Through a special arrangement, presented here for discussion is a summary of an article from Retail Paradox, Retail Systems Research's weekly analysis on emerging issues facing retailers.
A.T. Kearney has done a lot of work around the apparel supply chain, and one thing they discovered was that when a third party gets involved in the supply chain, serving an intermediary role between supplier and manufacturer, it creates efficiencies in the supply chain that well exceed the cost that the third party adds. Think Li & Fung and apparel sourcing.
From an economics point of view, I guess it goes something like this: the costs of many manufacturers doing business with many suppliers grows to the point where someone sees an opportunity to consolidate the relationships by acting as an intermediary. Speaking at a breakout session at NRF's first annual supply chain conference, A.T. Kearney's Kumar Venkataraman said that they have seen up to 30 percent cost reduction in the entire value chain when an intermediary steps in.
But then the session explored why has this kind of relationship not taken off in the fast-moving consumer goods supply chain? And they asked it not just of the relationships between raw ingredient suppliers and manufacturers but also between manufacturers and retailers. Why haven't companies like Procter & Gamble, Kraft, Target, and Walmart gotten together to create a grocery equivalent of Li & Fung to lower their supply chain costs?
At the Q&A point, the room seemed to agree that data exchanges such as Worldwide Retail Exchange (WWRE) perhaps counted as an attempt, but that aside from the costs and complexities of these kinds of exchanges, retailers and manufacturers just seemed unwilling to collaborate on anything strategic. Competition of private label may also get in the way. Still, Mr. Venkataraman said (I'm paraphrasing), "But given the cost reductions that a third party has brought to apparel, wouldn't it be possible for manufacturers to collaborate enough on the supply side to cut their prices enough to make private label irrelevant?"
The session ended before I had could ask a number of questions like: Isn't the Li & Fung of grocery actually companies like Nash Finch and Unified Grocers? Distributors that serve independent and small chain grocers so that they can pool their buying power?
I also eventually came up with one area where I could see the potential for collaboration for even larger retailers, and that's around cross-channel -- buy online, pick-up in store. Yes, I can see that, but the real advantage of that model for grocery is access to the long tail of products that rarely see the light of day on the shelf.
How to do that? Why not a third party? Someone who stocks these oddball SKUs so that they can be delivered to any retail store within, say, a 3-5 day window max? Hmm. I would be very interested in seeing a business plan for something like that -- as long as the most complicated supply chain idea in the world can actually deliver on its promised value.