In praise of a different kind of “collaboration” between retailers and suppliers

Chris Lot/Flickr
Chris Lot/Flickr

According to dictionary.com, the definition of ‘collaborate’ is: ‘to work, one with another; cooperate’.

Recently, I received an email from Supply Chain Digest asking me to participate in a survey called ‘The State of Retail and Vendor Supply Chain Relations 2015′ – perhaps you received it too. (As a consultant, I never participate in these surveys as I feel it could taint the results, but I’m always interested in what they’re trying to find out).

The Research Summary reads: ‘What is the state of retailer and vendor/supplier relations today? Is it getting better and more collaborative – or heading the other way?’ The implication is crystal clear: More  = Better.

It seems foolish to argue against that. But that’s just what I’m going to do.

Over the years, supply chain collaboration initiatives were conceived with the notion that ‘two heads are better than one’, especially when there’s uncertainty afoot that could cause havoc in the supply chain, such as for promotions or product launches.

And because trading partners’ planning processes weren’t integrated with a common set of numbers, collaboration was seen as the way to bridge the gap (i.e. ‘we have two sets of plans that are misaligned, so let’s talk our way through it until we agree’). But to what extent is collaboration necessary (or even advisable) when trading partners are fully integrated?

Collaboration is work. Integration is effortless.

All that said, I would tend to agree with the ‘two heads’ argument, so long as all available information is shared between the ‘heads’ This is rarely the case, however, and it’s most often the result of inability to share, rather than unwillingness to share.

Consider a common scenario whereby a retailer and a supplier collaborate on a sales forecast. In order for the demand picture to be complete, the following information must be known and disclosed during the collaboration:

  1. Pricing and promotion strategy for the supplier’s products at the retailer’s stores
  2. Pricing and promotion strategy for the supplier’s competitors’ products at the retailer’s stores
  3. Pricing and promotion strategy for the supplier’s products at the retailer’s competitors’ stores

Point 1 is generally already known by both parties. Points 2 & 3 are at best, unethical (and at worst illegal) for either party to share with the other.

It’s sort of like having two people collaborate on what bet to place on a 5 card poker hand. Each person can only see 3 of the 5 cards with one common known card between them and they aren’t allowed to discuss the cards they can see with their collaboration partner. But the strength of the hand is determined by all 5 cards together.

As a general rule, the retailer faces the customer and they know the breadth of their offerings across all of their competing and complementary products. They may not know exactly what their competitors are doing that could impact their sales, but they pretty much know everything else. Given that the supplier is ethically prevented from providing the one missing piece of information, what value do they add to the collaboration process?

Another example is collaboration on network efficiency to alleviate capacity issues at retail DCs during peak periods. The problem here is that a capacity constraint occurs as a result of a number of straws breaking the camel’s back. Only the retailer has the visibility to all of the straws. How can a collaboration with any single supplier (straw) result in a plan to smooth out the flow for the entire building?

Note that I’m not suggesting that retailers and suppliers shouldn’t be talking to each other when circumstances require it. In the capacity constraint example, the retailer has all the information they need to detect the constraint and figure out the best way to circumvent it. At that point, discussions may need to happen with some suppliers to pull shipments ahead or maybe bypass nodes in the supply chain, but at that point, they’re really just working out execution details rather than ‘collaborating on the plan’.

When you think about it, the supply chain is really not a chain at all – it’s a web. With the exception of private label goods or exclusive supply arrangements, the notion that a retailer and a supplier can ‘act as a single entity in service to the consumer’ is not as easy as it sounds – even with advanced planning processes like . Each retailer offers products from many competing suppliers and each supplier provides their products to many competing retailers.

So if the idea of collaboration is somewhat flawed, then what is better?

Basically, retailers need to get their houses in order and build all of their planning activities around sales at the store shelf (using Flowcasting, of course), incorporating all information they know into the plan – inventories, shipping/receiving schedules, case pack sizes and the like.

Once constructed by the retailer, these plans can be shared directly with suppliers, allowing them to ‘read the retailer’s mind’ without having to second guess or do a lot of ‘collaborating’ back and forth. Discussions between business partners only need to occur when either party foresees difficulty in executing the plan.

Why collaborate when you can integrate?

Demand Clarity

Jeff Harrop and Mike Doherty are the founding partners of Demand Clarity Inc, which helps clients design and implement supply chain planning processes.They have worked with some of North America's largest retailers, distributors and CPG manufacturers. Together with Andre Martin they co-authored Flowcasting the Retail Supply Chain, a book that outlines a new approach for managing the retail supply chain (www.flowcastingbook.com).

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