Collaborative approach provides benefits for retailers
Retailers have made huge advances in cost reduction recently and many of these efforts have helped them to remain competitive in the tough trading conditions of the past couple of years. By Helen Dickinson
But that’s not to say it’s the end of the story. Costs – which in the retail sector tend to have a habit of creeping back up again – need constant monitoring so they are kept in check, as well as innovative methods to continue making savings and creating other benefits for the business.
That’s why it has been interesting to see the new and innovative ways which have been developed by retailers recently, particularly in collaboration with their suppliers, to improve supply chain efficiencies.
While retailers traditionally focus on improving the performance of their product categories, suppliers naturally want to focus on the performance of their own brands. However, a more collaborative relationship can create a positive effect on merchandising and marketing activities, as well as provide opportunities to leverage customer insights.
With this aim in mind, retailers and suppliers have been introducing new ways of using their customer insights to improve marketing effectiveness and supply chain processes, while at the same time developing ethical business practices.
Due to the economic slowdown, retailers have placed increased emphasis on tightening costs in their supply chain by improving efficiency. These include cost-effective product sourcing strategies and better management of stock during new product promotions, both of which need close collaboration with suppliers.
And sharing customer insights with suppliers can be beneficial in improving marketing initiatives. For example, I read recently that Tesco shares data on customer insights with its suppliers, helping them to gain a better understanding of their market and customers. Suppliers can use this data to gain a better understanding of their market and customers, such as identifying different customer segments in markets and planning customised marketing strategies for specific groups of consumers.
Introducing greater collaboration within the supply chain brings other benefits too. We’ve seen – and continue to see – examples of how companies aim to make savings through tightening their supply chain. For example, Wal-Mart announced plans at the start of this year to set up global merchandising centres to increase direct sourcing of products for its private brands, an initiative through which it’s reported it aims to save US$12 billion from 2010 to 2014.
But these changes don’t just provide benefits from a cost point of view. Greater collaboration inevitably leads to higher service levels from suppliers, since this would be one of the parameters on which decisions are made on who to work with. At the same time, the opportunity to work collaboratively incentivises supplier to raise their game on performance to make sure they are chosen. Other benefits of a closer working relationship include more efficient product recall, a greater level of security within the supply chain, as well as the ability to ensure it complies with the retailer’s ethical standards.
This trend for collaboration is one which I think we will see more of in the future. With some retailers already setting the pace and seeing the benefits, others are sure to follow. With the sector still battling with challenging trading conditions, businesses need to keep looking for ways to capture whatever customer spend is up for grabs in the market.
And with many of the shopping habits which customers develop during the recession – such as greater emphasis on the value proposition of products – remaining in place long after the recovery has happened, a focus on this aspect of supply chain management is about much more than short term gains through cost reduction.
Helen Dickinson is Head of Retail at KPMG
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