Retailers and manufacturers share the same goal: increase sales and improve margins. They also share the consumer–someone who expects an integrated, omnichannel experience, in which their likes and dislikes are "understood" on an individual level.
In today's complex retail environment, the requirements for delivering this consumer experience, as well as understanding the viability of consumer goods, are jointly owned and influenced by retailers and manufacturers. That's why collaboration–between retailers and their manufacturing counterparts–is paramount.
Historically, collaboration between retailers and manufacturers has long been a point of contention. According to Mark Osborn, global lead of consumer products industry marketing for SAP, in many ways, the retailer's objectives and the manufacturer's objectives are at odds, which could be a primary source of the tension and lack of collaboration.
"We see many constructive examples of cooperation, but until they can agree on a common, shared set of metrics and KPIs [key performance indicators], true collaboration may remain elusive," Osborn says.
"We see many constructive examples of cooperation, but until they can agree on a common, shared set of metrics and KPIs, true collaboration may remain elusive."
For example, a retailer may ask a CPG company to run a promotion on a specific product during a holiday period. The retailer's objective is to draw shoppers to the store by enticing them with attractive prices and offers. Driving sales volume for the item on promotion is a goal, but they also want to encourage consumers to buy other products during that same store visit.
"Retailers care most about store traffic, shopper basket size, and sales velocity," Osborn says. "So, while the revenue, volume and profitability for that individual promotion is extremely important to the CP company, it's far less of a concern for the retailer. What's most important is getting the CP company to offer the item on promotion at the best possible price."
But retailers are often concerned that data shared with manufacturers can find its way to their competition. "This is a reasonable concern, and determining what data to share and how to share it requires thought," says Rich Hutchinson, senior partner and managing director for marketing and sales practice at The Boston Consulting Group. "They are also very reticent to give away end customer data–as end customer relationships are a retailer's core asset."
In order for retailers and CPG companies to enable true collaboration, Osborn says, they need to agree on a set of shared objectives. These may vary depending on the nature of the relationship between the CPG company and retailer. They may include, for example, measures of overall category growth, creating sustainable increases in baseline volume, and achieving target margin objectives over time.
"With a set of shared objectives driving mutual benefit, both sides can begin to think collaboratively about creating opportunities for consumers that go beyond price and promotion," Osborn says.
For Steve Dollase, president of supply chain networks at Inmar, collaboration is simply not optional. "Otherwise, retailers and manufacturers actually risk undermining both of their efforts to meet evolving shopper expectations for responsive service–and doing it all with speed," Dollase says. "Most successful retailers understand this, and are becoming proficient at collaborating with their manufacturer partners. This includes being more willing to share data, and doing so in real time. And increasingly, manufacturers are rewarding those retailers for their collaborative efforts with investments in improvement initiatives and improved business terms or pricing."
"Increasingly, manufacturers are rewarding those retailers for their collaborative efforts with investments in improvement initiatives and improved business terms or pricing."
One of the biggest obstacles to retailer-supplier collaboration is that retailers may think sharing information about shoppers with suppliers means giving away a competitive advantage.
Tamara Saucier is vice president of global retail industry solutions at GT Nexus, a cloud-based supply chain platform that connects more than 25,000 manufacturers, suppliers, retailers and financial institutions on a network similar to LinkedIn. Saucier says the competitive advantage is gained through innovation and differentiation–not withholding customer information from CPG supplier companies.
"Unique products, qualities, cost controls, and extreme service levels all require a high level of customer intimacy and accurate execution," Saucier says.
The CPG company may propose–and rightly so–that access to that data will help them monitor promotion effectiveness, measure product and store profitability, and predict future demand. The retailer may be concerned that sharing the information will put the CPG company in a position to challenge the retailer when it comes to price and promotion. There's also a concern that the CPG company could compromise the retailer's direct relationships with its consumers.
"But looking at data sharing–both ways–through the lens of a set of mutually beneficial objectives creates the opportunity to transform the discussion from one of competition to one of collaboration," Osborn says. "For example, giving CP companies access to retail point-of-sale data for their products puts them in a much better position to observe actual demand patterns over time and, when leveraging that data, propose pricing, packaging, promotion and merchandising that maximizes consumer sell-through based on the observed demand."
