10.01.07
Pavlov and the Retail Supply Chain
Bell Rings. Dog Salivates. Food is served.
Bell Rings. Dog Salivates. Food is served.
Bell Rings. Dog Salivates.
Retailer implements “compliance requirement”. Suppliers squirm. Minimal necessary steps are taken for supplier to meet the new requirements.
Retailer implements “compliance requirement”. Suppliers squirm. Minimal necessary steps are taken for supplier to meet the new requirements.
Retailer implements “compliance requirement”. Suppliers squirm.
The retail supply chain is broken. Suppliers into retail pay almost 2% of their gross sales in compliance-related deductions. And we’ve reached the point – long ago, actually – where suppliers will not do anything for their retail customers unless there is a stick involved. Carrots need not apply.
The problem is that this model has encouraged most suppliers to ignore initiatives that could increase their bottom and top line – changes that would be beneficial to the supplier. These initiatives are sometimes presented at a low level without strategic level discussions – and presented in an adversarial way via compliance requirements. And suppliers get so many different ones from across their customer base that it is hard for them to rationalize all of these into a comprehensive program that will make sense – and profits for them. The end result is “letter of the law” rather than “spirit of the law” adherence to retailer requests from all but the largest and/or most ingenious of suppliers. Data synchronization becomes manual data entry into web forms or spreadsheets. So much for machine-to-machine communications. ASNs are sent but are built from Invoices rather than warehouse and shipping information.
What should be a mutually beneficial relationship is often not. Even if there is a high-level strategic agreement, that message can get lost as it trickles down to those responsible for execution on both the supply and buy sides.
Retailers want their suppliers to succeed. Suppliers want their customers to be successful. Can we simplify in order to make it easier to succeed? Can we leverage more B2B transaction types and reduce the complexity in each? Perhaps actually using standardized documents rather than documents that break standards? Can we all focus on a subset of data for synchronization – perhaps physical specifications and price – and leave the rest for later? Can we agree on at least a common lexicon for all terms so we aren’t all talking about the same thing in different terms?
What do you think?
Allison said,
October 2, 2007 at 9:22 am
Bryan–great entry. what about a three strikes (or maybe five) and you’re out requirement instead of financial penalties? it would seem to me that suppliers just work the financial penalties into the cost of their goods to lessen the pain. But if they faced a situation in which their goods would not be sold at all, perhaps they would be more compelled to comply completely to retailer requirements. also, i agree with you that retailers should ‘take it slow’. It doesn’t make sense to hit suppliers with 100 requirements at once–no one could comply–hit them with 3-5 at a time and slowly add more as required.
Bryan Larkin said,
October 12, 2007 at 11:58 am
The problems are that each retailer is in a different situation as a business. This means each retailer needs to drive different behavior. And over time they seem to accumulate requirements and penalties and sometimes (often?) don’t review older requirements to see if they still need to keep those penalties on the books.
Cutting off a supplier might mean not carrying a product that you want to have on the shelf. This means lowering revenues. Taking the hard line might work in categories with lots of competition. But in others, you might not only lose the sales of those products, but anything else a consumer might have purchased while in the store.
This is definitely a tough nut to crack, but pushing a few, targeted initiatives will make it easier for retailers to manage, and make compliance easier for suppliers…and should be able to be done without loss of supply chain integrity.