By Nikki Baird, in association with RetailWire
9/30/2008
Last week, RetailWire ran two separate stories, theoretically on unrelated topics. The first was gauging BrainTrust panel reaction to a speech given by the CEO of the Grocery Manufacturers Association at a recent conference – he said that new models for manufacturer-supplier collaboration are needed. Reaction from the panel ranged across extremes, except for one: no one completely disagreed. At best, some panelists argued that collaboration exists today, but it could definitely be more efficient.
Then a few days later, RetailWire ran a second story about CVS’s charity golf event, and how some people are saying that the event has become more a “pay for access” event for vendors, rather than the charity event it is meant to be. Again, reactions were mixed – some, myself included, responding that no matter what a retailer does, this is going to be an issue. Others said the perception alone is enough to rethink the event, and still others said, have the charity event, but take the “pay” part out of the access – and level the playing field.
These two stories feel like two sides of the same coin to me. I do believe that a new model of collaboration is needed, but the CVS story is a warning for a big pitfall out there when navigating the world of collaboration. If a retailer works with a specific manufacturer for a new product opportunity, and it develops into a strong relationship, it certainly holds potential for the retailer, the manufacturer, and the consumer. But what about other manufacturers? That level of collaboration can’t possibly be available between all trading partners – but how do you manage the “unfair” advantage that a close relationship gives? Or is it just something that is going to happen anyway and we should all just accept it?
I don’t know the answer to these questions – but I would definitely like to know what you think. Our collaboration survey is up and waiting for your opinions – you can take it here. Excerpts from each of the discussions on RetailWire are below.
Each business morning on RetailWire.com, retailing execs get plugged in to the latest industry news and issues with key insights from a "BrainTrust" of retail industry experts. Here are excerpts from one of these unique RetailWire online Discussions, along with results from the RetailWire Instant Poll.
GMA CEO: New Collaboration Model Needed
By George Anderson, Editor-in-Chief, Associate Publisher, RetailWire
Manly Mopus, interim president and CEO of the Grocery Manufacturers Association, told attendees at the Merchandising, Sales and Marketing Conference and the Joint Industry Unsaleables Management Conference, "The time is right for a new model of collaboration."
Mr. Molpus said his association and its members were "committed to working with the Food Marketing Institute to undertake a full-scale evaluation of all industry affairs initiatives, committees and conferences to find synergies and new and better ways of working together."
Discussion Questions: Is the time right for a new model of collaboration between grocery manufacturers and food wholesalers and retailers? What would that new model look like if it were up to you?
RetailWire Instant Poll Results:
RetailWire BrainTrust Comments:
Clearly, better communication between buyer and seller is a good thing. The problem is that the real world is not controlled by two people meeting in an office. What the industry need is dynamic demand management, not joint forecasting.
Use POS data to drive production and logistics planning. There is simply no reason distributors cannot provide suppliers with accurate daily scan sales. Suppliers should be able to keep product in-stock and inventory turn up from there.
Replenishment is a science, not an art. The weakness in [previous collaboration efforts] and its primary objective was solving the promotion issues. Here, wishes and hopes need to be replaced with rational thinking. The real question is, now that the balance of power has shifted to the distributor, do they really want partners or power?
W. Frank Dell II, CMC, President, Dellmart & Company
Collaboration only occurs when individuals agree. When groups try to agree for individuals and then tell them what has been decided, it is properly called coercion.
Collaboration can and does occur every day in our industry. Every time two trading partners identify an opportunity for mutual gain. You can't force that.
Ben Ball, Senior Vice President, Dechert-Hampe
The need for conventional supermarket retailers and vendors to improve their collaboration has existed for some time. This collaboration is needed to improve efficiency, reduce costs, and compete more effectively against Walmart supercenters.
Retailers and vendors need to abandon inefficient historical practices arising from an adversarial model and develop a partnering model that takes a long-term perspective to improving the benefits for both retailers and vendors. The analog for the collaborative relationship is a marriage based on commitment and trust rather than a relationship between casual friends.
Barton A. Weitz, Professor, Exec. Dir. - Miller Center for Retailing Education and Research, University of Florida
W. Frank Dell is right on. Of course collaboration already exists, but it can be much more efficient. POS analysis is a requirement and any retailer that still sees sharing POS as a threat, is not educating themselves very well.
With POS integration, companies can easily identify what is selling where, when and how. Integrating POS with syndicated data, internal information (such as promotions, shipments, forecasts, etc.) will give manufacturers a complete view of their sales.
Service oriented application architecture is the next generation to facilitate collaboration between the different parties. The right software architecture will integrate data, present it back quickly, identify exceptions, quickly identify issues and allow a company to respond faster than ever. This software exists today. There are several of these products on the market including POSmart and BlueSky. It is the next generation and companies are doing it today.
Janet Dorenkott, VP & Co-owner, Relational Solutions, Inc.
