retail

Definition: Brass tacks are a type of pin or nail. The phrase to come (or get) down to brass tacks is sometimes used idiomatically to consider the basic facts of a situation. Source Wikipedia

In the 1990s suppliers had channel power. The formula for success seemed foolproof. A new product was launched, the ads ran on national TV and “poof” a new brand was created. This all changed with the disintermediation of national media.

During the next decade, the power shifted to the retailer. Consumers became more loyal to retail brands, and retailers increased the number of products manufactured and marketed as house brands. This trend spawned chains like Trader Joe’s, Walmart, Whole Foods Market, etc.

Today, with the acceptance of the mobile phone and digital media, the power has shifted to the shopper. Consumers want to shop anywhere, and buy in the way that they want to buy. The digital consumer often wants to shop online, pick up at the store, and conveniently manage returns. The e-commerce customer wants convenient delivery to the home.

With the shifts in power, the relationships in the value chain are morphing. Each year I go to the Consumer Goods and Technology (CGT) conference where speaker after speaker talks about retail/supplier collaboration. I usually sit in the back of the room and watch the event with a wry smile on my face. Why? I am a disbeliever. Collaboration is evasive. Today it is more talk than action. In this post I want to share what I think really needs to happen to spawn true collaboration.

What Is Collaboration?

I define collaboration as a lasting win/win value proposition for both parties. Today we have collaborative data sharing, and collaborate processes, but we seldom have what I term true collaboration.  Instead, we have had situations where one party wins at the expense of the other. In the 1990s the supplier won at the expense of the retailer. In the last decade the retailer won at the expense of the supplier. It is for this reason that I sit on the back row at most conferences watching, listening, and smiling.

Why Is It More Important Now?

As the bricks and mortar retailer is attacked by e-commerce pure plays—Amazon in North America, Alibaba in China, and Flipkart in India—assortment and excitement in the store become paramount to lure customers. They need the supplier more to drive excitement in the store. While many retailers are changing the role of the store to include services: pet grooming in PetSmart, clinics in CVS, cooking classes in Williams-Sonoma, etc.—this is not enough. The retailer needs the help of the supplier more than ever. It is for this reason that I have written a letter to the retail Chief Operating Officer below.

My Letter to the Retailer

Dear Retail Chief Operating Officer,

I have watched the evolution of consumer value chains for many years. I have studied the building of collaborative processes, and written about the shifts, and highlighted where we are gaining value. I know we have talked about collaboration for many years, but all I see is pilots: good intentions defined by fits and starts. In my research, I do not see that any retailer has really redefined value chains through collaboration. Based on what is happening in the industry and the need to drive excitement in assortment in the store, I would like to share three things I would do if I were you to build a collaborative framework to enable true collaboration between you and your suppliers.

Figure 1. Data Sharing Mechanisms

1. Share Data Freely and Openly through a Private Network. Today, as shown in Figure 1, most retail data is shared through a portal. The most effective way to share data is through a  private network. Portals do not enable effective data sharing and support of collaborative practices. When data is shared through a portal it lacks a persistence layer. As things change there is no system of record. Today only 3% of retailers are using private networks for data sharing. I know that this takes investment,  but it is worth it in the long run. Consider the impact of Walmart’s Retail Link on Walmart.

Figure 2. Current State of Perpetual Inventory

2. Get Good at Data Sharing. Replenishment is fueled by an effective perpetual inventory signal. It anchors optimization engines for replenishment. The supply chain needs it. Without a perpetual inventory signal you will never be able to manage out-of-stocks and promotions. Today, as shown in Figure 2, 57% of retailers have a perpetual inventory signal in the warehouse, and 47% have a perpetual inventory signal in the store. Collaborative relationships need a good signal for inventory. It needs to be an accurate signal reflecting real-time changes as orders are shipped throughout the day. So, to be a collaborative trading partner, build a good perpetual inventory signal … there is no substitute for an accurate PI signal in supply chain excellence.

Additionally, get good at forecasting. Measure the Mean Absolute Percentage Error (MAPE) of your forecast and focus on driving improvement. Today there are only two retailers that have forecast accuracy that is good enough to drive value downstream for trading partners. Drive a difference. Own your data.

3. Take Your Hand Out of the Supplier’s Pocket. For many, deductions and penalties for performance have become a budget line item (often a profit center). And 84% of retailers charge for deductions with 1/3 of retailers having a budget for deductions with many taking them into income. As a result, it has become a systemic way of making money for the retailer which is a lose/lose. In this relationship no one wins. Suppliers cannot get to the root cause to solve problems, and revenue recognition is delayed. Instead, it becomes waste, or Muda, in the supply chain to track and manually audit. Instead, focus on clean transactions. Carrots drive better performance than sticks.

My advice. Own your own network. Focus on creating value and winning together. Isn’t that is what collaboration was supposed to be all about? If you get serious, I want to write your story in the new book that I am writing. 

What do you think? I would love to hear from you. This month, in our newsletter on October 21st, we’ll be sharing the results of a study that we’ve been working on focused on Downstream Data Sharing. We would love your input as we close the survey.

 

 

What Is the Value of a Scorecard?

by Lora Cecere on May 6, 2014 · 0 comments

It is about the right balance of the carrot and the stick.

Progress happens when you measure.

Relationships happen faster when there is more carrot than a stick. Over the last decade, scorecards have become more of a stick than a carrot.

 

retail scorecards

Reflections

Some days, in my coverage of consumer value networks, it seems like we are making slow progress. So slow, that I often feel like I am watching paint dry.  We talk collaboration, but we automate buy/sell relationships.

Then I go to a conference like Logimed USA, and I get immersed in another industry—like medical devices—which is a decade behind CPG/retail, and I get a reality check. It is useful to get perspective.

In the medical device industry, they have no scorecards with hospitals and they are just starting on the adoption of the GS1 standards. (Reference my article on Throwback Thursday.)

Impacts of Customer Scorecards

Consumer value networks are now in their second decade of scorecard automation. In most relationships there is more than one scorecard. The most common one is a scorecard for supply chain.  Today the focus is on physical movement. As shown in Figures 1 and 2, labeling, on-time shipments, and Advanced Shipment Notification (ASNs) have improved through the use of scorecards.

benefits of retail scorecards

However, the Scorecards Are Anything but Balanced. The use of scorecards has improved customer service. Shipments are now on-time and there is progress on in-full shipments. Why? Primarily because of better communication on the retail requirements and the tracking of the shipments. However, the use of scorecards has not improved cost or assortment. At a rVCF conference that I attended this week, one of the retailers asked me why an on-time and full shipment was not representative of the lowest cost. Yes, there is still much work to be done.

What Is Preventing Us from Making Greater Progress? In short, it is about alignment and incentives. The gaps between sales and operations is a barrier on the supplier side, and the gaps between merchandising and operations for the retailer are equally as bad. Additionally, the incentives are not aligned to serve the shopper. Consumer packaged goods companies are paid when the goods land in the retailer’s warehouse, not when they cross the register, and trade funds can distort the demand signal. Too much dependency on trade promotions and deep discounts is an addiction and disruptive for some relationships.

The studies for the VMI and the Retail Scorecard surveys are still open. We would love your input. It is our plan to correlate maturity in consumer relationships to the Supply Chain Index over the summer.

We are also finishing up the project on supply chain planning maturity. It is close to completion.We would love your insights. As always, we keep your responses confidential.

This morning, I am writing from Istanbul. The book, Metrics That Matter, is almost finished. I will be speaking at the Integrated Supply Chain Conference on Thursday. Lots of interest in the Supply Chain Index. People cannot get enough on metrics.