A white paper on the evolution of the Retailer/Supplier "Strategic Partner" relationship and how Supplier Performance management (SPM) is a vital tool to manage supplier performance and relationships to improve quality, reduce costs, mitigate supply risk, and drive continuous improvement in supply value.
1. Suppliers as Strategic Partners A white paper on the evolution of the Retailer/Supplier "Strategic Partner" relationship. The journey from Supplier to Strategic Partner is a Win: Win for both retailers and their suppliers; with a focus on working together to fulfill consumer needs resulting in improved performance and a more profitable relationship.Anecdotal evidence, from conversations with major retailers and key suppliers, confirms that the evolution inretailer/supplier relationships from being just a Vendor to Supplier, to that of a Key Supplier, then to aStrategic Partner is beginning to take hold as more retailers and their suppliers embrace the twin pillars ofEfficient Consumer Response (ECR) and Supplier Performance Management (SPM).But the question is, to paraphrase a WW2 Government slogan in times of petrol rationing: Is your journey reallynecessary? 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: the20% that account for 80% of a retailers business will need to make the journey in order to join the club, whilstthose in the next level will need to show they can improve in order to force their way into the top 20%. Retailers For their part, retailers are locked in an intense ECR best practices are about working together to competitive struggle for market share and, as a result, deliver superior business results by reducing costs at are transforming their businesses and requiring suppliers all stages throughout the supply chain, achieving to add value in two core areas: efficiency and streamlined processes resulting in Value chain: The supply chain is evolving into a improved range, value, service and convenience Value Chain and often defined as being: from offerings. This in turn will lead to greater satisfaction the suppliers supplier to the customers customer, of consumer needs. identifying the key relationships and value added processes along the way. With extended supply Better managing the relationship chains, particularly sourcing from low cost countries, With the implementation of ECR, and evolution to a and the need to be price competitive, best Strategic Partner, what new capabilities will retail practice retailers are moving to Efficient Consumer customers demand of their suppliers? How will the Response (ECR) a way of doing business that dynamics of customer management need to involves trading partners working together to fulfil change? consumer wishes better, faster and at less cost. Relationship: Retailers today do not just want their In their recent report, The strategic agenda for suppliers to sell them products. They want them to consumer products customer management, IBM become business builders, helping to optimise the Business Consulting Services concluded a dramatic retailers profitability with a deep understanding of paradigm shift was required in how consumer their specific business needs, as a Strategic Partner products companies build, manage and sustain Suppliers their customer management organisations. In For suppliers, todays key account relationships are particular, they say suppliers must pursue far- becoming tremendously complex. They are reaching changes in their culture, people, characterised by shifting customer needs and growing relationships and processes to elevate customer polarisation in the retail market, requiring greater agility focus to the same level of importance as the and responsiveness on the part of consumer products consumer-focused dimensions of their organisation companies. In this environment, suppliers seeking to (e.g., marketing and brand management) and make the journey to become a strategic partner need integrate the two to drive mutually beneficial trade to work with their retailer partners to: relationships while maintaining strong brands. Embrace ECR Better manage the relationship, and Specifically, they say consumer products companies Support, and even initiate, SPM will need to focus on two key areas to enhance product performance and improve their business Embracing Efficient Consumer Response with retailers: ECR is based on two key principles: Focus on consumers: A commitment to the belief Build a more agile, responsive organisation that that sustained business success stems from efficiently and effectively responds to specific providing consumers with products and services that customer needs meet or surpass their demands and expectations. Empower account managers and teams to Working together: The greatest consumer value can become more broad-based business managers be offered only when organisations work together, with a wider array of skills to drive business value both internally and with their trading partners, to for both the retail customer and the supplier. improve efficiency and effectiveness. "The greatest change in the way business is being conducted may be the accelerating growth of relationships based not on ownership, but on partnership (Peter Drucker)