Osborn suggests one way retailers and CPG companies can work together is to assess consumer demand patterns and develop more refined segmentation strategies to propose promotions and merchandising tailored to the targeted consumer groups.
"Understanding the needs, interests, and preferences of these consumer segments gives both CP companies and retailers the opportunity to ensure pricing and promotion resonate and that they deliver a great shopping experience for the consumer," Osborn says.
CPG companies and retailers could also begin sharing information to assess broader factors influencing demand. For example, a CPG company might notice a spike in demand during a period when their products are not being promoted. Working with the retailer, they may come to understand that a promotion on a different product in a related category is driving unexpected but complementary demand for the CP company's product.
"This could drive both parties to develop strategies to leverage cross-category adjacencies and plan complementary promotions or programs that could drive even more profitable revenue and volume across the board," Osborn says. "These are examples of how shared, mutually beneficial objectives could foster collaboration around consumer data, and lead to net new opportunities to drive long-term profitable growth for both parties, rather than reinforcing competitive tension."
RETAILERS TO MANUFACTURERS
The most useful information that retailers can share with CPG companies provides early insights into what's selling, what's trending, which products consumers are most responding to, and related details that inform the very front-end of the supply chain.
As Saucier explains, this includes styles, sizes, colors, variants, plans, forecasts, QA results, returns and other quality information. "This level of detail supports the staging of materials, scheduling resources and production, and managing in-line quality," Saucier says.
Additionally, retailers and brands are increasing partner value by providing performance metrics and compliance benchmarks. This facilitates monitoring suppliers' readiness for up-skilling, development, or even equipment investments. All of this drives a strategic relationship versus a simple buyer-seller transaction.
According to Dollase, real-time POS data also is getting a lot of attention, and that's certainly been one of Inmar's areas of focus.
"However, we're also seeing a lot of success with other retailer supply chain, inventory, and unsaleables data as well," Dollase says. "Retailers are also realizing benefits from sharing shopper data with their manufacturer partners."
Osborn says that understanding real-time consumer demand would give CPG companies a wealth of information and capabilities. They could compare orders with shipments and actual consumer sell-through to assess inventory availability against planned demand. They could also leverage sell-through data to determine promotion and product profitability for themselves and for the retailer, and then use that information to make better recommendations for future promotions and programs.
"They can also leverage observed consumer demand to predict future demand during both promotional and non-promotional periods, and then use that information to plan for optimal production and distribution to meet the demand," Osborn says.
Another area of collaborative opportunity involves store-level inventory data, both in the back room and at the shelf. Combined with consumer sell-through data, visibility to store-level inventory would give CPG companies the opportunity to anticipate demand, assess available inventory, and reduce the risk of out-of-stocks, especially during promotional periods when demand is highest.
Of course, quantitative and qualitative consumer data about the retailers' shoppers could also be shared. This includes demographic profiles, purchase histories, market research on consumer needs and preferences, and social sentiment analysis.
"In addition to the more transaction-oriented data, this type of data can help retailers and consumer products companies not only understand what happened and predict what will happen, but it would also help them gain a deeper understanding of why it happened based on evolving consumer preferences or changes in consumer sentiment," Osborn says.
MANUFACTURERS TO RETAILERS
CPG companies already share quite a bit of data with retailers, both in routine transactions including orders, shipments and pricing, and as a basis for their ongoing trading relationship, including product master data, shipping and warehouse locations.
Beyond this, Osborn says, another opportunity for data sharing from the CPG company back to the retailer would be similar to the opportunity mentioned above–quantitative and qualitative consumer data.
"CPG companies and retailers both are investing heavily in consumer research," Osborn says. "Often, both parties may be researching overlapping consumer groups but looking at those consumers from different perspectives. Coming together around that research would give both parties the opportunity to better understand each other's perspectives on shared consumer segments. Using this information, they could further collaborate on ways to optimize how they reach, engage and serve those consumers together across both physical and virtual channels."
