Journal of Trading Partner Practices: Building the Perfect Supplier
By Anthony Miano
Through a special arrangement, presented here for discussion
is an excerpt of a current article from The Journal of Trading Partner
Practices, the official online publication of the Vendor Compliance
Federation (VCF), the Trade Promotion Management Associates (TPMA), and
the Federation of Credit and Financial Professionals (FCFP).
It is often forgotten, particularly in difficult economic cycles, that suppliers
choose their retail customers by targeting specific, prospective customers
– and not vice versa. Given this market reality, perfect retail trade customer
relationships require a significant degree of thought, process, and measures,
beginning with the process of targeting the right prospects.
To truly improve margins and profits, retail customers do not just desire,
but require strategic, and strategically aligned – suppliers. Understanding
this can help to target your marketing and sales efforts. Such an analysis
will extend beyond right product/right price. It requires the seller to understand
and be prepared to execute on that particular retailer’s long-term expectations.
Ask yourself the following questions when considering which retailers to
target as your perfect customers:
- Do you have a plan for constant improvement in service, delivery, quality
and value added services? If this is something the retailer requires, are
you willing to invest in such a program with no guarantee of a price increase?
- Do you understand the retailer’s strategic mission of, for example, “high
velocity, error free supply chain,” and do you have the distribution
infrastructure to accept and support it? One must think through exactly
what this will mean for one’s business when delivering each purchase order.
Business is not profitable if it is not aligned with your capabilities.
- On the other hand, one must also consider the investment necessary to
achieve alignment as compared to the long-term value of such a relationship.
Is it worth it to make the investment? Only you can decide, based on your
own strategic goals.
- Does the retailer have a reputation for making changes to existing policies,
requiring additional discounts, or extended payment terms? Are you willing
to make exceptions when the retailer faces unforeseen competitive situations?
Or, would you be able to show the significant value you already provide,
therefore mitigating the request?
- Do you have the necessary business processes in place and EDI capabilities
to communicate and share data as the retailer requires?
- Are you prepared to secure additional raw material or do you have the
ability to increase capacity when an unexpected increase in demand occurs?
This is important for fast-growing retail chains and those focused on replenishment.
These are some of the questions that need to be considered beyond the questions
of right product and right price to ensure you have even a shot at creating
perfect customer relationships. Many suppliers have tried to maintain a relationship
“keep the revenue” without considering the deterioration of the
customer relationship due to poor quality and service, and mounting costs
incurred by forcing both sides to maintain a customer relationship. If the
supplier does not have the capabilities at present to be able to answer or
respond to these questions, or deliver on its own promises, this may not
be a perfect customer.
Discussion Questions: Which part of the working relationship do vendors
most need to consider in deciding whether to sell to a retailer or not?
Which part of the process is most underestimated?
Join the Discussion!
10 Comments on "Journal of Trading Partner Practices: Building the Perfect Supplier"
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#1 priority: is the retailer likely to pay its bills? Retailers with credit problems offer the least sales resistance, for good reason. If you’re going to get paid, will you get paid timely? Will the retailer agree to set prices in alignment with your other customers? (If one retailer has lower prices, you’ll lose distribution from the other folks.) Is the account so small that you’d be better off selling through a wholesaler? And how desperate are you? Suppliers take extra risks and suffer extra costs when they need to make their quota…and make their own payroll. So it’s hard to say no.
I have a broader question for the group, keying off of this article. In which direction will supplier-retailer relationships move if the economy stays bad for another 18 months or longer? Sometimes I wonder whether there is too much consulting theory around the value of a consumer-centric, or supply-chain-optimizing “partnership.” I suspect “partnership” attempts based on the theory will get tougher and tougher, ending in big confrontation. If the “partnership” is based on cold hard economic facts (“do this with me and you get $x more money…and I can prove it”), I’m sure the cooperation will be more successful. But even then, will the mood become so confrontational that even data-driven ideas that are truly economically beneficial to both parties will get thrown out with the bath water?
Mr. Miano’s points are excellent, but I fear the initial premise is flawed. I’m not sure how many suppliers–at least in CPG–select their retail partners strategically. In fact, just the opposite is true. In the quest for “100% distribution” there is no assessment of retailer suitability beyond credit worthiness. “All distribution is good distribution” and “incremental distribution always generates incremental volume” are drummed into the CPG Sales culture. As I suspect Mr. Miano would point out, that is one of the reasons we wind up with so many disappointing “partnerships.”
Many retailers pride themselves on extracting as much value for as little cost as possible. They too want to be low-cost providers in order to pass along savings to customers. As a supplier, you better have a business model that can function at a fair profit with full disclosure of all of your operating costs. You have to constantly find ways to offer more value at minimal expense. Be prepared to expend more resources than you planned to satisfy demand.
Another thing that did not get mentioned in the article is how strong is the overlap among consumers for both companies. Is it one segment? Is the overlap all of your segments but at different locations? What consumer data are you willing to share and what consumer data is the retailer willing to share? Is there an attitude of collaboration toward developing joint strategies?
Like several other commentators I’m impressed by the article and the thinking that went into it. But strategy from the supply side is not the most important issue. Suppliers need to share their short-term as well as long-term plans for their brands. In turn, they need to demand the same from retailers. I’m not naive enough to think that this is a symbiotic relationship. It’s a financial relationship.
But making money takes commitment. Commitment comes from knowing each other’s business. If I’m a supplier I want to know a retailer’s customer retention and acquisition program. I want to know if store expansion plans are logical. I want to know your technology expansion plans. All those things will determine the proper investment and relationship strategies.
Very interesting article. But the fact is, there is no perfect trading partner. No matter how good a relationship is, it needs to be a fluid thing. Nothing is set in stone these days and all partners need to review their relationships on a regular basis and adapt to changes in the marketplace–whether it’s material pricing, delivery, any supply chain issue, or demographic changes that can affect both retailers ad vendors.
There is no silver bullet for developing long term collaborative relationships in this business. You have to work at it all the time and neither party should take the other for granted.
In a way, it’s ECR all over again. Maybe we can get it right this time. Take a look at JAG, Jointly Agreed Growth–a new and improved platform for category management and sustainable growth that is gaining support from retailers and manufacturers in Europe.
Excellent article! But there is one thing that did not get mentioned. Most retailers, especially larger chains, often view their relationships with suppliers to be one way. They believe it is a privilege to be able to sell to them. As such, the demands they make on suppliers are often for their own benefit without much interest in mutual long term success.
Having presented supplier proposals to companies such as Walmart, Canadian Tire and The Shopping Channel, I can tell you that unless you have a product they consider an essential part of their SKU list, then you are pretty much at their mercy.
Will falling sales and shrinking markets prompt them to change their views towards suppliers? Regretfully, I highly doubt it.