By Brian Kilcourse, Managing Partner
10/7/2008
Back in January, we commented on the state of collaboration in the retail ecosystem:
“Many retailers still tend to think of their manufacturing partners as “suppliers” while manufacturers tend to think of retailers as part of the distribution network for their branded products.” (A Retail Paradox: Cooperation vs. Coercion, 1/15/08)
There have been a lot of technology-driven efforts made over the past 15 years to enhance retailer-manufacturer collaboration, with the goal to not only optimize the extended value chain, but also to transform the relationship into a virtuous cycle of trust and cooperation. However, while all of these efforts have been underway, a fundamental shift in power in the extended retail industry has changed the nature of the relationship. Now it is the consumer running the show. So where will they take us? And what does it take to move collaboration beyond the extremes of long-term strategic planning that goes nowhere or near-outsourcing of tactical inventory management through vendor-managed programs?
To find an answer to these questions, RSR launched a new study in September called Supply Chain Collaboration 2008: Beyond Coercion (to participate in this survey, please follow this link). Although responses are still preliminary, they are revealing and worth sharing.
A Road Paved With Good Intentions
Over one-half of our early survey respondents indicate that their trade relationships are “traditional,” with the purchase order being the basic communication between partners. That having been said, over 80% of our respondents think that collaboration has become more important in the last three years. With that kind of impetus, it would be easy to assume that a lot of collaborative efforts are underway – but the early findings don’t necessarily support that. Less than 4 in 10 of our early respondents “extensively” collaborate on item level forecasting & planning and replenishment, and a similar number indicate that they only engage in “limited collaboration” on localized assortments in spite of the fact that over one-half of the respondents indicate that the granularity of the inventory assortment (eg. localized vs. “one size fits all”) has increased.
RSR has seen in much of our recent research indications that retailers are working hard to localize assortments to some degree, and both shorten the order-to-delivery cycle to reduce paid-for inventory while at the same time reducing out-of-stocks in the store. These opportunities are being driven primarily by the consumer – who wants a compelling value offering tuned to his or her particular lifestyle needs. In response, retailers and their trading partners seek a more agile and responsive supply chain.
So What’s the Problem?
With the attention that retailers are giving to the above-mentioned opportunities, collaborating more closely with trading partners should be at the top of the list of action items. So what’s the problem? According to our early survey respondents, there are actually several. Most respondents indicate that “visibility into the whole supply chain” is the top problem. A contributing factor to the lack of visibility is that the involvement of more third parties in the global supply chain complicates relationships. Because of this, there are multiple and potentially conflicting forecasts at several steps in the supply chain.
Not surprisingly, given these challenges, lack of integration making supply chain visibility difficult is identified as a top inhibitor to moving forward. And the best way to overcome this inhibitor? Perhaps the reader will be surprised to learn that it isn’t necessarily better integration technology (although that is important too). The #1 opportunity to overcome roadblocks to better collaboration is “an executive team that better understands the value of what supply chain contributes.”
In most of our research, it is relatively common for retailers to cite “executive mandate” as a key way to overcome organizational inhibitors. Given that our early survey respondents indicate that the key metrics used to measure the success of their collaboration efforts are “fewer out-of-stocks at the point of consumer purchase,” “improved inventory turns,” and “reduced transportation and handling costs,” it shouldn’t be hard to get executive attention. This brings us in a roundabout way back to our quote from the 1/15/08 Retail Paradox Weekly column. As 17th Century Irish satirist and author Jonathan Swift once said, “there is none so blind as they that won’t see.” Seeking input for this study, we asked industry thought leaders about the inhibitors standing in the way of greater collaboration. One senior executive told us, “the two most important inhibitors are trust and senior leadership (or lack thereof).”
But there’s hope – as we noted earlier, early survey respondents indicate that regardless of the past, collaboration is more important than ever. Why? Because the consumer is demanding it!
EDITOR’S NOTE:
Add your point-of-view to RSR’s Supply Chain Collaboration 2008: Beyond Coercion Benchmark Study. We’d like to hear from you, and as always, your individual responses will be kept in strict confidence. Click on the link above or cut’n’paste this address into your browser:
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