BEYOND ZERO-SUM RELATIONSHIPS 2004-06-14 (2)

CHRISTINA VEIDERS

The state of trading partner relationships is pretty good considering it's never a perfect world when it comes to trading partners working together to achieve mutual advantage in the food distribution business.

This finding is according to an exclusive SN online poll on the current state of trading partner relationships. A majority of survey respondents (55%) indicated their working relationships with their respective business partners have improved over the last two years and a high percent (80%) described their trading partner relationships as "good." The survey, conducted in April, polled retailers, wholesalers, manufacturers and third-party brokers and sales agencies, via SN's Web site (www.supermarketnews.com), asking them to rate their relationships with their trading partners as to how they are working together to increase profits, improve product sell-through and satisfy customer needs.

Of the survey respondents, 32% were suppliers to supermarkets, 22% were food retailers, 13% were sales agencies, 10% were food wholesalers and 23% were listed as other -- mostly consultants and marketing companies. It should be noted that this was an informal poll and not based upon scientific research methods. However, the responses do show some indication that trading partner relationships may be changing for the better.

When asked about their overall working relationships with their trading partners, three segments of the food industry -- retailers (87%), wholesalers (93%) and sales agencies (82%) -- rated their relationships as "generally good."

One retailer said, "A lot of companies I work with are trying to understand our business better than before."

"Less complaints. More business," commented a supplier.

"We've taken on specific tasks aimed specifically toward improving vendor relationships," said a wholesaler. "We feel it's critical to partner with our suppliers."

A sales agent noted, "The more we talk and get to know each other's needs and wants, we see that we really are partners."

"There is more willingness to openly discuss and negotiate terms, conditions and general differences," said a consumer packaged goods consultant. "There also is the willingness to discuss the capital investments needed from all to meet future needs and expectations of the shoppers/consumers. This relates mainly to supply chain and technology changes and investments."

While 66% of manufacturers/suppliers also described their trading partner relationships as generally good, nearly a quarter, 23%, said they were "poor, with too many areas for improvement," and 10% of suppliers said their relationships were "excellent and couldn't be better."

Only 3% of food retailers rated their trading partner relationships as excellent and 10% said they were poor.

No wholesalers checked the excellent box and only 7% of the wholesalers said their relationships were poor with their partners.

For sales agencies, 12% said their trading relations were excellent and only 6% said they were poor.

Industry consolidation and rapid changes within the industry, advances in new technology and overall competition may be forcing the various sectors of the industry to work more cooperatively together, according to some of the written responses submitted in the poll.

One retailer wrote, "Due to the competition in products and retailers, it is forcing us and them to improve relationships."

One sales agent lamented the many industry consolidations taking place. "It is hard to keep up with the changes." Another said, "Consolidation is changing retail rapidly."

A wholesaler said, "We need to be faster in adjusting to change." A supplier commented, "With the ever-changing market comes changing ways of doing business."

One wholesaler said, "We are constantly monitoring our supply sources and the efficiencies of our buying practices. During this process, we occasionally find more efficient means of supply. In today's market, you have to be as efficient as possible in order to compete."

Many mentioned new technology as a partial reason for improved relationships. "We tend to be technology focused," said a retailer. "There have been minor improvements in e-commerce-related initiatives."

"There is always room for improvements. I think the technologies are there for use of [radio frequency identification] and [collaborative planning, forecasting and replenishment] systems," said a supplier.

"Some of the suppliers we deal with could use some more technology improvements and could cut their costs by doing so," commented a retailer.

A supplier noted, "We're working on scan-based programs, which gives us more responsibility in increasing sales." Another supplier said, "We are working on many areas collaboratively (CPFR, data sync, RFID), but there is still a lot to learn and a lot to be done."

Others listed improvements in communications, processes and incentives, shared goals in data synchronization and strategic sourcing initiatives as reasons why relationships have improved and are good.

Survey respondents also noted specific areas that could be further developed to improve trading relations. These included concentration on cost reduction and more focus on the consumer, reducing chargebacks, deductions and unsaleables.

The timeliness of efficient warehouse deliveries often was mentioned as an impediment and area for improvement. "We'll need to change the way deliveries are made," said a supplier. "Waiting for truck drivers, it can be over four hours to deliver product. Dock appointments are a joke. Unfortunately, this is the case with almost every grocery chain we service."

A supplier said, "The cost of warehouse delivery continues to skyrocket. Unbusinesslike practices at [distribution centers] are a growing concern. Supermarkets claim this is beyond their control."

Biggest Obstacles

Some respondents, however, echoed the same adversarial complaints heard for years about the difficulty of achieving true trading partner collaborations.

