Arlington, VA — March 17, 2003 — Closer collaboration between retailers and their suppliers is key to helping retail outlets streamline their supply chains and meeting major challenges in today's consumer-driven economy, but data-exchange challenges are stymieing broader cooperation, according to the results of a new survey.
The latest annual survey of members of the International Mass Retail Association (IMRA) revealed business strategies that retailers and their suppliers are pursuing to navigate the rapidly evolving global marketplace, and the results underscored the effectiveness of retailer-supplier collaboration.
Survey respondents identified two key challenges in today's retail landscape:
- Differentiating assortment, presentation and experience in a homogenized marketplace where consumers can buy their groceries at the supercenter store, their gasoline at the convenience store, and just about anything over the Internet.
- Applying improved analytics at the store level to support a more effective response to consumer preferences and needs.
"One of the most striking things about the survey," said KSA Vice President John Champion, "is that respondents generally agreed that neither of these challenges can be met without establishing closer relationships with their suppliers." He noted that enhanced supplier partnerships can help retailers surmount challenges in key strategic areas, including:
- Customizing merchandise assortments to help retailers differentiate themselves.
- Moving merchandise more efficiently from sources to stores.
- Selling a wider array of products to increasingly demanding consumers.
Although retailers have made significant progress in gathering data to support strategic decision making in all of these areas, surprising gaps remain, according to the survey report. Unanswered questions include:
- What are the benefits of domestic versus global sourcing?
- How visible to the retailers are the details of incoming shipments?
- How can retailers reduce out-of-stock holes as the merchandise mix explodes?
The surveyed retailers recognized the need for more collaborative relationships with their trading partners to stay competitive, but they also admitted that these relationships have not yet evolved. The level of trust is not an issue, however, as nearly 90 percent of respondents said they trust the majority of their trading partners. The barrier is the perceived gap in the technology to support efficient data exchange. While the tools to support effective, automated exchange of collaborative planning processes are now available, the survey showed that only one in five retailers use high-tech software to support data exchange.
The results of collaborative trading partner planning programs are impressive. After implementation, 80 percent of respondents saw significant improvements in such key areas as reduced forecasting errors, lower levels of distribution center (DC) inventory and increased store in-stock levels.
A number of retailers and manufacturers described efforts underway to plan for exploiting the many emerging technologies. One of the leading examples is radio frequency identification, or RFID. In three to five years, RFID technology will be cost effective enough to allow each unit of inventory to be tagged, making it possible to pinpoint its movement throughout the supply chain from point of manufacture to the point where the customer takes it through the store's front door.
In the shorter term, computer assisted ordering (CAO) programs are already available. Supported by store-level sales data, perpetual inventory systems and demand forecasting, retailers that have implemented CAO report dramatic improvement of in-stock levels, with cost-saving reductions in store and DC inventory.
The survey identified additional performance measures that retailers want to establish and also showed that they do need to develop the building blocks of enhanced trading partner relationships — from perpetual inventory and demand forecasting systems to point-of-sale applications.
Leading retailers have generally taken some of the easy in-house steps toward enhanced supplier partnerships, according to the study. These include breaking down internal barriers to collaborative relationship building and establishing cross-functional teams with shared metric targets. However, the survey indicated that a cross-functional internal organization will not bring maximum benefits without corresponding connections in supplier organizations. The study concludes that successful collaboration requires connections across key functions, supported by a strong set of cross-company measurements focused on shared strategic goals.
IMRA members represent over $1 trillion in sales annually and operate more than 100,000 stores, manufacturing facilities and distribution centers nationwide.
IMRA used Kurt Salmon Associates (KSA), an international management consulting firm specializing in the retail and consumer products industries, to conduct the survey of IMRA's members and analyze the results to identify best-practice trends. In addition to the study's quantitative component, qualitative results were obtained through in-depth interviews with 30 industry leaders representing a cross-section of retailers and key suppliers.
"Over the past five years the retail landscape has changed dramatically," noted IMRA President Sandra Kennedy in explaining why the association conducts the annual survey. "By identifying leading-edge supply chain practices adopted by pioneering retailers and sharing them more broadly, we give all retailers insight into what they should consider in preparing for the future." IMRA released the full study in February during the association's logistics conference in Orlando, Fla.