I believe that the key to successful, long term relationships across the retail supply chain comes from the sharing of key information between all of the actors in the supply chain – often referred to as supplier collaboration.
Retailer and Supplier Collaboration – working together towards a common goal
Collaboration adds value when retailer and supplier are working together towards a common goal – it doesn’t work if there is a power struggle and one or other party uses a balance of power in negotiations.
Which business processes are most enhanced by retailer and supplier collaboration?
From experience I’ve found that the processes most enhanced by supply chain collaboration include:
- Product development (part of the range development processes)
- Product selection (retailer and supplier agree the most suitable products to include on the range based on market needs, positioning and commercials.)
- This is especially true in a category management structure when the category partner has a whole market view and can advise on product selection from a position of understanding of the whole market as opposed to just the retailer in question specific slice of the market
- Aspects of range planning / merchandise planning
- Aspects of assortment planning (e.g. leveraging the whole market knowledge of the supplier to get guidance regarding sku store distribution and anticipated rates of sale)
- Aspects of stock planning, supply chain flow planning, intake planning and capacity planning…
Additionally collaboration can often incorporate elements of supplier relationship management and supplier performance management, as many collaboration tools allow the retailer to share performance against key KPIs with the supplier and discuss that performance quite openly, with the objective of resolving issues and in the interest of continuous improvement.
Getting even closer! CPFR (Collaborate planning, forecasting & replenishment) and VMI (vendor managed inventory)
In some cases the retailer and supplier relationship is so mature and based on considerable trust. When this level of engagement is achieved a complete openness around business data can lead to processes such as CPFR and VMI. Typically in both of these processes the retailer shares sku store day level customer demand data / EPOS data with the supplier (for the products that they supply). The supplier is the one who then calculates the demand forecast and the associated DC replenishment quantities on the retailers’ behalf. One step further, the supplier takes responsibility for static stock and will even uplift slow moving lines from the retailer if appropriate!
CPFR – collaborative planning forecasting and replenishment is not too dissimilar to VMI – vendor managed inventory. This level of data sharing is quite rare. It requires a considerable amount of trust between the parties in the relationship.
Why collaborate? What is the benefit to the end to end supply chain?
Sharing sales data is becoming more common place between suppliers and retailers. The real benefits come about when the retailer is providing the supplier with information relating to their products performance in terms of sales / stock / future demand / promotional effectiveness etc. Some information, even if a little inaccurate, is better than none at all for the supplier when it comes to their own supply chain planning. When the retailer shares plans with their supplier, the supplier is better able to supply. As a result the supplier is more likely to give the retailer consistency and security of supply. All parties are well informed and the supply chain is able to flow efficiently. It is usually only the knee-jerk reactions or un-communicated events that cause a costly impact throughout the supply chain system!
Although becoming more common place, for many retailers supplier collaboration is still something of a new concept. Many are cautious about sharing sensitive sales data, and rightly so, with fierce competition a bit of healthy paranoia about confidential data getting into the public domain makes a lot of sense! However, more and more retailers are realising the benefits of working in closer partnership with their suppliers. The days of adversarial relationships and retailers being known as the ‘bullies’ at the top of the supply chain are long gone…
Shift in mindset – from adversarial to collaborative relationships
It is still true that many retailers have the balance of power over the supplier base, but it is also true that buyers and procurement professionals have ‘grown up’ and now believe that quality and reliability in the supply base is a more valuable asset than the current lowest price. This shift in mindset has lead to the realisation that building long term relationships with suppliers, large and small, pays off when excellent products are developed that almost intuitively meet the buyer’s brief. Supply chains are flexible, demand patterns are understood and deliveries are, more often than not, complete and on time.
So whilst it is fair to say collaboration is primarily about relationships the information flow to support a collaborative relationship is critical to achieving its goals.
Great article Clare. Retailer-supplier collaboration is also essential when it comes to setting up promotions, discounts, or markdowns. It’s important to design your collaboration plans, processes, and practices in areas like promotion execution, inventory optimization, product information management, and new product introductions. We recently wrote an article on this issue, that might help retailers: http://thoughts.manthansystems.com/collaboration_is_the_key.php
Completely agree Claire, particularly in respect to continuity of supply being much more important than buying price. What use is a very cheap product when you have empty shelves? Retailers will often believe they protect for loss of sales with liquidated damages but this rarely covers the ‘true cost’ of a break in continuity. Agree also that VMI is a positive step for both parties, particularly if joint accountability can be achieved. Experience has shown both good and bad examples where single ownership drives poor behaviour on both sides. Retailer ownership of stock in major retailers has driven unscrupulous suppliers to sell ‘dogs’ in as the prize is the initial order fill, supplier ownership has led retailers to demand unjustifiable stock fills that sales volume do not justify. Long term collaborative agreements are the way forward.
Returning to continuity of supply, my company has seen an increased demand for our services which help retailers manage the risk in their supply chain and we now provide an outsourced supply chain risk management service designed to assist retailers who recognise they have a risk but do not necessarily have the capacity or capability to manage in-house. This increase in enquiries is, I believe, a positive realisation of the importance of continuity of supply.
Warren Dow, MD, Partners In Supply Limited
Thanks as ever for your comments, and, you know where I am if you need any extra help with those retailers