In the past, the flow of information between retailers and manufacturers often stopped at the retail door.
When consumers requested specific products, retailers didn't always pass along the information to suppliers, in part because the adversarial relationship that had developed between major retailers and CPG manufacturers wasn't conducive to it. Controlling the flow of information–as well as the shelf space–allowed retailers to maintain the upper hand, while manufacturers had to glean consumer insights on their own.
But the advent of technology and a prolonged slow-growing economy are encouraging a new mindset. Increasingly, retailers and manufacturers are collaborating throughout the supply chain, though most experts say plenty of work still lies ahead.
"There's a huge need for [collaboration]," says Steven Gold, managing director at Alvarez & Marsal, a global professional services firm with offices in Chicago. While CPG manufacturers might meet with retailers to discuss ways to innovate together for improved efficiencies or to meet consumers' needs, most companies are too busy managing day-to-day operations to act on the ideas, says Gold, who is also a former chief supply chain officer at PepsiCo. "The idea of strong collaboration with retailers is something nice to talk about, but very few do it well."
Even when some participants say they're willing, collaboration often requires a dose of change management. "Global CPG and retail companies find it difficult to deploy the new processes and systems across the chain because of chain management and training factors," says Nilesh Auti, general manager of the CPG and manufacturing industry group at MindTree, an IT and product engineering services company with offices in Warren, N.J., and Bangalore, India. "While new IT solutions are promising to add value, adaptation and deployment at a fast pace is a challenge," Auti says.
But taking time out to implement a collaborative logistics program might be the most effective use of a company's resources. In fact, companies that encourage participants throughout the supply chain to work toward the same goals managed to grow during the recession, according to a 2010 report by Kurt Salmon for the Trading Partner Alliance, a joint industry leadership group formed in January 2009 by the Grocery Manufacturers Association and the Food Marketing Institute.
The hunt for new efficiencies
The fragmented grocery retail industry has triggered the need for more creative approaches. While companies have added enterprise resource planning software and other technology to share information, they also need to make a dedicated effort to look for new efficiencies. The Trading Partner Alliance's 2010 Survey of Collaborative Supply Chain Effectiveness Report identified the following focus points:
- infrastructure, such as computer-assisted ordering and ways to strengthen trading partnerships;
- insight into consumers' buying patterns;
- innovation, including localization of products, inventory optimization and the acquiring of premium private labels;
- "info-lationships" between suppliers and retailers, which are based on trust and transparency.
"IT has clearly started playing a role of building competitive advantage for the CPG-retail [industry] from the earlier stand of mere support function. Consumer analyses, social media, seamless process execution are getting executed with the help of a strong IT backbone," Auti says.
IT projects can help companies deploy channel loyalty, distributor management systems and trade promotions across the chain, he says. For example, the growth of mobile software has spurred paperless payment, remote ordering and other process improvements. But perhaps even more important, Auti says, "Clearly, the IT initiatives like digital marketing, CRM and mobility are creating collaboration and building competitive advantage across the chain."
The emergence of social media combined with the effectiveness of shopper marketing programs is helping to persuade food industry executives of the merits of working together. Couple that with economic pressures, and many companies are listening up.
"No matter what it says on our business cards, we all want the same things–low inventory, high service and low cost," says Scott DeGroot, director of customer supply chain strategy and development for Kimberly-Clark Corp. in Dallas. "By working together, though, we can make sure there are enough products on the shelf to take advantage of promotions, coupons and seasonal needs, like more Kleenex during flu season."
And the opportunities are no longer just seasonal or national. "During [Hurricane Irene], for example, we watched the weather daily to determine which stores needed restocking," DeGroot says.
Similarly, inventory management is increasingly moving to the local level. So-called "localization," where stores are stocked with products according to a local customer base, was important to 80 percent of respondents to the Trading Partner Alliance's report. Local merchandise isn't limited to produce but also includes brands made for certain demographic groups.