Dollase says manufacturers are increasingly sharing data with their retailer partners in an effort to improve new product launches. Giving retailers more visibility to the product pipeline can help both partners take action to improve launch success, which is ultimately the goal for both parties.
Manufacturers would also do well to share coupon and promotion planning data. For example, if the manufacturer plans to offer a coupon for a particular product, sharing that information enables retailers to plan inventory, allocate sufficient shelf space, and restock appropriately so that their shoppers do not encounter an empty shelf.
"Trading partners are realizing that they both benefit from sharing information, because they share the shopper," Dollase says. "While the change may seem slow to some observers, it is important to remember that this is a very new mindset and will take time to become commonplace. But, the industry is definitely heading in that direction."
Osborn says the incentive to engage in this level of data sharing–on both sides–would likely only happen in the context of a collaborative relationship based on a set of mutually beneficial shared KPIs and metrics.
"Putting the data sharing in the context of an initiative designed to help both parties reach, engage, and serve shared sets of consumer segments would be the key driver of the perceived benefit of collaboration," Osborn says.
EXPLORING THE CLOUD
In reality, the very nature of commerce requires that manufacturers and retailers collaborate to some degree. The question is: are they maximizing the value for both of their organizations by exploring every opportunity that technology now makes available?
Dollase says the best way to begin exploring is by answering some questions regarding the sharing of data:
- What decisions could be informed and insights gained through the sharing of data with a particular partner? How actionable would those insights be? What would be the potential impact on revenue – for each partner?
- How big is the opportunity? Is this a one-time share or continuous? Who benefits?
- How difficult will the initiative be? What technologies are involved? Would an investment be required or would data simply be used/shared in a new way?
- How sensitive is the data to be shared?
"The answers to these questions will inform the appropriate approach to collaboration and to safeguarding the use of data," Dollase says. "Once these questions have been answered, a cloud setup is possible and is being done today with relatively small investment on the part of both trading partners."
Hutchinson says the technology barriers to sharing data are falling rapidly. "Costs for transferring and storing data are quite low and continue to fall," he says. "The key barriers to data sharing these days often have more to do with concerns about consumer privacy–including government regulations–and the agreements companies can reach on sharing data with each other."
"The key barriers to data sharing these days often have more to do with concerns about consumer privacy–including government regulations–and the agreements companies can reach on sharing data with each other."
The Boston Consulting Group
According to Saucier, the cloud is the best framework for collaboration. "However, there are many versions of the cloud, and the ideal model is that of a fully-networked, single platform," Saucier says. "This means that all parties are engaged in activities around a single version of truth."An example of this type of cloud model is that of LinkedIn. All participants are viewing, updating and editing against one profile, which is a shared profile. You are in control of access and connection capabilities.
"The networked supply chain is the same concept," Saucier says. "Every member of the value chain participates where and when relevant. This reduces integration costs, increases accuracy and data integrity, and provides real-time execution visibility. The related parties control the access and use of their own information. Both sides of the connection have the advantage of immediacy across a broader scope of activities to synchronize their goals and actions." There is also additive value in that once a company is on the network, more and more connections can be made for economies of scale–enabling growth without significant costs and efforts.
One thing's for sure: The possibilities for manufacturers and retailers to use real-time analytics to collaborate and engage their shoppers are exciting. "The good news is that the opportunity has never been bigger and the capabilities more robust for driving this type of collaboration through the use of data, and companies that invest in doing so will create a competitive advantage," Dollase says.
Jim Hertel, managing partner at Willard Bishop, believes a cloud setup is possible, but not really necessary at first. Rather, collaboration can happen in a slow, methodical way.
"Recognizing that each side has a stake in collaboration is step one," Hertel says. "Then you must provide limited data access with the understanding that each side must provide value back in exchange for the data they receive, at every step. Most retailer-manufacturer relationships are long-term and include regular contact."
Hertel says making collaboration between retailers and manufacturers work is twofold. "First, the collaboration must be endorsed and 'lived' by top management within each trading partner, or it will be short-lived at best," he says. "And secondly, accept there will be ups and downs along the way, but persevere through the downs. And remember, it's hard work."