The relationship between retailers and suppliers has not always been the greatest. The drive for the best possible prices has led to retailers failing to receive the optimum value from their supply chain. In the past, that may have worked. However, the huge challenges facing much of the retail sector mean we need a new, more collaborative type of relationship between retailer and supplier. Is effective Supplier Relationship Management (SRM) processes the answer?
Supplier Relationship Management has been around retail for about as long as Customer Relationship Management (CRM) but has not seen even a fraction of the effort and investment put into it. The Retail Value Chain Federation (RVCF) puts things quite succinctly: “If retailers devote so much energy to better understanding, evaluating, quantifying and monetizing its customers, shouldn’t retailers be doing the same with their hundreds or even thousands of merchandise suppliers?”
Speed date? More “Blind Date”!
A few weeks ago, I attended an RVCF conference where retailers and suppliers met to discuss the industry and their challenges. Part of the event was a 15-minute ‘speed date’ slot where suppliers got to ask questions to their retailer partners. It was designed to deepen the relationship between partners by allowing them to address important issues face-to-face.
Speaking with both retailers and suppliers, it reminded me more of the TV show “Blind Date” – the dating show where a contestant selected a date and then went somewhere exciting to see if they’d hit it off. Afterward, the couple would separately say how the date was for them. Most of the time, each had the completely opposite opinion of how things went. That’s a little how it felt with the suppliers and retailers at the RVCF conference.
In one of the most prescient presentations the speaker said, I paraphrase, that when looking to innovate it’s important to have empathy and understand what other people want and feel. Empathy and understanding are things, I think, that both suppliers and retailers need to bring more to their day-to-day trading relationship.
I’ll only give one example from the conference but there were plenty more. One of the biggest topics during the event was chargebacks and whether they were the most effective means to manage the relationship. Supply Chain Digest presented some early findings of their second ‘State of Retail and Vendor Supply Chain Relations’ study – which I can’t divulge here – that showed the divergence of opinion between retailers and suppliers.
The results suggested that things were broadly similar to the findings of the first survey in 2015. So let’s look at supplier and retailer perceptions of chargebacks from there. In 2015, almost twice as many suppliers as retailers thought chargebacks were increasing and pretty much the same amount thought they’d continue to increase over the next five years. More retailers thought their vendor compliance programs were dollar focus instead of supply chain improvement focused. While over half thought their programs were a mix of both, I’d bet that the majority was more dollar than improvement driven.
Collaboration works. So why is change so slow?
Undoubtedly, Strategic Sourcing has brought many price-driven benefits for the retailer. But as Strategic Sourcing matures those cost benefits decline and, more importantly, it fails to address the issues that retailers face today. As mypurchasingcenter.com puts it: “While the discipline of strategic sourcing has yielded significant value – in particular, cost reduction – it has also revealed itself as insufficient”.
Continually driving down supplier margins is not going to help address the challenges facing the Retail industry. As mypurchasingcenter.com says: The industry faces a host of challenges (protect eroding margins, increase insight into market trends, reverse declining customer loyalty, ensure quality, penetrate new markets, achieve sustainable growth, increase the rate of innovation in response to compressed product lifecycles, etc.) that can only be overcome if customers and suppliers work to address them together.”
But the industry is well aware of this.
In 2013, PWC said of SRMs: “Organisations are starting to realize that they have become more reliant on suppliers in terms of innovative power, security of supply, corporate social responsibility, and on-going cost savings. Strategic partnerships are at the top of the corporate agenda of many global organizations and Supplier Relationship Management (SRM) is seen as one of the few remaining procurement topics that can still make a significant difference.”
Back then, only 13% of respondents to a PWC survey thought they had established SRM processes and not one company thought they were world class at SRM. Of course, a lot has changed since then … well, not really. According to 2017 research from capgemini, only 16% of organizations “have a corporate strategy and process in place to manage supplier relationships” while, incredibly, 30% have “no process at all for supplier relationship management”.
What’s particularly shocking about this lack of progress is that, not only does the industry know collaborative relationships work better, research consistently shows the benefits. In a recent study, retailers reported realizing an average of 40% more value from their most collaborative suppliers compared to the least collaborative. On the flip side, suppliers reported delivering an average of 49% more value to their most collaborative customers.
Towards the collaborative SRM
There’s little doubt that the Retail sector is not as far advanced in SRM adoption as other industries. However, as far as introducing more collaborative relationships, this may not be such a bad thing. As capgemini notes, the megatrends in Digital Disruption and Digital Transformation have shifted the SRM perspective from cost management to value creation and from transaction-based relationships to collaborative supplier relationships.
Part of the reason for this, I think, is that retailers have traditionally seen supplier relations as a set of discrete procurement-focused tasks. However, to become collaborative, modern SRM has to encompass every part of the supplier relationship.
This is quite a complex undertaking. For example, RVCF suggests: “A thoughtful SRM plan supports … flexibility where it is needed while recognizing that there are numerous aspects of the trading partner relationship in which retailers strive for process and policy uniformity to maximize efficiency. For example, business process areas such as onboarding, EDI, purchase order management, packaging and marking, customs compliance, and accounts payable benefit from having all suppliers aligned and operating in the same manner”. That’s a lot of moving parts.
It’s clear that for modern SRM processes to bring suppliers and retailers much closer together there needs to be two elements. First, as the conference presenter said, there needs to be much greater empathy and understanding between all parties. Secondly, there needs to be a single, central technology platform upon which partners can transact business and collaborate effectively.
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