In a highly competitive market like the retail industry, collaboration may seem like a big risk that isn’t worth the effort. More companies are realizing, however, that when they work together and share information through their suppliers, the end results are extremely beneficial.
Why Collaboration Is a Must
“Collaboration is less a matter of what is agreed on in the boardroom than what is actually done on the shelf,” says Edwin Booz, founder of management consulting firm Booz & Company. When suppliers and retailers openly share data, everyone benefits. A successful collaboration can decrease supply chain disruptions, reduce the overall environmental impact of operations, and can cut costs by as much as 3%.
The Problem with Collaborating
For years, supply chain managers have believed that sharing too much information with their suppliers would result in higher prices and diminished marketing efforts. “Buyers often walk away from a negotiation feeling successful, unaware that their victory may well have been compromised by the failure to address issues that could have much more impact on retailer and supplier profits, such as in-store availability,” says Booz. This mistrust between retailers and suppliers is the biggest obstacle standing in the way of successful collaborations, but even when a trusting relationship exists, it is a big investment.
Building a Successful Relationship
“Companies that want to build holistic relationships with selected suppliers across the value chain that can result in higher revenue and lower costs than the old haggling habits must pursue collaboration and cross-functional participation,” says Booz. Buyers who are selective with the partnerships they develop can work closely with just a few suppliers instead of establishing shallow relationships with several. These partnerships are long-term commitments and should work to find the underlying reasons behind every failure and success.
Many retailers and manufacturers are already benefitting from collaborative relationships. Kraft Foods, for example, uses data from major retailers so that inventory levels are always adequate, while Kellogg made adjustments to delivery schedules to prevent outages at Tesco.
Developing collaborative partnerships with suppliers isn’t a quick and easy process for retailers, but as more buyers realize the benefits of such agreements, consumers will also reap the rewards.