2. Suppliers as Strategic PartnersA more agile, responsive organisation However, many have been unsuccessful at building someECR is about companies working together to integrate of these capabilities to date. For example: in the IBMtheir operations and eliminate barriers that impact their survey, only 9% of respondents felt that their suppliers hadability to satisfy consumers and drive out unnecessary a good understanding of their business objectives.cost. However, in the traditional key accountmanagement structure, barriers often exist both betweentrading partners and between business functions withinone business.ECR aims to break these barriers down and, while theoptimal organisation structure will vary depending on thecompanys strategic intent and the specific categorysrole, a number of principles hold generally true: internally, supply management requires true cross- functional working, within manufacturers and retailers; joint supply management requires a new type of Retailer satisfaction with suppliers understanding of their interface structure between manufacturers and business objectives. retailers; and Performance measures need to be re-aligned from According to IBM, 65% of US retailers surveyed believe trade narrow functional criteria to measures which focus relationships have improved over the past three years, on end-to-end supply chain service levels. however they continue to express low satisfaction with suppliers across many key areas of their relationships. In addition, Empowering account managers and teams retailers are starting to use more sophisticated methods of The roles of key account managers and customer measuring supplier performance. For example, retailers with teams are changing dramatically. To enable their over US$1 billion in sales are measuring supplier performance customer teams to deliver on these new retailer on economic metrics such as supplier contribution to profit requirements and be viewed as trusted partners, while and supplier share of turnover as well as the people also driving their own growth and profitability, suppliers components of their relationship. will need to address two key challenges: Managing complex customer relationships: Customer Broadening key account manager skills and relationships have evolved from one point-of-contact capabilities: Key account managers need to through the sales representative to multiple points-of- both drive account profitability and help their contact coordinated by a key account manager who customers achieve their own business objectives; orchestrates the activities of a multifunctional team. however, they often lack the strategic management and analytical skills required to do The key account manager will often work with virtual teams so. Among the companies interviewed as part of across the organisational matrix, including individuals who the IBM study, account team skills development may only be working with the given customer for a short and joint planning and goal setting with retailers period of time. To help them perform this role more were mentioned most frequently as the customer effectively, suppliers will seek ways to provide their account management capabilities most needed to managers with a holistic view of all customer activities, improve profitability. including greater access to information. To improve performance in this area, account managers and teams must better understand the retailers business and shift from a focus on selling products to a focus on addressing the customers business requirements. They will need to develop new skills which will enable them to address shifting retailer needs with greater agility and impact. At the same time, however, traditional relationship-building and sales skills will still be important. The key will be to develop business management skills, while maintaining strong sales ability, to benefit the supplier in the long run. The purpose of investing in a relationship with a supplier is to improve their performance in fulfilling the needs of the buying organization, thereby improving the buying organizations performance and creating mutual benefit. (Source: Chartered Institute of Purchasing & Supply)
3. Suppliers as Strategic PartnersSupplier Performance ManagementThe second pillar of the Strategic Partner evolution, Supplier Performance Management (SPM), is absolutely critical inclosing the ECR and relationship loop by implementing the process of regular reviews to measure, analyse, and managesupplier performance and relationships to improve quality, reduce costs, mitigate supply risk, and drive continuousimprovement in supply value.The discipline of SPM is vitally important and recent research by the authoritative Boston-based research company, theAberdeen Group, confirms the intuitively obvious conclusion that using SPM programs will produce higher value supplies.Their research found that companies with SPM On-time Price Quality Serviceprograms achieved performance improvement in Deliveryevery category that was studied - an average SPM program 23% 23% 21% 21%supplier performance improvement of more than20% across the four main areas - compared with No SPM 13% 11% 5% 17%those that had no formal SPM program. programThey conclude that organisations that use formal supplier measurement programs outpace their peers in on-time delivery,quality, service, price competitiveness, and other supplier performance areas. Their recommendations are: Organisations that dont have formal SPM programs should investigate the benefits of developing them, aiming first to When you measure and communicate supplier improve key supplier performance in key performance performance regularly, suppliers improve their categories. cost, quality and responsiveness. Done in an They also should develop standard supplier performance automated, systematic way, performance metrics, involve key suppliers in the SPM development process, improves dramatically, in some cases by over and include key internal stakeholders in the process. 50%. (Source: Aberdeen Group)Where are suppliers on the Strategic Partner Journey?The journey from Vendor to Supplier, to Key Supplier, then a Strategic Partnercan be tracked through four stages, dependent on how their performance israted by their retailer customers: Early: Red Zone; Low ratings; New/occasional, vendor; Me too products, price-based; Irregular contact/orders; Strictly transactional relationship; Efficient: Orange Zone; Below average ratings; Low consumer franchise; Some USPs; Re...