‘New Ways’ rewrites rules for buyers and sellers

6/23/2008

NEW YORK —Globalization. Rising energy costs. Increased dependence on technology. Growing channel diversification. And a more informed, and so ever more demanding, consumer.

These were just a handful of reasons 15 leading retailers and manufacturing companies from across the globe banded together a couple of years ago to look ahead—then, 10 years into the future—to examine how certain immutable forces will reshape the way that buyers and sellers will conduct business tomorrow. Phase one of the project, aptly named, “2016 Future Value Chain,” recently culminated with the release of an important white paper that identified four key objectives retailer and supplier partners will need to meet to better satisfy the consumer and drive conjunctive growth.

Borne out of the work of the Global Commerce Initiative, key findings of the report, “GCI: New Ways of Working Together,” included:

Long-term planning: Think in terms of three-year to five-year increments versus one year at a time.

“If you’re really going to develop collaborative business plans that will meet the needs of the shopper, then this annual business-planning horizon is probably insufficient,” noted Jim Flannery, director of customer development at Procter & Gamble, an integral member of the global initiative. Flannery is a GCI group leader.

That doesn’t mean retailers and suppliers shouldn’t plan tactically on an annual basis, for example, how to best optimize a hot new kid’s movie licensing initiative in time with the Halloween selling season, how to set the cough/cold/allergy planogram to best capitalize on seasonal trends.

Long-term planning is a little more in-depth, and is strategic in nature—not tactical, Flannery explained. So, for instance, staying with the cough-cold example, what are the best adjacencies that really help grow the total market basket? How close should the set be to the pharmacist? Or, in the case of a pharmacy that has a retail clinic, how close should cough-cold be to the nurse practitioner? And what is the role of that healthcare professional as it relates to that category?

Common goals/shared data: Play by the same numbers for the same objective.

Critical to longer-term planning is a common language between the two partners. It doesn’t necessarily mean mandating that both sides are utilizing the same raw data from the same syndicator—be it Nielsen or Information Resources Inc. What it does mean is parsing the data in a similar fashion, for instance, placing a greater emphasis on unit drivers versus dollar profit. Also important is to come to an agreement as to what defines success.

A key current focus of GS1, a global organization leading the development and implementation of global standards across industry sectors, is a project called “Trading Partners Performance Measures,” Flannery explained. “They’re trying to create standard definitions for performance measures,” he said, such as, making sure that all retailers and suppliers are using the same metrics to calculate such measures as line fill.

Trust: If retailers and suppliers are going to plan three and five years out, that means they must have the confidence that they can share long-term objectives with each other, and information will not be used to upend goals.

“If I’m going to talk to a retailer about a brand that I’m launching in two to three years, I need to have confidence that he’s not going to run to his private-label manufacturer and have [it] beat me to market,” he said.

Integrated reward measures: Both sides must be measured the same way.

If retailer A is measured by the amount of co-op dollars he is able to bring back to his chain, and supplier B is only interested in making its quarterly sales numbers, what does that mean for the long-term prospects to grow the category, expand the market basket or more simply, create a more satisfying shopping experience for the consumer?

“If the single measure that a buyer uses to define success is margin, and the single measure that a salesperson uses to define success is sales growth, you’re always going to have a fight,” Flannery explained.

Participants in this phase of the GCI Initiative include retailers Ahold, Carrefour, Kroger, Metro, Safeway, Tesco, Wal-Mart and Wegmans; suppliers include Coca-Cola, Johnson & Johnson, Kraft, Nestlé, Procter & Gamble, Smucker and Unilever.

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