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State of U.S. Retailer-Supplier Collaboration 2010 PDF Print E-mail
Written by Rob Guerriere   
Apr 12, 2010 at 12:17 AM

Vendor Compliance Federation Collaboration Scene

From the Vendor Compliance Federation.  This is a must read if you are a manager or executive from a vendor, wholesaler or manufacturer.

The vendor compliance federation is celebrating its 10th anniversary.  It was founded and spearheaded by Kim Zablocky.  Kim is one busy guy.  He is directly responsible for saving the retail distribution industry hundreds of millions of dollars in making the supply chain more efficient by bringing retailers and vendors together, and actually attaining collaboration.  How does he do it?  I'm sure the GS1 would like to know.  He puts together several conferences each year which some of the largest retailers, distributors and manufactures attend. 

How does he accomplish so much with such a small team?  It's almost like he has mafia influence over the industry.  I have images in my head of Robert Deniro playing Al Capone in Brian De Palma's Untouchables.    Where Kim, I mean Al, is holding a black tie dinner with his top Lieutenants, when he confesses his favorite enthusiasm is baseball, picks up the bat, and you know the scene...Collaboration. (If you are interested in seeing the inspirational video, go in the member lounge.)  Well, I know Kim and experienced him in action.  Yes, he is a hard worker and smart.  But he is specifically talented in two areas.  He is all about relationships, how to make the most of one's in-person time with key metrics.  Also, he is one of those guys who know how to close a deal and hold stakeholders accountable.

The following are excerpts that I pulled from the VCF's recently released State of U.S. Retailer-Supplier Collaboration 2010.  It highlights some of the findings of the report.  If you would like to see the report in its entirety, visit the Vendor Compliance Federation Site here.

VCF would like to thank the representatives from J.C. Penney, Kohl's, Neiman Marcus, Family Dollar Stores, Stein Mart, Stage Stores, Hot Topic and Burlington Coat Factory for taking the time to share their thoughts, which helped to shape this white paper.

VCF was born from the frustration and angst of the vendor community over unmanage­able deductions and the absence of a forum in which they could air their grievances and develop supply chain solutions with their retail counterparts.  The results over the past ten years have been astounding. Through their collaborative efforts, hundreds of suppliers and retailers have streamlined their supply chain process­es and saved their companies millions of dol­lars. However, VCF believes the current state of retailer-supplier communication has yet to reach its full potential. For many companies, trading partner relationships are still strained and business process errors and deductions persist.

To underscore the significance of direct and unfettered communication between retailers and suppliers, the Council suggested that, as a first order of business, it craft a white pa­per stating its position on the value of face-to-face meetings and how they can be en­hanced through VCF conferences by bringing the right people with the right information to the right place. The Council believes that face-to-face meetings between retailers and their suppliers at VCF conferences cannot be overstated, as they give retailers and suppli­ers the unparalleled opportunity to discuss a variety of issues and challenges with multiple trading partners at one venue.

Yet, the Council also believes that these meetings are not always producing the desired result. The purpose of face-to-face meetings is to bring together managers of compliance and operations and senior-level executives who are empowered to work with their counterparts to address issues that enable both sides to eliminate missteps throughout the order-to-cash process. Trad­ing partners must strive to use these invalu­able sessions at VCF conferences to proac­tively resolve pressing issues and address the problems that trigger deductions, rather than simply using them to settle past dis­putes or recover money. In short, the Council believes there is an opportunity to elevate the one-on-one sessions to their original intent.

Some of the shortcomings at these face-to-face meetings stem from general problems that inhibit retailer-supplier communication. Council members note that many of the problems in communicating their require­ments to suppliers and receiving feedback are the result of a separation of powers within supplier organizations. Sales person­nel often fail to communicate with logistics and operations personnel. Companies are "siloed", and when meetings take place be­tween retailers and suppliers, they are usu­ally between sales and buyers only.

Better communication between sales and compliance/operations departments would help both sides understand how they are contributing to disruptions in the order-to-cash cycle. This requires a change in culture because often times at vendor companies, sales personnel are not held accountable for compliance deductions the way operations, compliance and other departments are. As such, they are not as concerned about what happens to the order once it is created - hence the lack of communication. Currently, lack of accountability among departments is a significant stumbling block at vendor com­panies.

If all departments within a vendor organi­zation were in sync in their efforts to fulfill their customers' business requirements, the communication between vendor and retailer would be seamless and non-compliance is­sues would be resolved much quicker.  Interestingly, one of the factors that has improved trading partner communication has been an unwelcome one - the protracted recession of 2008-2009. The economic down­turn has forced suppliers to redouble their efforts to control costs and address problems that are hurting the bottom line. As a result, more suppliers are responding to deductions that were previously ignored and are open to collaborative efforts designed to drill down to their root causes. This has built the founda­tion for improved trading partner relations that should endure, even as the economy gets back on solid footing.

