Retailer supplier partnership

Introduction

Refers to the recent trend to utilize strategic alliances and partnerships for securing
both goods and services. Additionally, the supply chain management concept is
gaining more acceptance as a method of sustaining a competitive advantage in
global markets. Although the literature explores strategic partnerships within both
the buyer and supplier context and the shipper and logistics context, there has been
little attempt to link these relationships in order to explore multi‐firm interactions.
Examines existing buyer‐supplier strategic partnerships and the role of carriers
used to transport the particular items sourced within these partnerships through an
in‐depth case study methodology of firms engaged in identifiable three‐party
relationships. There are two primary objectives of this research: to assess the
carriers’ perceived importance and degree of participation within the
buyer‐supplier partnerships; and to explore further the relationship between
strategic partnerships and supply chain management by presenting more detailed
information from firms involved in three‐way relationships. Of interest to carriers,
manufacturers, purchasers and academics.

Supply chain management (SCM) is the process of planning, implementing, and

controlling theoperations of the supply chain with the purpose to satisfy customer
requirements as efficiently as possible. Supply chain management spans all
movement and storage of raw materials, work-in- process inventory, and finished
goods from point-of-origin to point-of-consumption. The termsupply chain
management was coined by consultant Keith Oliver, of strategy consulting firm
BoozAllen Hamilton in 1982.Supply Chain Management encompasses the
planning and management of all activities involved insourcing, procurement,
conversion, and logistics management activities. Importantly, it alsoincludes
coordination and collaboration with channel partners, which can be
suppliers,intermediaries, third-party service providers, and customers. In essence,
Supply Chain ManagManagementintegrates supply and demand management
within and across companies.Key players in SCM are:There are a number of
strategic alliances amongst the above mentioned players. A StrategicAlliance is a
formal relationship formed between two or more parties to pursue a set of agreed
upongoals or to meet a critical business need while remaining independent
organizations.Partners may provide the strategic alliance with resources such as
products, distribution channels,manufacturing capability, project funding, capital
equipment, knowledge, expertise, or intellectual property. The alliance is
cooperation or collaboration which aims for a synergy where each partner hopes
that the benefits from the alliance will be greater than those from individual efforts.
Thealliance often involves technology transfer (access to knowledge and
expertise), economicspecialization, shared expenses and shared risk

Benefits of Strategic Alliances

Strategic alliances often bring partners the following benefits:

Access to their partner's distribution channels and international market presence

Access to their partner's products, technology, and intellectual property

Access to partner's capital

New markets for their products and services or new products for their customers

Increased brand awareness through partner's channels

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Reduced product development time and faster-to-market products

Reduced R&D costs and risks

Rapidly achieve scale, critical mass and momentum (Economies of Scale - bigger
is better)

Establish technological standards for the industry and early products that meet the
standards

By-product utilization

Management skills

Types of Strategic Alliances

Third Party Logistic:

3PL is the use of an outside company to perform all or part of thefirm’s material
management and product distribution functions.

Retailer-Supplier Partnerships:

It’s the formation of strategic alliances between theretailers and their suppliers.

Distributor Integration:
This appreciates the value of the distributors and their relationshipwith the end
users and provides them with the necessary support to be successful.

Meaning

Definition

Objectives

Types

Features

Advantages

Disadvantages

Partners always deliver the right quantities as per schedule

Partners are always paid as per credit terms

Sharing of information with partners related to sales stocks and purchase orders

Organization Objectives

Customer Response Time

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Merchandise Availability

Distribution Cost

Shrinkage

Efficiency of executive time

Collaboration with Partners

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The above strategy followed helps Shopper’s Stop to reduce lead time and in
achieving following:

Characteristics of Retailer-Supplier PartnershipCriteriaTypeDecision

MakerInventory OwnershipNew Skills employedby VendorsQuick Response

RetailerRetailerForecasting skills

Continuousreplenishment

Contractually agreedto levelsEither partyForecasting andinventory control

Advanced continuousreplenishment

Contractually agreedto and continuousimproved levelsEither partyForecasting

andinventory control

VMI
VendorEither partyRetail management

Requirements for Retailer-Supplier Partnership

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Advanced Information Systems:

This is needed on both the supplier and retailer sides of the supply chain.
Electronic data interchange, EDI or internet based private exchanges- torelay POS
information to the supplier and delivery to the retailer- are essential to cut downon
data transfer time and entry mistakes. Bar coding and scanning are essential to
maintaindata accuracy. Inventory, production control, and planning systems must
be on line, accurateand integrated to take advantage of the additional information
available.

