Suppliers as Strategic Partners   A white paper on the evolution of the Retailer/Supplier "Strategic Partner" relationship...
Suppliers as Strategic PartnersA more agile, responsive organisation                                However, many have bee...
Suppliers as Strategic PartnersSupplier Performance ManagementThe second pillar of the “Strategic Partner” evolution, Supp...
Suppliers as Strategic PartnersSPM in AustraliaFor many years both Woolworths and Mitre 10, and recently Myer, have used f...
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Strategic Partner White Paper Retailer

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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.

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Transcript of "Strategic Partner White Paper Retailer"

  1. 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 a“Strategic 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 retailer’s 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 supplier’s supplier to the customer’s 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 retailer’s 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, today’s 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. 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 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. 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 organization’s performance and creating mutual benefit.” (Source: Chartered Institute of Purchasing & Supply)
  3. 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 don’t 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 Partner”can 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; 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 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”; High ratings; A Strategic Partner can be defined by a number of key characteristics, some of which 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. Many suppliers are now taking the initiative and implementing their own Key Accounts Review programs – SPM in reverse – in order to improve their performance and reach their full potential to contribute value to the retailer and to gain a competitive advantage and cement their “strategic Partner” position.“If you want to have early warnings about possible problems in a relationship and a way to surface issues and to address them collaboratively, you have to have a mechanism to take the temperature of the relationship, comparing its effectiveness up against agreed metrics, and then talking about the results.” (Source: Vantage Partners)
  4. 4. Suppliers as Strategic PartnersSPM in AustraliaFor many years both Woolworths and Mitre 10, and recently Myer, have used formal supplier reviews as the basis for their“Supplier of the Year” programs and awards. However, to our knowledge only a few retailers undertake formal annual, orquarterly, performance reviews with their suppliers, using Key Performance Indicators and a formal rating process that looksat the entire business relationship.The advent of web-based, multi-user software makes the implementation of SPM easy and it encourages a collaborativeapproach to continuous performance improvement in what are complex business relationships, with multiple touch-pointsin both organisations, often spread over many geographic locations.Our Performware™ platform is a suite of non-prescriptive on-line tools designed to add value and drive business partnerperformance improvement. Based on traditional Performance Management techniques, it allows organisations to reviewtheir business partners and agree on action plans to improve performance and to better manage the often complexrelationships - for mutual benefit. Retailers can assess the performance of key supplier partners, using their own KPIs andimportance weightings, with input from multiple stakeholders (plus supplier self-assessment) and even stores.Case Study - Mitre 10The Mitre 10 Supplier of the Year program involves their key suppliers being reviewed by their 540+ stores, National OfficeBusiness and Category Managers and Retail Area Managers. The suppliers are rated on their performance using fourgroups of KPIs. Suppliers undertake a self-assessment and also assess Mitre 10’s performance on specific KPIs.Mitre 10 Managers receive a range of reports,including supplier ratings and rankings - overall,by Business Unit, State, and Store Brand. EachBusiness Unit Manager receives a report on hisarea and each supplier gets a full report ontheir ratings and rankings, with detailedbreakdowns and verbatim comments fromstore and National Office assessors.The example “Action Matrix” uses the twodimensions of DIFOT and Service and Support. Anumber of suppliers, including the Supplier ofthe Year, along with the supplier’s self-assessment average, are positioned in the“Strategic Partner”, green zone, with high ratings;The worst performing supplier is shown in thebottom left, bordering on the red “Vendor”zone. The average ratings of each of the sixproduct categories/ Business Units are shown inthe “Effective”, average or above, zone.SummaryOur experience is that suppliers are keen to participate in, and contribute to the costs of, Supplier PerformanceManagement reviews. They see value in the constructive feedback and the ability to access results on-line to identify theirweaknesses and put action plans in place for improvement - resulting in higher levels of engagement and a closerbusiness partner relationship. In fact, some are already taking the initiative themselves and inviting their key accounts toreview them on a regular basis, using jointly agreed KPIs.The journey 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 worthmaking with the result a Win: Win, for both, of improved performance and a closer and more profitable relationship.Contact: Ph: (02) 9959 3815Ron Latham, Managing Director Email: ron@lathamconsulting.com.auLatham Consulting Pty Ltd Web: www.performware.com.au41b Spruson Street, Neutral Bay, NSW 2089 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)

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