Wednesday, June 2, 2010

Managed Supplier Partnerships

When WalMart created RetailLink in 1986, they required their suppliers to participate. In the beginning, the purpose of RetailLink was to provide suppliers with online access to WalMart sales data and projections. Suppliers began to take an active role in managing WalMart's own inventory.

Later, WalMart expanded their relationships with their suppliers to include a combined effort of delivering goods to WalMart at the lowest possible cost. WalMart began to exert a level of control over their suppliers that was unheard of in American retail. In effect, WalMart said, "You do business our way, or not at all."

Up to this point, everything is well and good. Here we have a traditional, American business using their buying influence to make a profit the best way they know how. But, WalMart has forced a severe disadvantage on the rest of us. Cutting supplier profits to the bone, suppliers had no alternative but to make up their losses by increasing the profits made from independent retailers.

Smaller retailers do not realize the relationships they have with their suppliers leans heavily toward the supplier's advantage. Suppliers charge retailers more than they should because they know retailers are too busy with other things than to negotiate the best possible price. By allowing suppliers to decide what to put in their stores, and at what costs, retailers have put the fox in charge of the henhouse.

If retailers take back control of their inventories, they will learn to negotiate with suppliers for each and every item that goes on their shelves. If you are in the dark as to what inventory resides in your store, you can't possibly know how much of it you have, how long it will last, and how much profit it's earning for you.

If you have a single store, it's easy to see what you have, look at your cost and know what it's making you. But once you open the second or third store, you begin to lose control. It's too easy to turn the job over to someone else.

Suppliers are so busy paying attention to their bottom line, they don't realize that if they worked with their retailers to put the right inventory and the right amount of inventory in their customer's stores, the deliveries they made would increase and they would enjoy greater profits.

We must teach our suppliers to work with us to deliver just the inventory we need at the moment the consumer is ready to buy – no more, no less. We must confront them when they attempt to put 100 days worth of one product on our shelves and not enough of another. We must stop them from using our stores as laboratories to test the popularity of new and unproven products. And most of all, we must teach them our stores are not warehouses to improve their Financial Statements. Unless we do that, they will never change.

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