When asked to list in order of importance obstacles to good trade relations, 22% of respondents checked lack of communications as the No. 1 obstacle. In fact, all segments of the industry listed this as the biggest obstacle to good trade relations. This was followed by bottom-line rather than consumer-focused (11%), different set of business goals and priorities (8%), lack of innovation (5%) and lack of trust (1%).

Here is what some retailers had to say:

"Old ways are hard to die. Many vendors still operate by the 'if you buy it, it is ours' approach. The sale is never complete until the consumer uses the product."

"Basic sales rep responsibilities are lacking -- price change notification, deal sheets, new items, deletions. Some of these reps are sent out with no training at all and they expect the buyer to train them for the manufacturer."

"Wal-Mart seems to be getting better costs?"

"We have vendors that do not listen to our needs and therefore this impacts our customers.

There are many good reps; however, we could have more better ones."

"They talk the talk but they don't walk the talk."

"Less promotional monies and support is available."

Here is what some suppliers had to say:

"Suppliers are now being looked at in an adversarial relationship."

"Some get it. Most don't."

"Grocers would like to be treated like Wal-Mart, yet they do not act in the manner that Wal-Mart does. If we offer case allowances, we almost always find product being diverted."

"Profitability is a one-way street. Retailers want a net/net price, but still want store coverage, large donations for charity and golf outings."

"Accounts are still too focused on their needs, not the consumers' needs."

"Retailers are not looking for partners. They seem to be out to put manufacturers on the defensive."

"Promotions are not run as scheduled. Displays are pulled off the sales floor. Sale tags and signs are not hung. Product is relocated frequently, confusing shoppers."

"Retailers still bang away at vendors to ring them dry of all funds without regard for anything but the bottom line."

"Too one-sided. Retailers want, want, want, and then dictate. They expect manufacturers to pay for almost everything they do. There are some very good exceptions."

"Competitiveness and getting the most for your money is fine. That is what business is all about. But retailers today are forced to squeeze too much, and can be unrealistic."

"There are too many retailers whose idea of 'partnership' is how much money they can extort from you. They care nothing about the profitability of your company and only want to maximize how many promotional dollars they get from you."

One sales agent said, "It's all about buying with no regard to the sales effort, plans, creativity. Let's continue to stock and price with little promotion. Store training has been basically eliminated."

What Is Working

Survey respondents were asked what initiatives they felt retailers and suppliers were making the most progress on. The top three collaborative initiatives were category management (52.5%), new item introduction (41.6%) and e-collaboration (data synchronization, RFID) (40.8%). The majority of all segments except for suppliers voted category management at the top of the list as their most successful initiative. Suppliers, 43.1%, ranked it third, behind e-collaboration of which 45% said was their most successful collaborative effort. In-store execution (point of sale, displays, new product placement, sampling, signs) came in second as suppliers' most effective initiative.

On category management, one supplier said, "We have been up front and honest with our pricing. Along with our aggressive pricing, we work hard to become a partner with our category buyer." Another said, "Our category management process is practical and produces results."

However, one supplier complained about not getting placement with some products because he was not a category captain. "We have very good penetration with one of our brands, while the rest of the portfolio is hit and miss," he said. "This is due mainly to the fact that we are not the category captains or validators with any of our partners."

Other workable initiatives were ranked as follows by all survey respondents: in-store execution (37%), invoice deductions (23%), out-of-stocks (23%), CPFR (20%), data mining (14%) and unsaleables (7%).

Looking to the year ahead, the industry was asked to cite what collaborative projects they had planned. Again, category management was checked as the top initiative by 49% of all respondents. Second was in-store execution chosen by 47% and third was e-collaboration (43%). These three initiatives were at the top of the list for all sectors except retail. While 43% of the retailers ranked category management at the top of their list of projects for this year, more than a third of the retailers (36%) gave high priority to invoice deductions, out-of-stocks and new item introductions. In-store execution was a planned project by 28.5% of the retailers.

Other planned projects by all respondents included CPFR (32%), out-of-stocks (27%), data mining (24%), invoice deductions (23%) and unsaleables (12%).

The industry also was asked what is most needed to improve future trade relations? "Align retailer-supplier goals" topped the list with 18% checking this as a top goal. This was voted No. 1 among all sectors except sales agencies that listed "shared sales and customer data" as their top choice in what's needed for future trade relations. Second among all respondents was "sharing sales and customer data" (15%) and third was to "improve in-store execution" (8%). A smaller number of respondents checked "invest in state-of-the-art IT systems" (4%) and "more co-marketing programs" (3%).

