Finally, significant cost reduction is also possible through collaboration primarily from more efficient distribution, streamlined inventory, increased product availability, and improved merchandising operations. For example, Alliance Boots PLC, a large U.K. cosmetics chain, working with a leading supplier of hair accessories, came up with a system to simultaneously cut labor costs and improve the supplier’s displays. By designing an intuitive, color-coded product display system, the retailer cut set-up times to about 15 minutes from an hour and reduced overall store rebuilds from eight weeks to two weeks; this faster path to installing and changing promotional campaigns helped Boots boost sales of the supplier’s hair accessories by double digits in the first year alone.
Despite the promise of collaboration, few retailers have succeeded in creating such partnerships with their suppliers. It is not difficult to find pockets of excellence within a given retailer–supplier relationship, such as buyers who work diligently on promotional planning, but these tend to be isolated successes — more like pilot programs than ongoing, established partnerships. Most retailers have found it difficult to expand successful pilot programs into a broader, strategic agenda for deeper supplier collaboration, largely because of the challenge involved in learning to work cross-functionally.
Nevertheless, this challenge can be met, and broad-based, holistic collaboration between retailers and suppliers is possible if careful attention is paid to how the relationship is structured. The following key guidelines can make all the difference in undertaking this task:
Generate a full basket of possibilities, but focus on a few prioritized opportunities that are most important to both businesses. Think holistically about revenue and cost, and challenge current ways of working and operating procedures in order to produce as many potential avenues to improvement as possible.
Establish an open dialogue, but make sure that the terms of all agreements on targets, responsibilities, and accountability are established up front and explicitly defined.
Create transparency by openly sharing information about benefits and costs, but build in appropriate confidentiality measures based on a clear understanding of the areas each party wants to keep off limits.
Retailers should set both short- and long-term agendas with partnering suppliers to capture value quickly, but still pursue the big ideas.
Gain top level support, but stay focused on execution. Collaboration is less a matter of what is agreed in the boardroom than what is actually done in the warehouse and at the shelf.
Although it is valuable to be more open with all suppliers, buyers should choose collaboration partners wisely. Given that a collaborative approach is more resource intensive and requires more cross-functional engagement than traditional relationships, supplier partners should be selected based on criteria that reflect the retailers’ strategic aspirations and demonstrate a serious interest in building a deeper relationship.
After many false starts, it’s tempting to dismiss retailer–supplier collaboration as an idea that looks good on paper but that is nearly impossible in practice. Nonetheless, both sides should look beyond this common misconception. Trust is a key ingredient: Once suppliers feel certain that it isn’t just another negotiating trick, many of them are keen to drive such strategic partnerships forward. As with any successful commercial partnership, it all comes down to ensuring that both sides gain from the venture.
This article is excerpted from Jeffrey Rothfeder and Georgina Grenon, eds., Sourcing Reloaded: Targeting Procurement’s New Strategic Agenda (strategy+business Books, 2008).
Simon Harper is a partner in Booz & Company’s London office. He advises clients in the retail, consumer, and telecommunications industries on operations strategy, procurement, and supply chain transformation.
Amit Kapoor is a senior associate in Booz & Company’s London office. He specializes in the optimization of sourcing, supply chain, and value chain collaboration strategies for retail and consumer packaged goods companies.
Marco Kesteloo is a partner with Booz & Company based in Amsterdam. He focuses on assignments in the areas of strategy, operations, and organizational management, and has extensive value chain experience with companies in the retail, consumer goods, and automotive industries in Europe and North America.