Supply Chain Optimization, Part 2: How to Collaborate Around Supply Chain

When consumer packaged goods companies, retailers and suppliers collaborate on supply chain, they all stand to gain on a variety of fronts, as we saw last month in part 1 of this report. But how can the various stakeholders best collaborate? What are the key ingredients for success in achieving those benefits? A survey of key players in the industry, undertaken by A.T. Kearney and the Path to Purchase Institute with sponsorship from Menasha, found that choosing the right partners, jointly committing the necessary time and resources, accessing needed data and capturing cost inefficiencies are among the key factors.A.T. Kearney believes that CPGs that think they are collaborating with all of their customers are probably not doing it for real with any of them. Given the labor-intensiveness of truly deep supply chain collaborations, companies need to drill down to their top two or at most three customers and fully commit. Those that peanut-butter-spread across all their customers aren’t doing anything more than close-in, tactical collaborations.To explore the possibilities with any given partner, it’s best to begin with a top-to-top, probably CEO-to-CEO conversation, A.T. Kearney believes. Once leadership fully commits, supply chain and customer teams need to get together and jointly create an agenda for continued engagement, which takes considerable effort to set up, thus limiting the numbers of such partners that a given CPG or retailer can expect to have at any one time.“You have to have a commitment from a very high level, from both the customer and the supplier,” says Greg Dugan, regional vice president with Menasha. “That commitment needs to be clearly communicated to both organizations, along with assigning team leaders who can monitor and drive collaboration efforts.”“There has to be a C-level connection between organizations. That helps drive the cultures.”— Jeff Krepline, MenashaJeff Krepline, vice president of national sales at Menasha, says such efforts require trust, which leads to transparency. “Along with that comes standards, ground rules and guidance on how to work together,” he says. “There has to be a C-level connection between organizations. That helps drive the cultures, that helps drive the trust, work atmosphere and environment.”One of the first clients with which A.T. Kearney worked on such a collaboration gained benefits around inventory and space management, with the manufacturer for the first time helping the retailer directly to optimize the use of the back of the store. Instead of a food company mainly being focused on delivering on time and staying out of trouble, this risk-averse standpoint gave way to the CPG thinking about what was sitting in the storeroom and how to maximize use of the space to get its products to shelf.A.T. Kearney points out that such an intimate dynamic, in which supply chain and logistics at CPGs and retailers are conversing about maximizing the storeroom, underscores the importance of leadership commitment given how rarely both organizations would otherwise let down their guard. Since retailers and CPGs are somewhat competing to gain share of the joint-profit pool, it’s natural to be guarded even with one’s partners – but once jointly given permission from the top, both sides gain.John Barnette, vice president, center store merchandising at Food Lion, says that once all parties agree to partner up, they need to set a schedule for a specific number of collaborative meetings each year to review progress and make course corrections.“If you don’t do that, and you fly by the seat of your pants, you will never land anything,” he says. “Vendors prepare to talk to us about new items, emerging trends and any consumer insights that may help us. You need to make sure that you have the right people involved – if someone from pricing is not there, and you come up with what seems like a great idea, then when you talk to that person, you may realize what you weren’t thinking about.”Along with that need for structure, however, Barnette says partners need to know they can bring one another ideas in between meetings, particularly if they have a time-sensitive nature. “We’ve said to our vendor partners, ‘Don’t wait to bring us something that all of the sudden is just rising to the top,’” he says. “It’s structure, plus, ‘Geez, if something out of left field comes up, don’t wait!’”“Now, our vendors buy our data to come back and present their ideas.... There’s a lot of collaborative work there.”— John Barnette, Food LionOnce these pieces are in place, A.T. Kearney says, the fruit starts hanging pretty low. For example, with logistics and backhauls, with companies jointly sharing their data, they can begin to notice inefficiencies like instances of manufacturers’ empty trucks passing by retailers. Without collaboration, no one has all the data in one place, and there is not a single team that’s accountable for putting it together. Such opportunities can be immense, A.T. Kearney believes.“There’s no one prescription for this,” says Annette Groenink, group vice president at Menasha. “If you’re trying to develop new products, vs. trying to create efficiencies in your supply chain, it depends No. 1 on the priority – why you’re trying to work together. The second thing, regardless of the reason, data is very important in every aspect of what we do. If you’re trying to develop new products, you need to be able to share data on the markets you’re targeting … and the product you’re trying to enhance, or replace. If you’re trying to improve the efficiency of your supply chain, you have to share data on inventory and the accuracy of your forecast.”Survey Says …The joint P2PI/A.T. Kearney survey resulted in several key findings about how respondents said they work to collaborate around supply chain among CPGs, retailers and suppliers:Retailers, CPGs and suppliers need to choose partners for collaboration based on relationships and perceived benefits. Asked how their organizations selected the right partners for collaboration, 22% chose three different answers: “based on largest spend and longest relationships,” “comprehensive selection across value chain,” and “highest perceived long-term value of collaboration.” Arun Kochar, principal at A.T. Kearney, says the company urges its clients to think about working with smaller partners building business jointly, thinking about what value the collaboration could bring, vis-a-vis necessarily choosing those that are the largest partners right now. “That’s harder for these guys to do,” he says. “It’s not very intuitive, and there’s inertia. They’re incented to spend dollars today, or even yesterday. Thinking long term is harder.”For example, A.T. Kearney worked with a distributor and supplier in the alcoholic beverage space for whom their partnership represented 15% and 40% of overall business, respectively. In that type of situation, “You’re the best of friends and the worst of enemies,” Kochar says. “You are together for years and years, and you have to figure out how to get along. Our hypothesis is that organizations need to go beyond that and think about, ‘Where am I going to get the maximum value?’”Groenink is unsurprised by the survey’s results for this question. “It’s about the largest spend and the perceived long-term value,” she says. “Who are you going