SCOTTSDALE, Ariz. — Collaborative trading partner relationships produce 20% greater sales and profit growth than the transactional relationships in which retailers and their suppliers have traditionally been engaged.
Those findings were presented here by Jim Hertel, managing partner of Willard Bishop, Barrington, Ill., during the session “Strategic Collaboration: The Key to Achieving Mutual Competitive Advantage.” It was part of the Summer Seasonal Snack Beverage & Grocery show co-sponsored by Washington-based Food Marketing Institute and Efficient Collaborative Retail Marketing, Cleveland.
“The goal of a transactional relationship is to seek out partners who've experienced a lot of growth and then extract a set of concessions that hinder their ability to grow,” explained Hertel. “The industry needs to evolve past them. There is still a fair amount of questioning motives and the attitude that ‘I have to win’ and ‘if I haven't won I've lost.’”
Because their objective is to deliver greater value to both the retailer and supplier, collaborative relationships more effectively lend themselves to creating and sustaining long-term growth, Hertel explained.
Such arrangements are strategically aligned around shared values, involve joint business planning over a three- to five-year timeframe and are supported through multifunctional points of contact.
Hertel recommends a five-step approach to collaborative project planning that involves creating the strategic vision, evaluating readiness inside and out, identifying gaps and which to close when, creating the implementation plan, and delivering scorecards and tracking plans. Pittsburgh-based Giant Eagle applied this approach to its objective of supporting its “freshest products” claims with a demand-based replenishment system, Hertel noted.
Following the five-step plan, the retailer and its trading partner, Kraft, built supply chain efficiency and visibility through electronic data interchange and a new process to smooth out regular replenishment and provide advance notice of promotion surges. The result was a 2% reduction of out-of-stocks, a turn inventory stock reduction of 50% and a 3% increase in promotion sales.
Hertel also cited the results of Meijer having established a more collaborative relationship between its top decision makers and that of its suppliers, twice a year.
“The goal of each cross-functional team is to build a joint business plan and gain agreement on sales, margin and inventory,” he said. “Soon they discovered that a ‘team-to-team’ approach greatly increased the speed at which new programs were executed. Progress is tracked on an online scorecard, which any party within the cross-functional team can check.”
Meijer has realized benefits in the form of manufacturer commitment on sales volume objectives, margin performance, investing levels and intellectual capital from conversations with manufacturers, he said. The retailer's suppliers benefit from additional flexibility to do experimental projects and from being made privy to cost structures at the beginning and end of projects.
