Supply Chain News: Consumer Goods Companies are from Mars, Retailers from Venus

There is I would offer significant agreement across some manufacturers and retailers that collaboration - in many forms - is really the next frontier for meaningful supply chain improvement. 

Why? Because such collaboration provides the next most rich source of savings, as most have moved their internal supply chain processes to some level of goodness. That is not to say there is no room for internal improvement, but just that often the opportunities there now fall below the potential from some true manufacturer-retailer collaboration.

Gilmore Says:

The key point is that these cultural and belief-window issues are the things that probably constrain collaborative efforts, yet are almost never talked about or discussed. What Do You Say?Click Here to Send Us Your Comments Click Here to See Reader Feedback

Of course, maybe it has always been this way. As I often note, the long string of initiatives that have been promoted in the industry - Quick Response, Efficient Consumer Response (ECR), continuous replenishment, Collaborative Planning, Forecasting, and Replenishment (CPFR), RFID and more (what am I missing?) have in general each used almost identical language in terms of the describing opportunities and benefits from tighter collaboration.

There have been a few examples of where manufacturer-retailer collaboration can go. My favorite example is the process between Lowes and Whirlpool, in which the two companies run a joint sales and operations planning process (under a more retail sounding name for it), such that the two firms largely operate as if they are a single company. It is quite impressive - and successful.

Why don't we have more of it? All kinds of reasons, of course, but I am convinced a good part of it is that the two sides simply see the problems/opportunities differently. I will say it this way: in general, manufacturers are more interested in deeper end-to-end collaborative processes; retailers' thinking is something like "here is the data, now just make damn sure the product is here."

That is a great simplification, of course, but yet I think is largely on target. It goes back to the early days of CPFR, when the joke was from the retailers' perspective was that it was really "cpfR" - the process was all aboutreplenishment.

Once or twice a year, I am invited to JDA Software's excellent demand optimization council (DOC), a gathering of some of its top consumer goods and retail customers to discuss key cross-sector issues. I usually participate meaningfully in some way, and am very limited in what I can report back, due to the confidential nature of the discussions and presentations.

But I can discuss high level themes and perspectives. For the meeting this past May, I did a survey of DOC members on issues related to collaboration, and the results were very interesting. I have been kind of just sitting on them ever since, awaiting a good week to share. That week is now.

Even though there were only a little over 20 respondents, about equally split between retailers and manufacturers, I feel the results would not be materially different if I had surveyed 200 companies- and the DOC members largely agreed with me.

So, let's start here: how important do retailers and manufacturers view collaboration? As shown below, 60% of manufacturers believe supply chain collaboration is "near the top" in terms of importance; the number for retailers was just 22%. While many retailers believed collaboration was "high but not top" of importance, I believe the difference in perspectives is real and meaningful. Retailers do not view collaboration as being as important as manufacturers do.

I also asked the group about barriers to better collaboration with their retail/manufacturing partners. Interestingly, both sides saw the lack of the "right tools" as very high in importance, and I was a little surprised frankly that neither side saw the lack of skills/capabilities of the other side as being a top barrier (though it was cited for sure).

More interesting in this area may be in the comments. Relative to collaboration barriers, one manufacturer cited the following: "Bi-lateral versus cross-vendor collaboration - meaning it is not just about sharing production schedules but also getting the carriers, freight forwarders and distributors involved."

Another pointed to "misaligned internal incentives," while another cited "lack of process standardization."

On the retail side, one participant said "The sheer number of trading partners makes true collaboration difficult with the majority of our suppliers. We only have the bandwidth to effectively collaborate with a limited number of key suppliers in a meaningful manner."

That is very interesting - and rarely discussed. Another took this same basic issue but reversed the focus: "From the supplier end, we are one of many customers. The supplier must decide whether to invest time and resources investing in my business versus their other customers."

One other retailer cited the IT challenges: "Most collaboration requires some degree of IT resources. Retailers in particular have to balance priorities internally on what to spend resources on- - this is an area of difficulty."

We next asked participants to rate themselves on their level of collaborative excellence - very interesting. The data may be a little tough to see even in the full size image below, but just 10% of manufacturers believed they are "near the top" in terms of collaborative skills, while 40% of retailers put themselves in that category. All told, 70% of retailers said they were either "near the top" or "above average," versus just 40% for manufacturers.

Finally, what's the bottom line in terms of how collaboration fits in to overall supply chain strategies? 80% of manufacturers said "it's where the battle will be won or lost," versus just 40% of retailers who felt this way, as shown below.

We asked several other questions that I do not have room for here, but we will make available in next week's OnTarget newsletter under the "Trends and Issues" category.

So, I think there is a bit of "manufacturers are from Mars and retailers are from Venus" going on here. The key point is that these cultural and belief-window issues are the things that probably constrain collaborative efforts, yet are almost never talked about or discussed.

Case in point: at a previous JDA DOC meeting, there was a bit of a brouhaha over the fact that as retailers began sharing time-phased forecasts to suppliers to help them with their own planning, they wondered why those supposed savings weren't coming back some way to the retailers. Good question.

To achieve the promise of manufacturer-retailer collaboration, we will need to discuss and resolve the often hidden issues that are rarely reflected in the latest technology initiative from GS1/VICS, as good as those recommendations may be (though there are some interesting technology development brewing - stay tuned).