Top management commitment:

This is important as information that is kept confidentialup to this point will now
has to be shared with suppliers and customers, and cost allocationissues will have
to be considered at a very high level. It is also true as such a partnershipmay shift
power within the organization from one group to another. For example,
whenimplementing a VMI partnership the day to day contacts with retailers shift
from sales andmarketing personnel to logistic personnel. This implies that
incentives for and compensationof the sales force have to be modified since
retailer’s inventory levels are driven by supplychain needs not by pricing and
discount strategies. This change in power may requireinvolvement of top
management.

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Partners to develop trust amongst them:

Without this the alliance will fail. In VMI for example, suppliers need to
demonstrate that thy can manage the entire supply chain i.e. theycan manage not
only their own inventory but also that of the retailer. Similarly in quick response
confidential information is provided to the supplier, which typically serves
manycompeting retailers. In addition, strategic partnering in many cases results in
significantreduction in inventory at the retailer outlet. The supplier needs to make
sure that theadditional available space is not used to benefit the supplier’s
competitor. Furthermore, thetop management at the supplier must understand that
the immediate effect of decreasedinventory at the retailer will be a one-time loss in
sales revenue.

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Inventory ownership in Retail-Supplier Partnerships

Inventory ownership issues are critical to the success of this kind of strategic
alliance effortespecially one involving VMI. Originally ownership of goods
transferred to the retailer when thegoods were received. Now, some VMI
partnerships are moving to a consignment relationship inwhich the supplier owns
the goods until they are sold. The benefit of this kind of relationship to theretailer
is obvious: lower inventory costs. Furthermore since the supplier owns the
inventory, it will be more concerned of managing it as effectively as possible. One
possible criticism of the originalVMI scheme is that the vendor has an incentive to
move to the retailer as much inventory as thecontract allows. If this is fast moving
item and the partners had agreed upon two weeks of inventory, this may be exactly
what the retailer wants to see in stock. If however, this is a morecomplex problem
of inventory management, the vendor needs to have an incentive to
keepinventories as low as possible, subject to some agreed-upon service levels. For
example, Wal-Martno longer owns the stock for many of the items it carries,
including most of its grocery purchases. Itonly owns then briefly as they are being
passed through the checkout scanner.
Issues in Retailer-Supplier Partnerships Implementation

For an agreement to be successful, performance measurement criteria must also be

agreed to. Thesecriteria should include non financial measures as well as the
traditional financial measures. For example, non financial measures could include
POS accuracy, inventory accuracy, shipment anddelivery accuracy, lead times and
customer fill rates.When information is being shared between suppliers and
retailers, confidentiality becomes an issue.Specifically a retailer who deals with
several suppliers within the same product category may findthat the category
information is important to the supplier in making accurate forecasts and
stockingdecisions. Similarly, there may be a relationship between stocking
decisions made by severalsuppliers.When entering into any kind of strategic
alliance it is important for both the parties to realize thatthere will be problems that
can only be worked out through communication and cooperation. Inmany cases,
the supplier in the partnership commits to fast response to emergencies and
situationalchanges at the retailer. If the manufacturing technology or capacity does
not currently exist at thesupplier, they may need to be added.

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Steps in Retailer-Supplier Partnerships Implementation

Following steps are to be followed in VMI implementation1.Initially the

contractual terms of the agreement must be negotiated. These includedecisions
concerning ownership and when it is to be transferred, credit terms,
orderingresponsibilities, and performance measures such as service or inventory
levels, whenappropriate2.Following three tasks must be executed:

If they do not exist, integrated information systems must be developed for

bothsupplier and retailer. These information systems must provide easy access to
both parties.

