Improve Business Partner performance with a Supplier of the Year program.

Supplier of the Year programs, with their objective performance reviews, can lift business partner performance. The result 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.

Performance improvement is a key objective in the evolution taking place in retailer/supplier relationships where more retailers are embracing the business partner relationship concept with a change from suppliers being seen as just a “Vendor” to one where they are regarded as a “Strategic Partner”. The journey from “Vendor” to “Supplier” to “Key Supplier” to “Strategic partner” is being driven by three key factors: economic conditions and competition; the demand to provide consumer value and the need to better manage changing retailer/supplier relationships. Retailers For their part, retailers are locked in an intense competitive struggle for market share and, as a result, are transforming their businesses and requiring suppliers to add value in two core areas: Value chain: The supply chain is evolving into a

“Value Chain” and is often defined as being: “from the supplier’s supplier to the customer’s customer”, identifying the key relationships and value added processes along the way. With extended supply chains, particularly sourcing from low cost countries, and the need to be price competitive, best practice retailers are moving to Efficient Consumer Response (ECR), a way of doing business that involves trading partners working together to fulfil consumer wishes better, faster and at less cost.

Relationship: Retailers today do not just want their suppliers to sell them products. They want them to become “business builders”, helping to optimise the retailer’s profitability with a deep understanding of their specific business needs, as a “Strategic Partner”

Suppliers For suppliers, today’s key account relationships are becoming tremendously complex, with shifting customer needs and growing polarisation in the retail market, requiring greater agility and responsiveness on the part of consumer products companies. In this environment, suppliers seeking to make the journey to become a strategic partner need to work with their retailer partners to: Implement ECR Better manage the relationship, and Support Supplier Performance Management Efficient Consumer Response ECR is based on two key principles: Consumer focus: A commitment to the belief

that sustained business success is about providing consumers with products that meet or surpass their demands and expectations.

Working together: Maximum consumer value is possible only when organisations work together, both internally and with their trading partners, to improve efficiency and effectiveness.

Better managing the relationship With the implementation of ECR, and evolution to a “Strategic Partner”, consumer products companies will need to focus on two key areas to enhance product performance and improve their business with retailers: Build a more agile, responsive organisation

that efficiently and effectively responds to specific retail customer needs

Empower account managers and teams to become more broad-based business managers with a wider array of skills to drive business value for both the retail customer and the supplier.

Customer relationships have evolved from the “one point-of-contact” sales representative to “multiple points-of-contact” coordinated by a key account manager who orchestrates the activities of a multifunctional team.

To improve performance in this area, account managers and teams must better understand the retailer’s 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. To help them perform this role more effectively, suppliers will seek ways to provide their account managers with a holistic view of all customer activities, including greater access to information.

"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)

Supplier of the Year Program

“When you measure and communicate supplier performance regularly, suppliers improve their cost, quality and responsiveness. Done in an automated,

systematic way, performance improves dramatically, in some cases by over 50%.” (Source: Aberdeen Group)

Supplier Performance Management SPM is absolutely critical in the “Strategic Partner” journey, using the process of regular reviews to measure, analyse, and manage supplier performance and relationships to improve quality, reduce costs, mitigate supply risk, and drive continuous improvement in supply value. The discipline of SPM is vitally important and recent research by the authoritative Boston-based research company, the Aberdeen Group, confirms the intuitively obvious conclusion that using SPM programs will produce higher value supplies.

Their research found that companies with SPM programs achieved performance improvement in every category that was studied - an average supplier performance improvement of more than 20% across the four main areas - compared with those that had no formal SPM program.

Improvement Price On-time Delivery Quality Service

SPM program 23% 23% 21% 21%

No SPM program 13% 11% 5% 17%

They 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 don’t have formal SPM

programs should investigate the benefits of developing them.

They should also develop standard supplier performance metrics, involve suppliers and include key internal stakeholders in the process.”

The “Strategic Partner” Journey The journey from Vendor to Supplier, to Key Supplier, then a “Strategic Partner” has four relationship stages: Early: “Red Zone”; Low performance ratings; New/occasional,

vendor; “Me too” products, price-based; Irregular contact/orders; Strictly transactional relationship;

Efficient: “Orange Zone”; Below average performance ratings; Low consumer franchise; Some USPs; Regular contact (one point); Moderate importance to retailer; Proficient in supply and service; Delivers results;

Effective: Average/above ratings; Proven products, solid USPs, high value, ranked No. 3-5 in category; Moderate/growing consumer franchise; Beginning ECR; Key account rep main contact, frequent call cycle; Shares responsibility for results.

Excellence: “Green Zone”; Highest ratings; A Strategic Partner can be defined by a number of key characteristics, some are:

Suppliers are at different stages of the journey to “Strategic Partner”. It is important that retailers understand where each key supplier in their portfolio sits so they might, together, develop strategies for improvement. SPM, with its regular performance monitoring of KPIs, and reward for excellence through Supplier of the Year programs, is a vital tool to plot the journey. It helps suppliers to improve their performance and reach their full potential and cement their “strategic Partner” relationship position.