"We've seen 20-store grocery chains that know their buyer demographics and 100-store chains that don't," says Bonnie Lawrence, director of industry marketing at Alpharetta, Ga.-based RedPrairie, which makes software that helps retailers and CPG companies with warehouse management, transportation and inventory. "The sophisticated retailer delivers kimchi to the stores with Korean customers and tortillas to the ones with Hispanic customers. Then, if there's a product recall, he not only pulls the product from the shelf but knows how many are on the truck, in grocery carts and in the salad at the salad bar."
|Obstacles to collaboration|
|% of Suppliers/Retailers Who Listed These as a Top 3 Complaint|
|Lack of ability to collaborate (systemic or organizational)|
|Lack of willingness to collaborate|
|Lack of trust|
|Lack of win/win opportunities|
|Source: Trading Partner Alliance's 2010 Survey of Collaborative Supply Chain Effectiveness Report|
A matter of trust
At the core of collaboration are trust and transparency, two attributes that shouldn't be taken for granted, experts say. Retailers cite "lack of trust" as a hurdle, while suppliers say retailers are "unwilling to cooperate." Many suppliers say they have added "order replenishment associates" or "resolvers of customer issues" to their staff lists as they devote more personnel to the supplier-retailer relationship.
While retailers and manufacturers might say they are willing to work together, simple miscommunications can get in the way of progress, suggests Gold of Alvarez & Marsal. Both manufacturers and retailers would gain from on-time deliveries, for example, but a retailer might measure "on-time" with a two-hour window, while a supplier could be more lenient, he says. "You have retailers measuring out of stocks and on-time deliveries differently than the way CPG companies measure them. That becomes a fight and an argument," Gold says.
With trucking rates expected to rise due to consolidation in the industry, retailers and suppliers could cut costs and do their part for the environment by collaborating to reduce the number of empty trucks on the road. For example, after a truck delivered a product to a distribution center or retailer, it could be sent to pick up another nearby load instead of returning home empty. But even with technology, that requires a high level of communication.
"When you dig in underneath and start looking at metrics and who's accountable for making it work or not making it work, it gets complex quickly. There's no Rosetta Stone that's a common language for this industry, and it's needed," Gold says.
More incentives for cooperation
Yet as sustainability and social responsibility initiatives become more important to both manufacturers and retailers, they provide another reason to work together. "The supply chain is an opportunity to become more eco-friendly," says Jeff Doucette, principal of the Sales Is Not Simple consulting firm in Calgary, Alberta, Canada. "More efficient trucks, green buildings, gas and electrical savings–these are all changes today's suppliers and retailers have to make," he says. "The bigger suppliers have teams that find ways to be greener, like packaging 100 light bulbs in a box instead of 50 so more boxes fit into a truck and it uses less gas to deliver them."
Plex Systems Inc.
Similarly, food safety concerns provide another reason for suppliers and retailers to practice transparency, says Tom Nessen, solutions engineer for Auburn Hills, Mich.-based Plex Systems Inc. Suppliers and retailers must use the right software to track everything from food safety to employee certification and be able to convey that information to their partners.
Regardless of whether the communication involves coordinating trucking, tracking down contaminated product or stocking store shelves, the supplier-retailer relationship will become less adversarial over time, says Panos Kouvelis, professor of operations and management at Washington University in St. Louis. "The big players understand this," he says. "They share data and allow it to be consumer-driven."
Kouvelis cites the success of 7-Eleven stores in Japan as an example. "There, the 7-Eleven is where you go for fresh food, but you have to offer the food the consumer wants," he says. For example, when consumers asked for fresh bread, the retailer added it.
"The consumers will tell the retailers what they want, but they have to listen and give that information to the supplier. And they have to know when they want it. The businessman wants fresh milk on his way home from work, but the college student wants freshly prepared food at 2 a.m.," Kouvelis says.
Ideally, information flows both ways, says Mark Barratt, assistant professor at Arizona State University. "Sometimes the big supplier knows what the little retailer doesn't know, like this product will sell in the South but not in the Northeast," he says.
Arizona State University
Food companies that are reluctant to get started should consider the alternative. "When the retailer and the supplier don't work together, especially when there's a special promotion, the retailer winds up with too much of a product or he runs out," Barratt says. Or the retailer ends up with a product with a dated label, like Easter candy after Easter. "It sounds childish, but sometimes the supplier needs to tell the retailer what to do, and the retailer needs to listen," he says.