Understanding and improving retail-supplier relationships

on Thursday, February 25, 2016

Understanding and improving retail-supplier relationships

The consumer goods market is rapidly evolving and becoming increasingly competitive. This trend is highlighting the importance of healthy retail-manufacturer partnerships.

In a recent benchmark study, Supply Chain Digest conducted a survey to gain insight on the current state of retail-vendor relationships and how these alliances are hurting, or helping, supply chain efficiency.

Furthermore, the organization wanted to obtain a better understanding of the similarities and differences between perspectives. The findings of this research suggest the conditions can be broken down into three main categories.

Compliance trends and chargeback complaints
With global companies facing heightening pressure to demonstrate social responsibility, it has become particularly important for corporate leaders to ensure all tiers of the supply chain are adhering to ethical practices and regulation guidelines.

In the study, it was generally agreed that technological innovations have allowed retailers to identify more problems and occurrences of non-conformity. Digital systems are facilitating better supply chain optimization by offering merchant companies increased visibility into supplier networks. However, some vendors feel that the growth of ecommerce has created more regulations to adhere to, thus increasing the amount of possible violations. One vendor indicated to the source that this trend "seems to be a profit center for retailers" and another said non-compliance fines are increasing.

"But the best retailers are instead pegging chargebacks based on what the error actually cost them to mitigate and seek to use compliance to drive out errors and improve supply chain performance," the study stated.

From the vendor perspective, the chargeback levels are often seen as unfair and many complained of not being provided with enough detailed information as to why a certain fee was issued or how the cost of the fine was determined. Although 44 percent of merchants expect these penalties to become less severe over the next five years, more than half of manufacturers predict an increase.

Quality of collaboration
The benchmark report revealed that more than half of merchant companies feel the collaborative capabilities of their supply chains are average and 39 percent believe they are slightly above average. However, there were no retailers that described themselves as excelling in this area; more than half ranked themselves as being average.

The source suggested that one of the major issues forbidding better coaction is both retailers and manufacturers failing to assume responsibility for the divergence. The top barrier for vendors is "lack of trading partner skills" whereas retailers are "concerned [with] challenges in how to share the gains from any collaboration."

Although retailers and vendors are generally satisfied with the supply chain relationships, there is obvious room for improvement. The opposing perspectives and beliefs held by each party signal a cause for concern. While vendors are pessimistic about compliance and chargebacks and optimistic about current collaboration levels, the opposite is true for merchants.

"As SCDigest has seen in other studies, vendors seem to value collaboration more and believe they are better at it than retailers," the report explained. "We believe vendors in general have a more substantive view, perhaps because they actually benefit more in their supply chains from such collaboration than retailers usually do."

Centralized solutions
An emerging trend that global organizations are turning to for better integration, connectivity and agility with supplier relationships is cloud technology. In a white paper, GT Nexus, Inc. pointed out that moving beyond traditional Enterprise Resource Planning, or ERP, software and incorporating cloud-based systems into operations can provide retail supply chains with a range of benefits.

According to the organization, in an effort to reduce supply chain disruptions and minimize risks, many are sourcing from a number of different vendors. With an expanding network of suppliers, monitoring and managing the relationships is becoming more difficult. Leveraging collaborative, cloud-based platforms will provide retailers with enhanced insight and control of supplier performance. In addition, it enables better communication and collaboration with trading partners and provides manufacturers with more visibility into crucial activity.

By increasing the level of transparency between retailers and vendors, the efficiency and overall performance of supply chains can be significantly improved. Furthermore, GT Nexus indicated this approach could lead to extensive cost-savings opportunities and provide retail companies with the innovative solutions needed to maintain a competitive presence in the market.

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