Read the entire story and RetailWire discussion at:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13251
Vendors Gain Access to CVS Execs Through Charity Work
By George Anderson, Editor-in-Chief, Associate Publisher, RetailWire
Like most retailers, CVS has a very strict policy on proper conduct with trading partners including clear policies preventing buyers and other company officials from accepting gifts from suppliers. The goal of the policy is to keep the playing field even and not give particular manufacturers undue sway over product decisions, shelf space, promotions, display activity, etc.
Now, a Wall Street Journal report brings into question whether some vendors have been able to buy their way into the good graces of the chain by spending thousands of dollars to support the company's annual golf tournament, the CVS Caremark Charity Classic.
According to the report, some CVS insiders see the tournament as a "pay to play" system that favors those companies that donate the most to support the event. CVS takes issue with any such characterization claiming, "Participation in the event each year is optional and does not affect our vendor selection process."
The tournament is championed by CVS CEO Tom Ryan, who according to WSJ, is rated by Golf Digest as one of the top golf-playing CEOs in the country.
Some vendors such as KKM, a broker for manufacturers without a direct sales force, has been a sponsor of past tournaments and recently purchased a vacation package that was auctioned at the event that included a trip for to the private Carnegie Abbey Club on Narragansett Bay in Rhode Island. According to the auction program, the trip also included "two CVS Caremark executives of your choice as your guests." KKM, according to the report, paid at least $50,000 to secure the vacation package with the CVS execs.
While the retailer and suppliers maintain everything is above board at the tournament and no quid pro quo exists, others such as Michael Levy, director of the Babson College Retail Supply Chain Institute, suggest that the appearance of impropriety is about as bad as the actual thing. Buying trips for customers, he said, places CVS and its vendors into an area colored by "shades of unethical" behavior.
Discussion Questions: Do you think that CVS is playing with ethical fire with its annual charity golf tournament? Is there reason to question whether those vendors that contribute to the event may be getting better treatment from the chain than those who choose not to participate or who do so on a much more limited level?
RetailWire Instant Poll Results:
RetailWire BrainTrust Comments:
First we have the statement "Strict Policy on Gifts." Obviously, that policy is not too strict because the buyers and executives can accept gifts and gratuities. The only thing strict is how to get around the policies. A strict policy is very simple, "No gifts or gratuities." Period. Is this harsh? No, because....
Second, all of these gifts, gratuities and donations ultimately effect the cost to the retailer and eventually, the consumer. There is no "extra" funding for these events or gifts. The supplier is well aware ahead of time what types of fees are expected to be paid when setting up a new item, and figures all of these into the costs of the product.
If I can sell a product to a true "Net, Net" retailer, let's say for $1.00, the retailer accepts the product, applies a markup to it (let's use 35%) and sells the product to the customer for $1.35. Retailers like CVS and most supermarkets expect an accrual, charge slotting, marketing support, dinners, donations and a myriad of other fees. So, the supplier projects what it believes its volume will be on the item and then totals up all of the associated fees it is going to have to pay to play and adds a bit of a cushion to it as safety mechanism. (Let's assume these costs add up to $0.42) Now, the same $1.00 product goes to the retailer at $1.42. Apply the 35% markup and the selling price becomes $1.92.
This is exactly why Walmart always has a price advantage over any other retailer. Because they are a true Net, Net company who has a strict policy regarding gifts, dinners and donations...they don't accept them period!
Phil Masiello, President, VALUChain Associates
Even as RSR launches its own survey on supply chain collaboration (where we had to try to scrub out any inherent assumptions that more is better), I wonder about these kinds of side effects. "Collaboration" is only a few words away from "collusion" in the dictionary, and I have a hard time picturing the future of the industry without either accusations of favoritism or actual preferences given to certain trading partners.
The reality is you can't completely eliminate "undue" influence--especially when the retailer in question is trying to do things like serve the wider community. Whether a charity event starts out or evolves into a way for vendors to gain access to a retailer's executives--or whether it is only perception and not any of these things at all--as a retailer, what can you do? Stop the event? We're relationship-driven animals. The issue will just crop up in some other way. Better to know it and control for it as best you can, because it's never going away.
Nikki Baird, Managing Partner, Retail Systems Research
OK, so everyone admits that something sounds a little fishy here, but let's get back to the essence of what is going on. Someone at CVS is trying some good by linking charities with a sporting activity that, I'm sorry, gets too much attention.
Does it really matter how good a golfer a CEO is? Does that make stockholders feel better? Does it make the customer service in the stores better? Does it make prices more affordable for low-income customers? Does it help gain more breakthroughs in healthcare sciences? We criticize factory workers who care more about their weekend activities than their job of building a quality product, so doesn't the same apply to the headquarters staff?
Anyway, back to the discussion; if vendors are not able to participate in charitable activities, without peddling influence, how else could these monies, or dollars used to bid on prizes be earned and redirected to those in need? Could companies require vendors to donate a fixed percentage of their sales to the company's charity? What about the same thing for offering discounts across the board for low-income customers? Is there another way to level the playing field? How do we achieve equity? Let's not lose the spirit of good will, just remove the PAYOLA aspect out of it.
Jerry Gelsomino, Principal, FutureBest
Read the entire story and RetailWire discussion at:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/13257
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