Supplier-Retailer Collaboration

Erika Pacini
AACS Research
January 2012

The need for collaboration

Supply chain collaboration can deliver some powerful advantages to participating organisations with efforts and investments leading to enhanced profit performance and competitive advantages over time. In recent years enlightened corporations have begun communicating closely with their supply base drawing on untapped supplier capabilities. Adopting a structured collaborative approach presents a huge untapped potential for incremental profitability, both for retailers and their key suppliers.

“If you’re not collaborating, you won’t be around in 20 years. You’ll be gone” – CPG Company

Revenue/margin enhancement: working jointly to harness complementary skills and apply the knowledge needed to grow a category can be a win-win proposition. This effort can be as simple as linking the supplier’s consumer insight to the retailer’s promotional capabilities.

Process improvement: A wide range of supplier-related processes can be improved by more collaborative retailer–supplier relationships, including promotion planning and execution, demand forecasting, and stock replenishment. One of the best sources of information for improving these processes is the retailer’s point-of-sale (POS) data.

Cost reduction: Supply chain improvements such as more efficient distribution, streamlined inventory, increased product availability, and improved merchandising operations are all within reach of collaborative retailer–supplier relationships as well.

Risk management: In a 2010 survey, CGN found that the top three risks companies battled included cost [100 percent of respondents], general availability of product from their supply base usually caused by increased demand volatility [more than 85 percent] and a lack of supplier alignment with their goals [more than 55 percent].
All three risks call for an increase in collaboration between corporations and their supply base. Additionally, dependence on strategic suppliers is a risky but a necessary undertaking. Developing a close, collaborative relationship converts this dependency into interdependency, with shared goals and shared rewards. Collaboration also helps mitigate the risk of losing out to competition when suppliers develop innovative products or services. You always want to be the “customer of choice” (i.e., those who use a collaborative, teaming approach with their key suppliers), whom they bring their best ideas to first.

Shifting to a Collaborative Approach

“You can have the best product in the world, but you need the best process to get it into stores and sold” – Distributor

Many companies have found that shifting to a collaborative approach with key suppliers is much easier said than done. Decades of exercising a win-lose approach resulting in some successes have lulled companies into a false sense of security that their current way of dealing with suppliers is good enough.

Retailers conduct extensive sourcing studies to assure they have selected the proper suppliers, or at least those with the lowest prices. They also spend significant time and resources segmenting their supply base to understand which suppliers are critical to their success [strategic] and which are easily replaceable [transactional]. They even implement Supplier Performance Management programs to assure suppliers have goals to improve quality, cost and delivery.

But that’s when they stop, before reaping the benefits of collaboration. While these steps are fundamental to developing a sound supplier management program, they are not nearly enough to provide the sustained competitive advantage of a disciplined supplier collaboration process.

Taking a more collaborative approach with suppliers does not need to be such a daunting task. But it does require discipline, a process focus and some foundational work to prepare the ground.

Retailers can dramatically accelerate their shift to a more collaborative approach with their key suppliers by implementing a supplier collaboration and innovation model.

CGN’s Supplier Collaboration and Innovation Model is based around “4 C’s”:

The communication strategy is based upon the development of a corporate strategy, a communication plan to all impacted internal and external stakeholders, a cultural and change management program to assure alignment, and tactical initiatives (such as supplier summits) to launch the strategy.

Managed competition is all about strategic sourcing by category, supplier consolidation to reduce the numbers of suppliers and consolidate spend with preferred sources, and segmentation of the supply base into hierarchal roles such as Strategic, Preferred and Transactional.

Continuous improvement in the supply base is undertaken through processes such as Supplier Performance Management, where metrics and goals are mutually agreed upon using a balanced scorecard approach and monitored for progress routinely. Often, certification programs require suppliers to achieve certain quality performance levels both in their products [such as PPM] and processes [such as ISO certification].

Value-based compensation assures suppliers are properly rewarded for achieving goals mutually beneficial to the retailer and supplier. It assures supplier’s efforts are aligned with the retailer’s goals so that the entire supply chain is pulling in the same direction.

What makes a good collaborative partnership

“We experience consistent, profitable growth with customers where collaborating. For example, we grew $85M out of one collaboration session with a major retailer”. – CPG Company

The following factors play a key role in establishing and maintaining a successful collaboration between a supplier and retailer:

Interdependence: Interdependence refers to when one party does not entirely control supply chain operation, high interdependence motivates willingness to negotiate functional transfer, share key information and participate joint operational planning.

Trust: Trust also plays a key role in any organizational relationship, it is seen as an essential element to buyer-supplier relationships.

Long-term orientation: or commitment refers to a party’s willingness to exert effort in developing a long-term relationship. It is frequently demonstrated by committing resources such as time, money, facilities etc. Studies have shown that successful partnerships results well when both retailers and suppliers demonstrate a willingness to commit a variety of assets to a set of future transactions.

