The State of Retailer-Supplier Collaboration
Collaboration can be essential to success yet seemingly so hard to accomplish in the ever-changing, highly competitive world of grocery retailing today.
Most retailers and suppliers agree that working together is a good thing, but it is easier said than done, according to The Boston Consulting Group. Industry reports suggest 80 percent of retailers and suppliers believe collaboration has grown in the past three years, yet the practice is still not widespread–particularly in the key areas of shopper marketing and supply chain.
"Recent research we carried out shows that while there is still optimism and recognition around the value of collaboration, many consumer products companies and retailers have been disappointed by the slow pace of progress and lack of tangible results," says Pierre Mercier, a London-based partner and global topic leader for supply chain at Boston Consulting Group (BCG). "It is BCG's view that the industry is not making substantial progress and that collaboration still remains an opportunity to be pursued."
Mercier is not alone in his assessment. Leslie Sarasin, president and chief executive at the Food Marketing Institute (FMI), expects retailers and manufacturers will have to emphasize collaboration in the future to boost efficiencies. "As an industry operating on a razor-thin profit margin, food retailers are driven to an eternal scrutiny of finding greater efficiencies and improving work processes. This compulsion for improvement has recently manifested itself in recognition [of the need] for greater collaboration among the respective links in the food chain, improving lines of communication so that unnecessary redundancies can be eliminated," Sarasin says. "The recent years have seen us make great strides in creating a collaborative environment between food retailers and manufacturers, but the demands of the times dictate that we pick up the pace."
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Picking up that pace necessitates a comprehensive, multitiered analysis of collaborative opportunities retailers and suppliers can tap. "There is now a dawning realization that shopper marketing and the supply chain are inexorably linked," says Michael Forhez, principal, consumer markets at Capgemini Consulting.
Win-Win Shopper Marketing
In today's competitive retail environment, every decision begins and ends with the shopper, SymphonyIRI Group suggests in a May 2012 report on shopper marketing.
"Today's shoppers are more unique, demanding and more in control than ever before. They make individual decisions about what they will buy, how much they will pay for it and where they will go to get it–despite efforts made by marketers to persuade shoppers where to shop and what to buy," says Jim Dippold, senior vice president, consumer and shopper marketing at SymphonyIRI Group, in the introduction to the report.
Collaboration: an arrangement in which two or more parties (which may or may not have any previous working relationship) work jointly toward a common goal; the effective method of transferring 'know how' among individuals, therefore critical to creating and sustaining a competitive advantage.
By definition, shopper marketing enables marketers to connect with shoppers through highly personalized messages. It can't be accomplished by the retailer alone, the report says. Instead, companies must identify "win-win shopper experiences" for mutual best interest by tailoring products, promotions, story layouts and assortment programs to create highly effective scenarios.
"Shopper marketing continues to be a very important growth driver and focus for most multinationals who realize that pre-store marketing can only take them so far. At the end, the decision to buy, whether online, click-and-collect or in grocery stores, it all happens at the point the purchase decision is made," says Gill Aitchison, global president, shopper & retail at Ipsos, a market research firm.
Increasingly, that decision is happening in more ways and in more places than ever before. One-third of the world's population is now on the Internet, according to a United Nations' International Telecommunications Unit report released in September 2012.
One-quarter of consumers, in fact, are researching products online, and one-third are downloading coupons from manufacturer or retailer websites, the SymphonyIRI report notes. In addition, more than three-quarters of shoppers decide which products to buy before entering the store, SymphonyIRI's MarketPulse survey series reveals.
"Manufacturers must wire their marketing strategies to ensure that they begin to impact the shopper in the home," the SymphonyIRI Shopper Marketing report says. "Furthermore, manufacturers must work with retail partners to continue to build and refine the shopping experience throughout the purchase process."
Aitchison sees progress in the way retailers and vendors are approaching shopper marketing. "I think there is now much greater understanding that sales growth can be activated in many different ways beyond the simple metrics of in-store placements, price reductions, coupons and promotions," she says.
Thomas Wrobleski, vice president, consumer products, retail & distribution at Capgemini Consulting, says the industry as a whole has made significant strides by embracing mobile solutions throughout what he calls "the lifecycle of 'awareness, choosing, transaction, delivery and after-sales support.' "
"From the adoption of QR codes for awareness, to being able to compare selection availability and price, to receiving coupons 'post-transaction' for complementary items, the mobile channel is and will become an even more important part of the all-channel experience," Wrobleski says.
Retailers and suppliers will have to change their strategy from selling what they make or have in stock to making and stocking what they can sell as they travel that road, Forhez adds. "Retailers must decide when, what, how and where to sell products, and manufacturers must be able to master not only products but also manufacturing response and supply chain intelligence," he stresses. "Both retailers and manufacturers will require, and in the near future consumers will demand, a clear view of every channel in the supply chain."
Collaborative Supply Chain Management
With multiple channels feeding into each store, collaboratively managing the supply chain is not an easy task. But progress is being made, industry experts say.
"We need to give credit to the fact that supply chain partners are helping to identify inefficiencies and responding with credible solutions," FMI's Sarasin says. "For instance, food safety issues continue to be a priority for our industry."
