But the fact is, all retailers are not equal performers for the supplier –– and vice versa. Efficient retailers subsidize the inefficient. That’s because most vendors develop their pricing by averaging their costs. These costs include those of doing business with the inefficient retailers as well as the efficient ones.
contrast, has a flat top and ridged sides that permit stacking; all that’s required for shipment are several cardboard bands and shrink wrap.
It was Superior Dairy that came up with this new design. Benefit: Milk no longer needs to be removed from crates. At Sam’s Club, this simple change has reduced deliveries from four or five a week to two, while cutting labor costs.
Manufacturer outsourcing can be another opportunity, as the case of one cheese marketer shows. By going outside instead of buying from his own internal production operation, the CFO is now saving 13 percent. He passed five percent of that onto the stores, and kept seven percent inside –– for a nice bump to profits.
What hurdles do companies face in trying to create such productive partnership ventures? According to The Economist survey’s respondents, the top three issues are:
n Trust regarding information-sharing
n Conflicting cultures
n Contractual terms
How do companies overcome these problems? What do you need to consider when undertaking strategic partnering?
First, consider the process from a retail perspective. As any CPG executive who has ever called on a supermarket knows, the biggest fear of any retailer is that it is not going to get the best price from the manufacturer.
The good retailers have begun to recognize this. So, more and more, those who are efficient –– who don’t deduct from the invoice, who execute on promotions, who pay on time –– are saying to the supplier: “Wait a minute. I’m a good trading partner for you. Why do I pay the same price as the retailer who deducts? I want that difference in cost to you reflected in a better price to me.”
On the other hand, smart retailers also recognize that they make more money with some suppliers than with others –– their products sell better, they have better-integrated operating practices; they and the retailer are better linked, they transmit orders and invoices electronically. In short, thanks to supplier competence, they do things better together.
Suppliers, for their part, are less and less eager to invest in such efficiency on behalf of the retailer, and get nothing in return. To CPG manufacturers, it especially galling that, because the retailer evaluates its suppliers largely on, say, gross margin, it gets no “credit points” for the fact that its trucks arrive on time, that it has developed special packaging to reduce damage at retail, that it reduces error by transmitting orders and invoices electronically.
Clearly, to establish trust and pave the way for strategic partnerships, suppliers and retailers alike need to articulate the specific performance “ground rules.” That way, each side knows what the other expects, and what it needs to do in order to benefit from and maximize the potential of the relationship.
What is the methodology that allows trading partners to work more productively together, thereby adding value to each
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