Trading models

Most categories in retail follow a standard trading model with recognised, embedded processes, governance and disciplines in place between retailer and supplier. For more complex and nuanced categories, alternative trading models exist which either better suit the inherent characteristics of the supply chain, or because they deliver a better commercial, or operational outcome for the retailer.

Each trading model brings unique advantages, offering flexibility in ownership, risk management, and accountability for shrink. Equally, they can introduce a myriad of challenges, not least for the retailer-supplier relationship, and especially when it comes to managing stock, shrink, and profitability.

At rascal systems, our suite of technology solutions and data services are designed to streamline these interactions, providing retailers and suppliers with the ability to minimise friction and optimise sales performance. Our objective is to provide the necessary confidence to both retailers and suppliers to explore and adopt alternative trading models to support strategic goals. Explore the range of trading models we work across and discover opportunities to unlock greater efficiencies.

Sale or return (SOR)

  • Products are delivered to the store and the supplier invoices on delivery passing ownership to the retailer. Unsold items are sent back to the supplier for a refund/credit.
  • Discrepancies on charges and credits are claimed from the supplier by the retailer.
  • The shrink (both data and process) sits with the retailer.
  • Retailer-Supplier friction exists due to conflicting data sets and disagreements over level of credit and validity of claims.

Pay-on-scan

  • Products are delivered to the store but not invoiced, remaining under the ownership of the supplier. The supplier only charges for products that are actually sold at the till.
  • The shrink sits with the supplier.
  • This data-led trading model is heavily dependent on accuracy of foundational data sets such as product/price files and EPoS.
  • Risk to retailer of distribution and availability issues with suppliers mindful of exposure to shrink.
  • Risk to supplier if product/price file is inaccurate or reported EPoS is incomplete because the invoices are created to reflect what has gone through the till.

EPoS-based-returns (EBR)

  • This is a variation on the SOR model that sees the concept of shrink permanently removed in a way that is cost neutral for both retailer and supplier.
  • Prior to adoption of the trading model existing retailer shrink levels are measured and there is an agreement that retail margin % is cut by the measured shrink % (at cost).
  • Products are delivered to the store and the supplier invoices on delivery passing ownership to the retailer. When unsold products are returned not only is the retailer credited for products physically received, but any ‘shrink’ is also credited back in full. Shrink no longer exists.
  • With the threat of shrink permanently removed, there is no longer a requirement to track product in at line level, saving significant hours in the retailer labour model.
  • Risk to the retailer of ceding margin unnecessarily if they don’t have good data and process disciplines in place before EBR transition (meaning a healthy shrink position).
  • Risk to supplier if product/price file is inaccurate or reported EPoS is incomplete because this will translate to ‘shrink’ which under the terms of EBR must be credited in full.

Good faith receiving (GFR)

  • Retailers receive products from suppliers based on trust for the majority of what is delivered.
  • Quality and quantity checks are not carried out on all products received. Only an agreed percentage of deliveries is checked on delivery (e.g. 5% at depot and 10% at store level across a specified number of stores).
  • The audit checks are carried out by an independent 3rd party.
  • Any identified discrepancy level is factored up across the whole estate and deducted from the overall total invoice value.
  • Risks around data accuracy as well as reliability and accuracy of audit. The cost of audit needs to be factored into adoption of the trading model.

Concessions

  • The retailer effectively hands over total control of the store space to the supplier and / or 3rd party, who handle deliveries, positioning on displays, restocking, and returns.
  • The supplier / 3rd party simply charges the retailer for a percentage of the sales that have gone through the tills.
  • Risk to supplier if product/price file is inaccurate or reported EPoS is incomplete because this will translate to ‘shrink’ which under the terms of EBR must be credited in full.
  • Risk to supplier if merchandisers are used and there is limited visibility over their compliance levels, which can result in loss of sales and high shrink, which sits with the supplier / 3rd party.

Merchandising

  • Each of the aforementioned trading strategies may be effectively implemented alongside a merchandising or category management company to oversee in-store processes.
  • Risk to supplier if merchandisers are used and there is limited visibility over their compliance levels, which can result in loss of sales and high shrink, which sits with the supplier / 3rd party.