Direct sourcing hits working capital at UK retailer
ProcurementLeaders.com - Nov 10th 2011, 09:36
A concerted effort by British retailer Sainsbury's to increase the volume of direct global sourcing has contributed to a £104m increase in working capital during the first half of 2011, according to its interim report published today.
The retailer, which has increased direct sourcing from its three sourcing offices in Hong Kong, Dhaka and Shanghai by 23% during the period, has also doubled the volume of direct general merchandise sourcing following the opening of the Dhaka office.
However, the higher inventories, which have risen by £164m since March, required by direct sourcing impacted working capital. "Grocery inventory increased through inflation in cost prices and the need to hold more inventory for promotional purposes," the retailer's interim report stated. "Non-food inventory was higher due to challenging market conditions and an increase in goods in transit driven by direct sourcing."
Meanwhile, procurement helped to offset the impact of cost inflation by, together with improved productivity and the simplification of in-store processes, providing £50m worth of operational cost efficiencies. "…we are on track to achieve around £100 million cost savings over the year," the company stated.
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