to collaborate with? Who do you have the most invested with, and who do you perceive having the most value?”Krepline notes that relationships and credibility are the key ingredients. “When it relates to the supply chain, you need to get to the value proposition quickly, how do you do it?” he says. “People want to look across the desk at somebody who has done it before, who brings thought leadership, who they can trust. This is about getting it done, not selling it.”Dugan agrees that while the relationship needs a certain size and scope, “the organization you go to has to have the right culture and focus on engaging in this and doing it. There are people who are going to hold back and aren’t going to be transparent, which will only dilute the results.”Partners must jointly commit significant time and resources upfront toward building collaborations. Nearly all respondents (89%) said a joint commitment of resources by both parties was necessary, while nearly half said their team was committed either full time (27%) or a majority of the time (18%); another third (36%) said their team was committed between 20% and 50% of its time.Part of cementing such collaborations tends to be a delicate dance around who pays what for external support like A.T. Kearney provides, which often ends up 50-50 or at least close to an even split, Kochar says. Joy Peters, partner at A.T. Kearney, adds that manufacturers arguably have somewhat less tight margins than retailers, but they also tend to expend more effort through head-count resources.“That’s balanced enough that it helps to build the relationship,” he says. “The retailer has so many suppliers they’re dealing with, it’s, ‘How many resources can I allocate [to one]?’ It’s correlated to power in the market and fragmentation.”To Krepline, the amount of time commitment will vary based on people’s roles; those taking the lead on collaborations will need to work on those projects every day, while those taking supporting roles will need to dip in to remove obstacles and otherwise move the process forward. “Most collaboration truly occurs when you have identified the gap to be addressed,” he says. “A problem or an idea that has been identified to solve really does bring the scope to a collaboration.”Barnette agrees the time commitment will vary by functional area. Category organization needs the highest amount of dedicated time, he says, while those working on the strategy side probably land in the 20% to 50% range.Dugan finds the survey results somewhat surprising, saying that in most collaborations he’s experienced, key personnel at the partners involved spend less than half their time on those specific projects.Partners must work to overcome complications ranging from unavailable data to human inertia. The top challenge cited to these efforts proved to be the unavailability of data or disparate data systems (ranked an average of 3.1 on a scale of 1 to 5), followed by inertia to change (2.8), lack of trust between organizations (2.5) and inability to agree on a value-sharing methodology.“Some of that is about trust, and some of it is about human nature,” Groenink says. “Regardless of why you’re collaborating, you need to be able to share data. The other thing is, you have to establish trust with your partners. If you can’t unequivocally say, ‘I’m going to give you a ton of information about my business,’ the partnership won’t work. You have to trust that all partners in the supply chain have the same end goal.”Barnette says he’s noticed all kinds of trust-related issues when he started at Food Lion five years ago, but that has all changed. “When I first walked into this organization, I heard, ‘Vendors are running your business more than you’re running your business.’ That was painful to hear, but clear,” he says. “There was a point in time when the spinning of the data, not so much the unavailability, was the problem. Now, our vendors buy our data to come back and present their ideas. They’re very interested in seeing our data. There’s a lot of collaborative work there.”Dugan says the nature of a relationship changes once supply chain partners start working within one another’s systems. “Posting goods received, production and shipments increases the visibility across the customer’s supply chain,” he says.Krepline believes the inertia piece comes about partly due to the head-down nature of supply chain work. “There’s so much focus on the day-to-day, maybe even the next 30 minutes, that it’s hard to get the [partners] to think about change and to accept change,” he says. “The inertia to change is about the environment and the tasks, vs. the person. Everybody’s worried about jobs that are due in the next 30 minutes.”Kochar says the data-related problems can cause a host of complications and “becomes a big issue that prevents a lot of these collaborative efforts from coming to fruition.” If a CPG and retailer share 10,000 SKU numbers, for example, they might quickly realize that their classification systems are very different.“That means you’re changing the backbone of the system, the architecture, which becomes a pretty daunting task,” he says. “You start running into issues where the numbers are not quite matching. That’s tricky in terms of sharing the data.”Efforts focus most often on data standardization and capturing cost inefficiencies. An even 29% apiece focused most closely on those two areas, while 21% apiece looked at information sharing and systems integration.“Capturing the cost inefficiencies, that’s probably the biggest one,” Dugan says. “Everyone is working to reduce their costs and increase speed.”Groenink says Menasha has seen instances where data systems are completely integrated and others where one partner is working within the other’s system. “That speaks to trust and information sharing,” she says. “We’re being transparent about what we can and can’t do, trusting that if we can’t do something, the customer is going to give us the ability to develop that capability, rather than just tossing us to the side and saying, ‘We’re going to find somebody who can.’”Krepline notes that collaboration partners need to figure out how to capture total costs. “Especially as it looks at a network, and the efficiencies within that network,” he says. “There are a lot of struggles because there’s not the right data, and it’s not standardized, and yet people want to do more with it. They churn it out and then they try to take a swing at it.” NOTE: This is the second installment in a three-part series. Last month, we addressed the rationale behind collaboration. In the third installment, we will look at ways to “scale” the effort, decide on key requirements and select from different operating models.About the SponsorMenasha is a packaging- and merchandising-solutions company focused on optimizing the retail supply chain. Menasha collaborates with the world’s leading retailers and consumer packaged goods companies to deliver the greatest measurable value across the entire integrated merchandising supply chain. As market leaders within the in-store merchandising industry, Menasha combines an unmatched understanding of the retail sector with a proven methodology for developing efficient, sustainable offerings to meet customer-specific goals.

Supply Chain Optimization, Part 2: How to Collaborate Around Supply Chain

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