“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 organization’s performance and creating mutual benefit.” (Chartered Institute of Purchasing & Supply)

Supplier of the Year Program

Supplier of the Year programs Supplier of the programs are more than just a vote, or a popularity contest, they are about communication of performance expectations and formal reviews, often two-way, to provide feedback on how suppliers are performing against those expectations. The five “Rs” of a successful Supplier of the Year program process are: Rate supplier performance – Your key stakeholders rate performance on your KPIs and key metrics; Report - Provide key stakeholders with reports on results, by supplier and suppliers with their own reports; Review - Meet with suppliers to identify strengths and prepare action plans to address underperformance; Repeat the rating, reporting and review process at regular intervals (2-4 times a year) to monitor progress; Reward excellence, and encourage competition, with Supplier of the Year awards and publicity.

In Australia, only a few retailers undertake formal annual, or quarterly, performance reviews with their suppliers, using Key Performance Indicators and a formal rating process that looks at the entire business relationship.

Woolworths invite their 2000 plus suppliers to register for their Trade Partner Program each year. Suppliers are assessed across various areas of Woolworths’ business such as Buying and Marketing, Finance, Replenishment, Stores, eBusiness and more. Each product category is scored on a number of core criteria, KPIs specific to each and a sales growth score. Quarterly reports are provided to suppliers and scores are aggregated annually as the basis for awards, announced at a gala dinner.

Myer automatically enters all their 800 Trade Partners from their merchandise, concessions, supply chain and business support areas into their Supplier of the Year program. KPIs differ by category, with merchandise suppliers assessed quarterly on financial performance, delivery, in-store support and partnership. Top ranking results are published quarterly and the annual awards are announced at a gala ball.

The Mitre 10 Supplier of the Year program involves key suppliers being reviewed by their 500+ stores, Business and Category Managers and DC Managers. Suppliers are rated on their performance on fourteen KPIs in three areas: DIFOT, Store Representation and Support and Business Partnership. Suppliers also undertake a self-assessment. Mitre 10 Managers receive a range of reports on their category and each supplier gets a full report on their ratings and rankings, with detailed breakdowns by State and verbatim comments from store and National Office assessors. Implementation The advent of web-based, multi-user assessment software makes the operation of SPM easy. We can work with you to implement a program internally, or we can manage the program on your behalf on a fully outsourced basis.

Our Performware™ platform is a suite of non-prescriptive on-line tools designed to add value and drive business partner performance improvement. Based on proven Performance Management techniques, it allows organisations to review their business partners and agree on action plans to improve performance and to better manage the relationships - for mutual benefit. Retailers can assess the performance of key supplier partners, using their own KPIs and importance weightings, with input from multiple stakeholders from various departments, and stores. Suppliers should also do a self-assessment for comparison and as the basis for engagement and discussion.

On-line survey Performance KPIs are customised to suit individual retailer needs. Nominated assessors receive automated invitation emails with a URL link, login details and password to access the survey. Assessors rate supplier performance on each KPI, using a five or nine-point scale with customised descriptors for each rating point. Assessors roll their cursor over the scoring balls and select the one that best indicates their opinion. A pop-up comments box enables supporting or explanatory comments to be fed back to the supplier. There is also a section to capture overall comments and strengths and areas for improvement.

“If you want to have early warnings about possible problems in a relationship and a way to surface issues and address them collaboratively, you have to have a process to take the temperature of the relationship, comparing

its effectiveness up against agreed metrics, and then talking about the results.” (Vantage Partners)

Supplier of the Year Program

Retailer Reports Reports are supplier specific, aggregated by product category, in graphics and dashboard format – with “Traffic light” colours highlighting performance bands - plus detailed tables, providing: Overall scores – In total and by KPI Ranking – Total, by category, key measures Rating comparison – Between:

o Product category o Geographic region/State o Assessor/stakeholder groups

Scores comparison and benchmarks: o Supplier of the Year score o Supplier self-assessments - average o Top quintile (20%) average o Average all suppliers o Lowest supplier score

Supplier matrix – Two-dimensional charts

Supplier Reports Supplier reports are individual, showing their own scores and performance, benchmarked against all suppliers and within their category, providing them with:

Overall scores – In total and by KPI Ranking – Total, by category, key measures Rating comparison – Between:

o Geographic region/State o Assessor/stakeholder groups

Scores comparison and benchmarks: o Supplier of the Year score o Supplier self-assessments - average o Top quintile (20%) average o Average all suppliers

The main reasons suppliers support a Supplier of the Year program are: Formal review – increased engagement; Benchmark against peers – Competition; Improvement in relationship – better understanding of expectations; Recognition – reward for effort.

Summary The journey from vendor to that of a strategic partner is not easy. It requires paradigm shifts by both parties, particularly in attitudes, requiring openness and trust, information sharing and a commitment to meeting consumer needs. But it is a journey worth making with the result a Win: Win, for both, of improved performance and a closer and more profitable relationship. For suppliers, the Pareto principle will be a deciding factor: the 20% that account for 80% of a retailer’s business will need to make the journey in order to join the club, whilst those in the next level will need to show they can improve in order to force their way into the top 20%.

A Supplier of the Year program, with associated performance reviews will assist both retailers and suppliers to objectively assess performance and drive improvement. Our experience is that suppliers are keen to participate in, and contribute to the costs of, Supplier Performance Management reviews. They see value in the constructive feedback and the ability to access results on-line to identify their weaknesses and put action plans in place for improvement - resulting in higher levels of engagement and a closer business partner relationship.

Contact: Ron Latham, Managing Director Latham Consulting Pty Ltd 41b Spruson Street, Neutral Bay, NSW 2089

Ph: (02) 9959 3815 Email: ron@lathamconsulting.com.au Web: www.performware.com.au www.lathamconsulting.com.au

"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)