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Effective forecasting techniques to be used by the vendor and the retailer must be
developed

A tactical decision support tool to assist in coordinating inventory managementand

transportation policies must be developed. The systems developed willdepend on
the particular nature of the partnership

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Advantages of Retailer-Supplier Partnerships

The knowledge the supplier has about order quantities, implying an ability to
control the bullwhip effect. This though varies from one partnership to other. In
quick response for example, this knowledge is achieved through transfer of
customer demand information thatallows the supplier to reduce lead time, while in
VMI the retailer provides demandinformation and the supplier makes ordering
decisions, thus completely controlling thevariability in order quantities. This
knowledge can be leveraged to reduce overall systemcosts and improve overall
system service levels.

Better service levels, decreased managerial expenses, and decreased inventory

costs for thesupplier.

Vendor is able to reduce forecast uncertainties and thus better coordinate

production anddistribution in terms of reduced safety stocks, reduced storage,
delivery costs and increasedservice levels
Good opportunity for the reengineering of the retailer-supplier partnership. For
example,redundant order entries can be eliminated, manual tasks can be automated
and unnecessarycontrol steps can be eliminated from the process

Disadvantages of Retailer-Supplier Partnerships

It is necessary to employ advanced technology, which is often expensive

It is essential to develop trust in what once may have been an adversarial supplier-
retailer relationship

The supplier often has much more responsibility than retailer. This may force the
supplier toadd personnel to meet this responsibility

Expenses at the supplier often increase as managerial responsibilities increase.

Inventory cost may also increase for the supplier

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Retailer-Supplier Partnership
It’s the formation of strategic alliances between the retailers and their suppliers.

Types of Retailer-Supplier Partnerships

Quick Response Strategy:

Here suppliers receive Point of Sale (POS) date from theretailers and use this
information to synchronize their production and inventory activitieswith actual
sales at the retailer. In the strategy the retailer still prepares individual orders, but
the POS data are used by the supplier to improve forecasting and scheduling and
toreduce local time. This system could be preferred when the retailer-supplier
relationship isnew, and trust between the two parties has not been fully developed
yet. In this strategy, theretailer has complete control on its inventory, but helps
suppliers improve operations by providing POS data. Additionally, this type of
partnership could be preferred if financial and personnel resources to develop a
more integrated relationship are not available.

Continuous Replenishment Strategy:

This is also called rapid replenishment. Here thevendors receive POS data and use
these data to prepare shipments at previous agreed- uponintervals to maintain
specific levels of inventory. In an advanced form of continuousreplenishment,
suppliers may gradually decrease inventory levels at the retail store or distribution
center as long as the service levels are met. Thus, in a structured way
inventorylevels are continuously improved. Also the inventory levels need not be
simple levels, butcould be based on sophisticated models that change the
appropriate level based on seasonaldemand, promotions, and changing customer
demand. This type of partnership is a system between quick response and VMI,
because suppliers and buyers together agree on targetinventory and service levels.
It involves less risk for retailers than VMI, and typically leadsto a more stable and
long-term relationship between suppliers and retailers than quick response does.

Vendor-Managed Inventory (VMI) System:

This is also called vendor-managedreplenishment (VMR) system. Here the
supplier decides on the appropriate inventory levels

of each of the products and the appropriate inventory policies to maintain these
levels. In theinitial stages vendor suggestions must be approved by the retailer but
eventually the goal of many VMI programs is to eliminate retailer oversight on
specific orders. This type of relationship is being used in Wal-Mart and P&G,
whose partnership began in 1985. It hasdramatically improved P&G’s on time
deliveries to Wal-Mart while increasing inventoryturns. This system is more
integrated than the previous two systems, and requires a highlevel of trust between
the supplier and the buyer. If implemented properly, VMI can lead tomore overall
system savings than the other two types of partnerships. However, VMIrequires
more commitment, and initially, significant investment in
informationinfrastructure, time and personnel.