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 Traditionally, the supply chain function has been focusing on processes from the shelf back. But, is this likely to change in the future?
Here, we take a look at how supply chain engagement is gaining in importance.
The need
In the current trading environment with volatile markets and demanding customers, companies need to look beyond their individual enterprises and find ways to engage proactively and build long-term strategic relationships.
Recent IGD research suggests that supply chain based KPIs beyond service levels, are becoming an increasingly vital part of commercial negotiations. In addition, suppliers with strong supply chain engagement capabilities are more attractive as a potential partner.
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Benefits of supply chain engagement can be broad
Recent IGD research highlights several important benefits of building supply chain engagement capability such as sales improvement, cost reduction and relationship enhancement.
Retailers describe these improvements as ‘hard benefits’ such as:
• Improved availability
• Higher service levels
• Reduced stockholding and KPI achievement
Manufacturers on the other hand, primarily express the benefits achieved as ‘soft’. These include advantages such as ‘stronger trading relationship’, ‘opportunity to influence supply chain metrics’, as well as tangible benefits such as 'reduced waste' and 'mutual cost savings'.
Engaging with your supply chain partner can result in a wide range of benefits. For example, Tesco and a group of 17 suppliers have, through a process of pro-active supply chain engagement, achieved a common and standardised approach for promotional planning, stock reduction and supplier reviews.
The six-step approach
IGD has identified six steps of engagement to achieving strong supply chain partnerships. These differ in the frequency and nature of contact, delivery on KPIs and behaviour and attitude of the partners. The steps are:
Step 1: Supply chain discussions tend to be mainly transactional in nature at this stage
Step 2: Although ‘partners’ at this stage have a commercial trading agreement, only a limited number of supply chain KPIs are covered
Step 3: This is similar to step 2, but the trading agreement is likely to cover a wider set of supply chain KPIs
Step 4: At this stage the partner is trusted on supply chain capabilities and it is likely there are a common set of supply chain goals
Step 5: The partners share resources to manage performance on supply chain KPIs
Step 6: A strong partnership where the relationship is strategic with a mutual goal to improve performance through joint supply chain initiatives
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At the highest level, partners will demonstrate mutual respect, shared vision and honest, pro-active communication that span multiple levels.
Furthermore, the six step approach is an evolving model; companies can go up or down between stages if there is a change in alignment, performance, personnel or a combination of each of these.
Benchmark your capability
Understanding what each of these steps mean and identifying what is required is the first stage in building capability. As important as it is to understand customer priorities before planning your supply chain engagement, it is also essential to benchmark your position on IGD’s Six Step model.
Bridging the gaps and facilitating the move to the next level will provide opportunities for joint initiatives that will deliver long-term cost and efficiency benefits.
Describing a 'best-in-class' engagement strategy, a supply chain director from a leading retailer participating in IGD’s research comments:
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Building a long term strategy is critical to the entire process of effective engagement |
“I would think the best supplier, in addition to understanding my business and being aligned with my strategy, will provide service with a challenge.”
Challenging the status quo, sharing best practice to inspire a spirit of continuous improvement is an important attribute that retailers look forward to.
Setting the vision for engagement
Building a long term strategy is critical to the entire process of effective supply chain engagement with your customer. Before identifying potential partners, a number of issues need to be considered:
• What is the size of the opportunity?
• What is my product’s role in the customer’s business plan?
• How do I fare on supply chain KPIs?
• How is the relationship across different levels in both organisations?
• What resource is available?
However as a first step, delivering on the basics is essential. As one supply chain director from a retailer commented:
"If the service is poor, no point in talking sexy stuff."
Increase your fitness to compete
Finally, the research found several key themes emerging to help you work effectively and increase your ‘fitness to compete’ with your supply chain customers:
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Steps to help increase your 'fitness to compete' |
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1. Go back to the drawing board to identify how your supply chain partner defines ‘basics’, and relentlessly drive excellence in this area |
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| 2. Benchmark your position on IGD’s 'Six steps to successful Supply Chain Engagement' and assess how you can move up a level |
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| 3. Focus on both long-term and short-term benefits |
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| 4. Encourage your team to understand and focus on the customer's supply chain goals and priorities |
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| 5. An appropriate structure with open and proactive communication is essential to advance and make progress |
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| 6. Finally, encourage your team to be confident of their capabilities while you improve your performance on the weaknesses | |
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More information:
Find out more at IGD Supply Chain Analysis.
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