GMA CEO: New Collaboration Model Needed
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?
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We must remember how the current “model of collaboration” between grocery manufacturers and food wholesalers came to be. Its genesis is rooted in the 1971 wage and price freezes instituted by Nixon to stall inflation (or “stagflation” as it was also called). It was supposed to be short-term, and eventually lasted for about 1,000 days.
But grocery manufacturers couldn’t wait 1,000 days to continue to raise prices, so they devised an innovative mechanism to show real prices and then “deal back” to the price-freeze prices (I’d refer to them as “frozen prices,” but that suggests just frozen foods). These deal-backs were called “allowances,” and exist to this day in hundreds of permutations. It’s amazing how a thousand-day event can become a decades-long practice.
Now we have another financial crisis, and the public’s appetite for scrutiny has been whetted. Financial institutions are under a microscope as never before, and there’s a thundering hue and cry for more oversight if not downright regulation. That’s because the financial institutions failed to regulate themselves. Oil companies are accused of gouging, so they’re being examined as never before. Now, compare that to the many, many failed attempts to regulate supermarket allowance accounting practices. The public is hungry, and not just for vittles. Are supermarkets gouging us, too? As the theme song from the hit TV show “Damages” expresses, “When I am through with you, there won’t be anything left.” Better self regulation, and fast.
Time is right for collaboration between grocery manufacturers and food retailers for both are feeling pain. Results from collaboration–to be successful–need mutually agreed-upon, publicly-stated objectives and then equal harnessing. To wit:
“We must collaborate jointly,” said the ox to the fly. “And so we plough along, as the fly said to the ox.” But which is the fly and which is the ox, or have we risen above that question?
“Collaboration” of the recent past was dominated by the fact that retailers were collecting more power in the whole supply chain relationship, and they, for the most part, did not wield that power in an upstanding way: trade funds collected then not used for their intended purpose, blaming suppliers for stockouts when it’s store execution that is missing, on and on….
But power is shifting away from retailers now–to consumers. So far, we’ve seen more emphasis on the retailer-customer relationship as retailers scramble to improve customer service and the shopping experience. But it will impact the supplier-retailer relationship too. If consumer insights are the key to weathering economic uncertainty–and all of our research says that they are–then something is going to have to change. Because retailers don’t hold the lock on consumer insights–and that means a whole new meaning to the word “collaboration.”
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.
The need for conventional supermarket retailers and vendors to improve their collaboration has existed for some time. This collaboration is need 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 take 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.
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 architectures 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.
Can you remember when retailers took responsibility for their actions? Before every category review resulted in salable merchandise being “reclaimed” at supplier expense? Back when product that was mishandled and damaged by the retailer or wholesaler was not always ‘charged’ back? Before too frequent store resets forced suppliers to allocate over 50% of field sales time to free and unproductive pack-out parties? Before private label purchasing duties were assigned to third parties paid for by the ‘lucky’ chosen suppliers? Before “gotcha” accounting audits churned up outdated and bogus deductions–with little verification or logic?
Back then, the cost of UPC implementation–mainly a retailer benefit–was borne by suppliers, and the one time fee would create an endowment (retailer managed) to fund the system forever. Along the way “collaboration” changed to “appeasement” and the major trade associations let it happen. So those who lead us into this one sided relationship will now take us to a better place? Suppliers–grasp your wallets and hang on for a great ride.
Why not try collaboration again? It did not work the first time. 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 collaboration 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?