Finally, when it came to which channel was doing a good job in pursuing productive trade relations, supermarkets, which received 13% of respondents' votes, topped the list over the other sectors. Supercenters and membership warehouse clubs both drew 11%, followed by independent grocers (6%), natural food stores (3%) and dollar stores (2%). Convenience and drug stores both received 1% of respondents' votes.

The general consensus among many of those surveyed is that while progress is being made on many fronts, when it comes to meaningful trade relations, there will be always room for improvement. "Too many competing agendas makes optimization difficult," said one supplier.

Always Room for Improvement

While industry respondents rated their relationships with their trading partners as generally good, many still voiced many of the old gripes that plagued relations in the past, such as conflicts in shared goals, lack of support, poor service levels and too many self-interests.

How Would You Rate Your Overall Working Relationships With Your Trading Partners?

Generally good, but there are areas for improvement: 80%

Excellent, things couldn't be better: 8%

Poor, too many areas for improvement: 12%

Source: SN online survey, April 2004. Total respondents: 136 (30 food retailers, 14 food wholesalers, 44 suppliers, 17 sales agencies and 23 other).

Best Collaborative Projects

Category management has been around for a decade or more, giving retailers and suppliers a lot of practice in trying to get the right product in the right place at the right time.

What Areas Are Retailers and Suppliers Making the Most Progress in True Collaborative Efforts?

Category Management 53%

New Item Introduction 42%

E-Collaboration 41%

In-Store Execution 37%

Out-of-stocks 23%

Invoice Deductions 235

CPRF 20%

Data Mining 14%

Unsalables 7%

Other 5%

Source: SN online survey, April 2004. Includes multiple responses. Total respondents: 136 (30 food retailers, 14 food wholesalers, 44 suppliers, 17 sales agencies and 31 other).

Upcoming Collaborative Projects

Retailers and wholesalers indicated they will continue to work in areas where they've previously experienced some collaborative success, with category management, in-store execution and e-collaboration high on the list of projects.

What Collaborative Projects Do You Have Planned in the Coming Year?

Category Management 49%

In-Store execution 47%

E-Collaboration 43%

New Item Introduction 37%

CPRF 32%

Out-of-Stocks 27%

Data Mining 24%

Invoice Deductions 23%

Unsalables 12%

Other 8%

No Projects planned 6%

Source: SN online survey, April 2004. Includes multiple responses. Total respondents: 136 (30 food retailers, 14 food wholesalers, 44 suppliers, 17 sales agencies and 31 other).

Things Are Looking Up

Many respondents indicated that they have established better communications with their trading partners over the last two years. Factors driving improved relationships include industry consolidation and technology.

Have Your Working Relationships With Your Trading Partners Improved Over the Last Two Years?

Stayed The Same Course 29%

Improved 55%

Deterioated 16%

Source: SN online survey, April 2004. Total respondents: 136 (30 food retailers, 14 food wholesalers, 44 suppliers, 17 sales agencies and 31 other).

Better Collaborative Speak

It appears that a leading obstacle to trade relations is the simple task of talking to each other and making clear each other's goals.

What Do You Consider to Be Obstacles to Good Trade Relations?

Lack Of Communications 22%

Bottom-Line Rather Than Consumer-focused 11%

Different Set of Business Goals and Priorities 8%

Lack of Innovation 5%

Lack of Trust 5%

Other 0%

Source: SN online survey, April 2004. Includes multiple responses. Total respondents: 136 (30 food retailers, 14 food wholesalers, 44 suppliers, 17 sales agencies and 31 other).

Channel Leaders

Supermarkets topped the list of the various channels of trade doing a good job on the trade relations front. Supercenters and warehouse clubs were close behind.

What Channels of Trade Are Doing a Good Job in Productive Trade Relations?

Supermarkets 13%

Supercenters 11%

Membership Warehouse Grocers 6%

Independent Grocers 6%

Natural Food Stores 3%

Dollar Stores 2%

Convenience Stores 1%

Drug Stores 1%

Source: SN online survey, April 2004. Includes multiple responses. Total respondents: 136 (30 food retailers, 14 food wholesalers, 44 suppliers, 17 sales agencies and 31 other).

Tuning On the Same Channel

Trading partner relationships are often skewed along self-interest goals that benefit each party rather than the common good, including the customer.

What Is Most Needed to Improve Future Trade Relations?

Align Retailer-Supplier Goals 18%

Shared Sales and Customer Data 15%

Improve In-Store and Customer Data 15%

Invest in State-of-the-Art IT Systems 4%

More Co-Marketing Programs 3%

Other 1%

Source: SN online survey, April 2004. Includes multiple responses. Total respondents: 136 (30 food retailers, 14 food wholesalers, 44 suppliers, 17 sales agencies and 31 other).