Thank you for Subscribing to CIO Applications Weekly Brief
Supply Chain Processes are Evolving
Lora Cecere, Founder and CEO, Supply Chain Insights
As with any relationship, there is always a carrot and a stick. A carrot, or an incentive to do better, is a positive reward system given to affirm good behavior; while a stick is a punitive action for an unwanted behavior. Today, primary focus of the retail scorecard is the improvement of on-time and in-full shipments. The current stat is that it is unfortunately more of a stick than a carrot.
A Critical View
With a critical look at history, we see that the scorecard has opened up dialogues between retailers and suppliers to facilitate the movement of goods in-time and in-full to expectations. This benefit, while not trivial, is only the beginning of what could be possible through the use of retail scorecards. The overview of the current and potential value proposition—a contrast of importance and performance of retail scorecards.
While the greatest benefit of scorecards is the improvement of the perfect order (a shipment that is on-time, in-full and accurate), the promise could be much, much more. Since the focus has been on logistics and the perfect order, the scorecard has had little impact on assortment or total costs.
Understanding the Players
Retailers and suppliers come to the table to trade from different backgrounds with dissimilar needs and very different political dynamics. The retailer is typically a smaller company with a regional focus. Retail, and the merchandising of goods, is a combination of both art and science. Within the retailer, there is tension between the buyer/ merchandiser and the retailer’s supply chain organization and store operations. The role of the store is changing with the greater acceptance of e-commerce and mobile commerce by the consumer.
Supply chain processes are evolving. To reduce cost and improve overall value in relationships through scorecards, we still have a long way to go
The retailer’s supply chain systems are not as advanced as those of their suppliers. In general, they have been later adopters of technology. For example, in recent studies, we find 56 percent of retailers have a Perpetual Inventory (PI) signal in their warehouses with 47 percent having a PI signal for their stores. Managing inventory on a perpetual basis is a sign of supply chain maturity and an important foundation for retail/supplier collaboration.
The supplier interaction with a retailer usually starts with a call from a salesperson. The larger the supplier’s company, the larger and more complex the sales team, and the greater the political dynamic between the supplier’s sales group and other functions within the supplier’s organization—marketing, demand insights, category management and customer service.
In larger and more significant accounts, like Walmart or Target, the sales group becomes a sales team focused on selling to the retailer. These teams can range from a small team of two to five people calling on a local retailer, to a team of hundreds calling on Walmart for a major consumer products company. A struggle for the retailer is the difference in scale and capability of the suppliers’ organization. Each supplier has a different definition of regional/global governance, and the supplier account team often has to fight within their own company to get support for the retailer relationship that they support. The average supplier is greater than $5 billion in revenue operating over 50 manufacturing locations and 28 distribution centers. Consumer packaged goods and consumer durable companies tend to be more global, while food and beverage companies tend to be more regional.
The focus of the scorecard activity changes slightly by type of trading partner. While both retailer and supplier are aligned on the importance of scorecards to improve the perfect order, they are not aligned on the other dimensions of scorecard performance. The work to date is the tip of the iceberg.
The key to success is alignment. For example, the retailer is more interested in improving assortment and the supplier is more focused on the management of deductions. Since scorecards have not been made a part of buying decisions, progress is slow. If scorecards were more of a carrot than a stick, the progress would be faster.
A second barrier is data sharing. It is ironic that the most common data shared by the retailer is often the least useful, i.e. the forecast error of the retailer is just too high for forecast data sharing to be meaningful. A greater value for the supplier occurs when the retailer shares actual take-away from the store via point of sale purchases. The second most valuable data element is warehouse perpetual inventory (PI) levels. The lack of a good, and more widespread, capability for perpetual inventory is a barrier to retailer and supplier collaboration.
Supply chain processes are evolving. Retailers and suppliers have tried to work together for the last decade to take the waste out of the value chain, and scorecards have improved on-time delivery. However, to reduce cost and improve overall value in relationships through scorecards, we still have a long way to go.