In the area of food safety, experts point to the development of Rapid Recall Exchange (RRE), an online service that applies industry expertise and best practices to standardize product recall and market withdrawal notifications between retailers/ wholesalers and suppliers. "This is an example of how collaboration among trading partners can drive efficiency, reduce costs and, ultimately, improve on consumer safety," says Elise Fennig, president of industry affairs, Grocery Manufacturers Association (GMA). "When manufacturers and retailers commit to using RRE as the first line of communication in the event of a recall, information spreads quickly and accurately to reach the right people to take immediate corrective action."
Mercier, too, sees advances in supply chain collaboration initiatives. "Retailers continue to invest in improved forecasting algorithms and systems and are now looking at how to share the data with suppliers in order to benefit from the information," he says, noting that they expect improved service levels in return. Tesco Connect is one example: The retailer strives to provide a 21-day order forecast to its suppliers, allowing them to efficiently produce and ship product, Mercier says.
Real-time data sharing and continual planning are starting to become realities through cloud-based applications such as One Network, while double-decker trailers are changing transportation modes and presenting opportunities, Mercier says.
But this global supply chain expert sounds a cautionary note as well. Maximizing those opportunities will require alignment between the retailers and their suppliers, Mercier says. Companies also will have to balance those bigger loads with each retailer's inventory requirements and structurally change warehouse facilities to accommodate the different transport types.
But the opportunities for collaboration in logistics are vast. One-to-one network overlay projects among manufacturers and retailers are leading to areas of effective collaboration, Fennig says. Multiple trading partners are working with GMA, FMI and The Consumer Goods Forum on a Collaborative Logistics Benefits & Feasibility Assessment to identify opportunities for CPG companies and retailers to work together to reduce overlapping logistics infrastructures, improve service, achieve sustainable business practices and reduce empty miles, she explains.
Warehousing also is an important component in any collaborative relationship, Wrobleski says. "With the advent of smaller-format urban grocery stores, manufacturers must find ways to help retailers with the inventory problems caused by the smaller footprint," he says. In one scenario, manufacturers would form a collaborative warehouse where mixed pallets would hold product from multiple manufacturers, resulting in substantial savings.
To fully realize the benefits a retailer/supplier collaboration can bring, follow-through is needed. "While there are many case studies in the public domain featuring results of collaborative initiatives, many of them are the output of pilot schemes, which based on what we have seen in the past will unlikely pass the test of time," Mercier says.
Many cases never progress beyond the pilot phase or are not replicated throughout the business, Mercier says. In other less-than-optimal situations, manufacturers lack the processes and systems to make the most of the data they receive from various retailers.
Consequently, they are unable to drive efficiencies in their operations. Finally, opportunities to bolster on-shelf inventory remain, particularly for promotional products.
The advent of cloud technology and big data applications are driving supply chain collaboration, Forhez says. "Visionary retailers are investing money in technology to gain visibility, manage both structured and unstructured data, and collaborate with their trading partners both on a local and global scale," he says.
Trading partners, he stresses, need an accurate picture of customer activity across channels as well as the ability to clearly see all available inventory, both on-hand and in-transit. "If these objectives are realized, the retailer and manufacturer will gain a competitive advantage by allowing both to operate with less overhead and inventory, quicken reaction time to sales fluctuations and/or disruptions and manage risk more effectively," Forhez says.
To ensure that projects survive after the pilot stage, the collaborative parties must nurture relationships at the senior level and take a long-term strategic view, Mercier says.
"The Big Data era is spawning game-changing innovation, says GMA's Fennig. "The opportunities are endless for trading partners to experiment with data-based insights to achieve mutually-beneficial goals."
Ultimately, collaboration will be the glue binding retailers and suppliers in a relationship that benefits consumers as well as each company's bottom line.
As Sarasin concludes, "Our competitive edge as food retailers will be found in helping the food chain become more of a 'food Wi-Fi' with different systems operating cooperatively at varying frequencies and bandwidths–but all in sync in providing the American public with a delightful shopping experience with safe, wholesome products they and their families can enjoy."
A Collaboration Report Card
Retail Leader asked industry experts, "If you had to provide a scorecard for collaboration in grocery retailing today, what score would you give?" While no key performance indicators or empirical data exist to measure collaboration that way, Pierre Mercier, partner and global topic leader for supply chain at The Boston Consulting Group, and Gill Aitchison, global president, shopper & retail at IPSOS, delivered the following report card:
Mercier: Our survey results show that both retailers and their suppliers fundamentally believe in collaboration and are committing more time and resources to initiatives in the past three years. However, when you take a step back and look at the results in areas such as on-shelf availability, inventory across the end-to-end chain and truck fill though the network, you see there are still large opportunities for the industry. On this base a score of five out of 10 would be appropriate.
Aitchison: I am sure that collaboration is slowly increasing, but it still feels to me that the retailers are prepared to collaborate [only] if the manufacturers fund the research and even take on responsibility for implementation to prove that the concept will work. For example, Arla Foods [a global, co-operative owned dairy company based in Denmark] presented a case study to show how they had re-laid the entire cheese category in 200-plus stores in Denmark according to the way different cheeses were used to benefit category and profit growth. They had physically re-laid the category in the early hours of the morning with new layouts and new signage to create a completely new environment. So if you forced me to give a score, I would say we are moving in the right direction but implementation is lagging–five out of 10 this year, up from four out of 10 last year.