Retail commerce | Operations
Good Supply-Chain Relationships Make Good Retail
August 16, 2017
The bricks-and-mortar retail world is collapsing all around us, and retail executives are fumbling to find fast fixes for their woes. Most seem to believe that closing stores is the answer. Perhaps they should be improving their supply-chain relationships instead.
For decades retailers have been punishing their vendors with onerous vendor compliance requirements and excessive financial penalties for failure to comply. These penalties are often so disproportionate, they actually serve as profit centers. What's more, compliance requirements are sometimes so poorly written that retailers' own internal staff cannot provide consistent answers to questions, confusing the vendors who are trying to comply. Out-of-date and outdated documentation; barcode and label schematics that leave unanswered more questions than they answer; operational instructions that are complex beyond the ability to satisfactorily automate let alone understand; technical Electronic Data Interchange (EDI) mapping guidelines that are either too vague or completely conflict with the data standard itself: Not only to these drive up compliance costs and timelines for vendors, but they also increase retailers' own costs of managing vendor compliance and are an indication of the retailers' own internal complexities and challenges.
What retailers have been doing
In the above examples, retailers have only themselves to blame for the supply-chain timeline lags, disruptions, and failure to reach compliance goals. Pushing their problems and inadequacies onto their vendor community may have saved retailers some money in the short term, but as with other myopic decisions, I believe retailers are now paying the proverbial piper.
The solutions? Dump the "disruptive" vendors, enter the private-label business (even though it may not be a core expertise of the retailer), consolidate to larger vendors with whom the retailer could sometimes make backend deals over compliance chargebacks, cut prices, squeeze the remaining vendors harder—all while continuing to do a miserable job on vendor compliance.
The results? Bricks-and-mortar retailers become commodity players in an overstuffed industry, and vendors seek relief from alternative buyers, including omnichannel retailers and direct-to-consumer online marketplaces.
The fallout? For all the talk of the need for loyal supply-chain partnerships, it's not apparent that any exist anymore. Suppliers may see their existing partnerships simply as relationships of necessity until someone better (such as an online retailer) comes along. Vendors are certainly vested in stores staying open because it translates to more product sales, but retailers don't seem to be trying very hard to keep their physical locations open, and of course some are going completely out of business of late.
Granted, online retailers often do just as lousy a job with their vendor compliance programs as bricks-and-mortar retailers. But vendors, looking anywhere to sell their goods, will take the path of least resistance. For example, many suppliers prefer to drop-ship rather than suffer standard fulfilment, so they'll choose what is for them the easier business model. Or if an online retailer is relatively new to the game, perhaps its compliance requirements are in the early stages of development and not as rigid, especially as it seek sto onboard a lot of vendors quickly and build its business model to satisfy investors.
What retailers should be doing
There are numerous ways you as a retailer can improve your overall business performance by improving your supply-chain relationships. For instance:
• In the same way that Admiral Horatio Nelson won at Trafalgar by allowing his ships' captains to command their own vessels as opposed to always looking to the flagship for instruction, you should give your local and regional management flexibility in engaging with small sellers, helping them with their potential growth.
• At the corporate level, vendor compliance programs need a complete review and revamp, technically and operationally. A review will reveal any significant internal issues, resulting in the opportunity to correct them.
• Create fast-track compliance programs to get new sellers up and going quickly. A lot of vendor compliance testing is unnecessary, overly burdensome, and based on the same stagnant, tired, aged thought processes and back-end deals that have been a barrier and an expense for decades.
• Create product-idea submission portals and let the new ideas stream in. Just because something is not right for the bricks-and-mortar store shelf does not mean it wouldn't be a hit on the e-shelf.
• Partner upstart sellers with existing large vendors to help nurture growing companies that need manufacturing and distribution assistance—in other words, actually foster supply-chain relationships and partnerships!
It is way past time that vendors were treated as valuable, just as customers are (or should be). The antagonistic relationship retailers too-often have with the purveyors of products needs to come to a fast end. Taking the above steps will decrease supply-chain disruptions and the costs of compliance; at the same time, it will increase supply-chain visibility and the number of new and innovative vendors you'll have access to.
The physical presence is both the downside and the upside of the bricks-and-mortar retailer. Both the online retailer and the bricks-and-mortar retailer can have an e-shelf, but only the bricks-and-mortar retailer can give consumers a touchy-feely experience before and after the sale, because they have the advantage of physical stores. To maximise this advantage, however, bricks-and-mortar retailers need to recognise supply-chain vendor compliance and vendor relationships in general as a competitive tool.
Success depends on solid supply-chain relationships that are true partnerships. I am not stating that correcting vendor compliance will fix all the problems that bricks-and-mortar retailers are facing, but I absolutely believe it is at the center of what has gone terribly wrong, just as I am convinced that it is being overlooked as where the road to recovery needs to pass.