Communication and information sharing: is recognised as a key requirement for collaborative inter-organisational relationships, several studies show that successful retailer-supplier relationships are associated with high levels of information sharing. Increased levels of communication have been found to be associated with commitment & long-term orientation.

Inventory systems: which decide how much product is needed and where, represent one of the toughest supply chain challenges.

Information technology capabilities: appear to be another crucial factor for collaborative relationships. Previous studies suggest the significant, positive role of IT in collaboration. These studies also show that the use of IT can help to develop a closer partnership between retailers and suppliers and help to achieve accuracy and timeliness.

Supplier Retailer Collaboration Model

Case Study: Russell’s Convenience and IBM

IBM announced that Russell’s Convenience is transforming its business with cloud collaboration technology from IBM.  As a result of adopting cloud computing, the company plans to better integrate and share data across its 24 convenience stores across the western US and Hawaii management teams and improve collaboration between employees, customers and partners.  

Prior to working with IBM, Russell’s management team was struggling with project management and keeping track of day-to-day business issues.  As a result, many tasks fell through the cracks. Russell’s Convenience chose IBM’s LotusLive cloud to transform how its employees collaborate with each other, their licensees, vendors and partners and respond more quickly to customer demands.

With the help of IBM Business Partner Alacrinet Consulting Services, Russell’s licensee stores can now access and share information regardless of their location. They have instant access to cloud-based social networking and collaboration tools, including file storing and sharing, email, instant messaging and activity management. Instead of searching through emails or making multiple phone calls, employees can now collaborate on the fly.

They can meet online to resolve issues, share sales goals, network with co-workers, and track projects to completion. “IBM is helping our licensee’s to operate as one business — one that is connected, informed, and cohesive,” said Raymond Huff, President, HJB Convenience Corporation, Russell’s Convenience. “We hold weekly executive staff meetings in Denver, and our licensees are now able to attend the meeting via LotusLive, versus getting a written synopsis of the high points of the staff meetings. This helps disseminate information faster and more effectively, resulting in more profits to our licensees.”

Case Study: 7-Eleven and Swire

In 2006 Swire Cold Storage embarked on a new supply chain partnership in Australia, with one of the world’s best-known convenience store chains, 7-Eleven.
Swire Cold Storage has been appointed to manage the warehousing and distribution requirements for a variety of chilled and temperature controlled products for all 361 7-Eleven stores across the eastern seaboard (VIC, NSW and QLD).
The partnership is the first in a series of collaborations for 7-Eleven, heralding a new style of partnership to the convenience store sector in Australia, designed to create a more customer focused supply chain.

7-Eleven has decided that in convenience it needed to create long-term strategic initiatives with key suppliers as its customers’ needs are quite different. These sorts of partnerships provide a true state of innovation because they are based on trust, knowledge and strategy sharing and significant buy-in from both sides.
A key aspect of the 7-Eleven strategy was the intense reworking of the back-end of supplier agreements to coordinate supply of an extensively upgraded range of fresh food items aimed at the healthy snacking and quick meal needs of 7-Eleven customers.

The initial roll out of the 7-Eleven supply chain strategy has been successfully completed, with further product lines set to come on board in the next few months. Swire Cold Storage’s dedicated staff, in support of 7-Eleven, has played an integral part throughout the establishment process.

The 7- Eleven contract is a new project for Swire Cold Storage, and it provides an opportunity to further diversify SCS’s business and explore new avenues of growth in the face of upcoming retail supply chain changes. SCS is to work with 7-Eleven to help drive additional efficiencies within their supply chain, and in doing so develop a model that will revolutionise the supply chain of the retail convenience sector in Australia.

References:

Swire online 2006, Swire cold storage enters into partnership with 7-Eleven, Ferret.com.au, http://www.ferret.com.au/c/Swire-Cold-Storage/Swire-Cold-Storage-enters-into-partnership-with-7-Eleven-n666223

Harper et al 2009, The Collaboration Game Building Value in the Retail Supply Chain, Booz&Co, http://www.booz.com/media/file/Collaboration_Game.pdf

Kazmi, S 2011, Convenience Store Chain Chooses IBM to Collaborate in the Cloud, Super Computing Online, http://www.supercomputingonline.com/news/this-years-stories/1031-convenience-store-chain-chooses-ibm-to-collaborate-in-the-cloud

Tarabori J 2011, Supplier Collaboration; The game changer in supply ecosystem, CGN & Associates, http://www.suppliercollaboration.org/whitepapers/White_Paper1.pdf

Sheu C et al 2006, Determinants of Supplier-Retailer Collaboration: Evidence from an international study, International Journal of Operations & production Management, Emerald Database, http://www.emeraldinsight.com/0144-3577.htm