As one Council member noted, "Vendors know their business better than we do, but are often reluctant to share information." Those who do share information reap the benefits of collabora­tive forecasting and inventory planning and a clearer understanding of supply chain metrics and processes. Moreover, when retailers fur­nish their suppliers with an analysis of sales and operational performance, with projec­tions for future sales, best-in-class suppliers adjust their inventory or business processes, or come back with their own feedback and analysis. Too often, however, vendors are reluctant to provide feedback, even if they disagree with the retailer's analysis.

Vendors should understand that retailers have the option to direct source if they are not bringing value to the table; the growth in private label is a natural progression of this. One Council member stated, "The worst thing is a poor performing vendor who shows no change in its supply chain metrics."  Nevertheless, retailers are aware of how seriously the deep recession of 2008-2009 impacted their suppliers. Widespread layoffs have depleted compliance departments and, in some cases, wiped them out completely. Those who were spared the chopping block at supplier organizations were left to contend with enormous workloads that make the job of complying with their retailers' business requirements a harrowing task.

It is this type of collaboration that, hopefully, will help eradicate the notion that vendor compliance initiatives are nothing more than a profit center at retail organizations. Notwithstanding past abuses at a minority of companies, the goal of retailer compli­ance initiatives - and efforts to communi­cate them to the vendor community through web portals, supplier training programs and VCF events - is to drive an error-free supply chain to minimize out-of-stocks and boost profits by ensuring the right products are at the right place at the right time. The profits that are gained via a seamless order-to-cash cycle far exceed profits that can be achieved by taking deductions.

Ultimately, strategic partnerships are a func­tion of volume, reliability, creativity and a willingness to participate in analysis on trade promotions, forecasting and inventory plan­ning and supply chain execution. Best-in-class suppliers will collaborate with retailers by bringing to the table their perspectives and core competencies in advance, rather than fighting about them after problems ar­rive and performance related deductions are levied. Suppliers whose departments oper­ate in silos will have a difficult time commu­nicating the above functions with their retail partners and will often be unprepared to engage in productive discussions when meet­ing face-to-face. 

One Council member notes that a reasonable goal for vendors is to strive for at least 95% accuracy in on-time delivery and order fulfill­ment. Suppliers should not sit in silence if there are known issues that will impact these minimum performance standards.  Another Council member states, "Only one vendor has asked to see our DC. When he came, it was an eye opener. He was able to see first-hand the impact of faulty processes and non-compliance on the DC's efficiency. We have had no issues since then."

Senior retail and vendor executives are fo­cused on higher-level metrics such as rev­enue, margin and cash flow. VCF's challenge must be to take these metrics and show how supply chain or business process errors di­minish them in an effort to gain the attention of senior management. For example, confer­ence programs can demonstrate how on-time performance affects in-stock position and, specifically, how poor performance results in out-of-stocks and missed revenue and mar­gin dollars. This would arm senior-level mer­chants and suppliers with the saber needed to discuss why they missed their budgets. By translating high-level issues or problems to a financial metric, both sides from the C-suite level have a stake in attending VCF events.

It was agreed that vendor scorecards are emerging as the primary means by which re­tailers measure supplier performance and will ultimately be used to determine who retailers choose to partner with over the long haul. As one Council member notes, "We do not have a single vendor meeting without a scorecard. We see it as a snapshot of vendor perfor­mance and use it as a gauge of predictability of performance." Scorecards also enable a fact-based conversation, since evidence that a vendor is shipping late or on-time or is ful­filling or not fulfilling orders is laid out.

Scorecards are always a work in progress and are evolving to measure both sup­plier and retailer performance. They strive to measure the full relationship - not just individual aspects of the supply chain. Score­cards need to provide the metrics and per­spective that will allow both partners to focus their energy and their assets towards efforts with a high ROI. For example, "in-stock", "GMROI", "DIOH", "forecast accuracy" and "performance to budget" are all potential metrics that can motivate management at both the retailer and supplier to engage more fully. Moreover, visibility drives competition and increasing scorecard visibility (where all vendors can see where they stand in relation to their peers) is a healthy and productive way to motivate suppliers with performance issues.

Ultimately, both retailers and their suppliers have an equal stake in elevating their collab­orative efforts through direct communication and information sharing. The impact of the prolonged recession of 2008-2009 on sales and margins should serve as a rallying cry for trading partners to elevate their collab­orative efforts beyond what has already been achieved since VCF was formed back in 2000. The purpose of this white paper is to uncover communication barriers and untapped oppor­tunities that will enable VCF to drive greater collaboration within the retail/supplier com­munity that produces increased profitability.

The Council believes that the drive for great­er collaboration through VCF is of particular significance at this juncture due to the reali­ties that retailers and vendors face.

Retailers are contending with:

  • Declining margins
  • Rising inbound expenses, and
  • Sluggish top line growth.

Meanwhile, vendors are contending with

  • Soft sales
  • Fewer resources, and
  • Competition from private label manufacturers.

 


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