The New Retailer/Supplier Relationship: Enabling Sustainable, Profitable Growth

Retail and Consumer Goods
August 17, 2016

Retailers are facing an unprecedented array of challenges. The hyper-competitive retail market is forcing retailers to respond to rapidly evolving consumer demands, combat consumer showrooming and price transparency, provide better products and deliver an engaging consumer experience from online, to in store and through delivery.

Retailers of all types struggle to compete with online giants such as Amazon, which offer consumers in some markets an assortment of high-volume items with same-day or even two-hour delivery. In other words, retailers and their suppliers must change the way they operate, or face the fate of bygone companies that were unable to cope with prevailing forces.

The Case for Supplier Enablement: The time has come for retailers and suppliers to pivot from transactional interactions toward more collaborative partnerships.

To sharpen – or regain – their competitive edge, retailers across multiple categories are launching initiatives to adapt to the changing landscape. But, they can’t do it alone; the relationship between retailers and suppliers must change from one based primarily on price and product negotiation to one that is more focused on customer value creation. This new dynamic may include sharing information to enable better, faster decisions about how to best meet consumer demands. And it could mean investment in new capabilities that can serve the interests of both companies, including:

  •                     Consumer and market insights and analysis
  •                     Agile product and experience innovation
  •                     Accurate merchandise transitions and expedited speed to market
  •                     Flexible supply chain fulfillment

The time has come to pivot from transactional interactions toward more collaborative partnerships. By pursuing rapid innovation and consumer satisfaction together, both retailers and suppliers will be better equipped to compete and win.

THE STRATEGIC WAY FORWARD FOR SUPPLIERS: THE FOUR CRITICAL SUPPLIER CAPABILITIES

North Highland has worked closely with major retailers over the past decade. In that time, we have identified four key areas of capability that retailers need most from their suppliers. Suppliers can compare this information with their current capabilities to identify the areas of greatest opportunity and make targeted investments for maximum supplier and retailer return.

1. Customer Insights Management

Capture relevant and holistic information through consumer research, feedback and observation on consumers’ needs and behaviors through the entire purchase cycle.

Consumer’s in-store and online experiences and expectations have evolved dramatically. To accommodate today’s demands – and prepare for the next big shift – suppliers are in a position to illuminate consumer behaviors and expectations and bring those insights to their retail partners.

For example, a home improvement retailer seeks to understand a consumer’s purchase life-cycle throughout a bathroom renovation. At the same time, a faucet supplier has already gathered consumer insights to ensure that they offer the most compelling array of products. Working together, both companies can use their information and insights to achieve immediate goals. Additionally, the supplier can create a well-informed product development pipeline, leading the next wave of bathroom trends and consumer interests.

Suppliers gathering customer insights should ask themselves several key questions, including:

  •  What customer segment is the most valuable to me?
  • How do we target them?
  • What needs to our customers have now and in the future?

Using a combination of primary and secondary research, suppliers can gain a comprehensive understanding of their customers – who they are, where they shop, how they shop and what drives their decisions. This information then can be shared with their retail partners to create a better shopping experience and determine product evolutions.

North Highland recently supported a consumer insights collaboration between a Fortune 100 retailer and a large CPG manufacturer, which aimed to increase revenue from a strategic retail customer segment. Partnering with the supplier, North Highland helped combine category specific insights with the retailer’s persona to generate an integrated view of the customer’s needs. Armed with these insights, the retailer and supplier teamed up to launch new product concepts and redesign elements of the in-store experience. A true win-win for both.

2. Merchandising Strategy Development & Execution

Optimize strategy through data, process and organization enhancements.

“What products do I offer, and how and where do I offer them?” This simple question sits at the heart of retail merchandising.

In an ideal world, retail merchants have eyes on the performance of every SKU in every market. But such a close watch is not always feasible, especially for national retail organizations. This is where a strategic supplier relationship becomes crucial. By providing detailed sales data to trusted suppliers, retailers can effectively multiply the size of their data analytics teams. We see more suppliers working to build internal sales analytics teams to study performance trends and identify opportunities to capture additional revenue.

Using an optimized merchandising strategy, suppliers can better align with their retail partners to improve opportunities for growth.

By understanding and applying retailers’ business objectives to their own operations, suppliers can adjust their pricing and space allocations to improve sales performance.



3. Transition Planning & Execution

Plan and manage the end-to-end process for introducing products to stores.

Transition planning – delivering the right products to the right stores at the right time – is a complex science, which requires a combination of systematic planning and agility.

Armed with advances in predictive analytics from retailers, suppliers can make more informed decisions about what product to introduce and when and where to place them. For big box retailers, delaying the transition of a single new SKU in one market for one week could result in the loss of millions of dollars in incremental revenue. In addition, incorrect execution (e.g. failed placements of SKUs per the planogram) can undermine sales of key products and severely damage supplier-retailer relationships.

When implemented appropriately, however, end-to-end transition planning and execution can yield big rewards. Suppliers, especially those partnering with national big box retailers, can ensure that transition planning and execution is a core capability. For example, North Highland helped manage biannual merchandising transitions in 1,600+ stores in partnership with a leading flooring product distributor and a home improvement retailer. The complexity of the project was exacerbated by the fact that the retailer involved 20+ flooring vendors. The effort included the vision and oversight of the refresh effort, clarification of reporting responsibilities and training materials. North Highland not only led the work but helped the vendor gain knowledge and start developing capabilities that helped them build more credibility with the retailer. The vendor is now driving this biannual refresh effort with the full confidence of the impacted vendors and retailer.

4. Product Development & Supply Chain

Bring innovative and on-trend products to market efficiently; manage cost and quality.

Ongoing product development is an essential capability for suppliers who seek to enhance and expand their products while growing their bottom line. A regular cadence of product performance reviews can increase suppliers’ quality, speed to market and marketability. Likewise, as discussed earlier, consumer insights can inform the creation of new products and help determine how existing products should be adapted to meet emerging customer needs. Additionally, suppliers should engage with their retail partners to understand what types of products will enhance the assortment in the future.

Once products are developed, retailers rely on suppliers to deliver fully developed, reliable and flexible supply chain capabilities. Without these capabilities, retailers cannot deliver on exclusive distribution of a certain product, or meet consumer expectations for delivery options and times.

Suppliers must have a distribution network that is nimble enough to respond to new customer delivery requirements without incurring significant internal costs.


 

ENABLING SUCCESS FOR SUPPLIERS & RETAILERS

As retailers and their strategic suppliers explore innovative ways to deliver new value to consumers, it is essential to keep the following considerations in mind:

  •  Retailers should take a portfolio view of suppliers and best leverage each individual supplier’s areas of expertise.
  • Suppliers should invest in new capabilities including research and analytics to generate a deeper understanding of the customer, new merchandising     strategies, product transition planning, new product development, and an agile and responsive supply chain.
  • Pursuit of these capabilities can be challenging, but partnerships with the right strategic advisors can help suppliers uncover areas of opportunity with retailers and assist in the hiring, training, process development, organizational structure, and technology decisions essential to sustained growth.

The current, hyper-competitive retail environment of changing consumer behaviors and market innovations demands a new perspective on the retailer-supplier relationship. The time has come to collaborate on a strategic and sustained response to the seismic changes confronting retailing. Retailers and suppliers willing to elevate their relationship beyond simple pricing and inventory negotiation stand to achieve the greatest advantages.

 

 

For more information, please contact:

Andrew Billings

+1 404-975-6251

Andrew.Billings@northhighland.com

Jenny Strange

+1 404-975-6604

Jenny.Strange@northhighland.com

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