When 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 visibility and automate several functions,

retailers can suffer from:

• Increased time and costs dealing with inquiries

• Increased duty costs

• Reduced profitability

The Root of the Problem

Long, global supply chains require a large number of

suppliers. Traditionally, retailers use middlemen like

agents to manage the connections with suppliers and

financial institutions, but often excess fees and costs

eat away at profit 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 difficult to cut out the

middleman

Trying to eliminate middlemen without cloud is

difficult. 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

confirmation 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 financing

In the retail supply chain, there is often uncertainty

around supplier financing. Suppliers have little to no

access to the low financing rates their larger buyers

enjoy. These suppliers often rely on the financing

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 financing costs embedded in COGS

The Challenge

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

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.

A cloud-based supply chain platform can bring suppliers,

financial 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 financing rates through the financial institutions

in the network.

Manufacturing Retailer

Data/Documents

Goods

Communicate directly with every supplier and financial institution on

a single network, eliminating the need for extra costs or manpower to

replace agents.

Provide a standard sourcing platform with embedded

financial services.

• Connect to all sourcing partners on a single, cloud-

based platform

• Manage purchase orders, shipments, invoices, and

payments online

• Tap into a pre-existing network of factories, financial

institutions, and global support

• Gain real-time visibility to factory floor 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 financing programs to suppliers

Value Propositions

By adopting a cloud-based platform that connects all

of their suppliers and financial 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

process (reduce SG&A)

• Employ a paperless solution with automation and

integration tools

• Use exception management tools to focus on

the real issues

3. Maintain or reduce supplier cost of capital

• Offer on-demand financial 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

amendment processing

Direct Sourcing and the Networked Company

To increase direct sourcing, companies must transform

themselves from silo-based, inward-facing corporate

operators to interconnected, highly agile business

network orchestrators.

NetworkConnectivity

Agility

B

A

Sense more accurately

Operate more e�ciently

Respond faster

Make better decisions

The Solution

GT Nexus provides the cloud-based collaboration platform that leaders in nearly

every sector rely on to automate hundreds of supply chain processes on a global

scale, across entire trade communities.

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