Decideware

The Twin Pillars

Our experience and anecdotal evidence from our clients, major retailers and key suppliers, confirms that the evolution in retailer/supplier relationships from being just a “Vendor” to “Supplier”, to that of a “Key Supplier”, then to a “Strategic Partner” is beginning to take hold as more retailers and their suppliers embrace the twin pillars of Efficient Consumer Response (ECR) and Supplier Performance Management (SPM).

Is your journey really necessary?

The journey to a “Strategic Partner” is a Win: Win for both retailers and suppliers, with improved performance and a more profitable relationship, through a focus on working together to fulfill consumer needs better, faster at less cost. But the question is, to paraphrase a WW2 Government slogan in times of petrol rationing: “Is your journey really necessary?”

The journey to “Strategic Partner” is a different path for retail suppliers and their customers than that trodden by manufacturers without retail channels, for two main reasons:

The “Consumer Handcuffs” effect

Where markets are driven by consumer demand and both parties need each other: Strong brand franchise and loyalty by consumers means that retailers are virtually forced to stock the top-ranked brands in a category, or risk loss of sales. Suppliers suffer from the same problem in reverse: where their consumers are the retailer’s customers, they have an expectation of availability. The situation is even more critical in some retail channels, like grocery, where there are only a few major players and supplier and consumer choice is restricted.

Formal Reviews

Formal, critical “Strategic” reviews of performance and the relationship (SPM) are less common. Some major retailers have used formal supplier reviews as the basis for their “Supplier of the Year” programs and awards. However, to our knowledge, only a few retailers undertake formal annual, or quarterly, performance reviews that look at the entire business relationship with specific KPIs. More often retailers have regular category reviews at a detailed, tactical level. But many tell us they are concerned that their annual review process is unstructured with no common format, are too time consuming and sometimes “hijacked” by suppliers with a focus on their own business (and new products and advertising campaigns), rather than being from the individual retailer perspective.

Discussions with Brian Walker, Director of The Retail Doctor, confirm that in his experience the supplier review can often take the form of:

• An annual/bi-annual meeting;
• Some complimentary remarks about the retailers newest store, or upgrade;
• General discussions about category or product performance;
• A few ad hoc comments on supply/business performance;
• Negotiations on next period’s promotional contribution;
• A presentation on the supplier’s new products, consumer advertising, promotions and next period’s in-store support activities;
• A promise, to “do lunch” soon;
• Same again next time.

So, back to the question: Is the journey really necessary?

For retailers, the answer is absolutely “Yes” - to enable them to build competitive advantage, reduce supply chain costs and maximise profits.

For suppliers, the Pareto principle will be a deciding factor: the 20% that account for 80% of a retailer’s business will need to make the journey in order to join the club, whilst those in the next level will need to show they can improve in order to force their way into the top 20%.

Author: Ron Latham, Latham Consulting, a Decideware partner, specializing in the Retail and Franchise sectors.