STRATEGIC SUPPLIER RELATIONSHIPS Why are they important?

Andy Campbell advocates a partnership based approach to build strong supplier relationships

Over recent years, the supply base within the gardening industry has consolidated somewhat, with relatively few larger companies dominating the market. Like many other markets it changes constantly as a result of acquisition, merger, flotation, buy-ins or buyouts, and at worst liquidation and receivership. Gardening products are characterised by their seasonality, weather-dependency and, in the case of horticultural products, their perishability. In addition, they tend to be of relatively low value, bulky and difficult to manage through the supply chain.

When these dimensions are combined it is clear that volatility in the market is inevitable and that if retailers and suppliers don’t work collaboratively, conflict will arise and opportunities will be missed. This working relationship becomes doubly important during periods of intense demand and restricted supply, as we have experienced in the last eighteen months. The challenge, therefore, is in choosing the right suppliers to work closely with, and to determine the best way of working with them.

At one end of the relationship definition, the exchange can be viewed as a simple transaction between buyer and seller, no more than a clinical interaction, largely tactical by nature. At the other end, a much more strategic relationship can be sought and developed that will deliver sustainable benefits for both businesses. Whilst the former has a place, I am convinced that the latter approach achieves more in the long term.

It takes considerably more time to manage a bad supplier who consistently underperforms, than a good supplier who delivers on commitments

SO, WHAT CHARACTERISTICS DEFINE THE IDEAL SUPPLIER?

The answer to this complex question can be summarised under the following five headings:

FINANCIALLY SECURE

If you are seeking a long-term supplier relationship that is strategic in nature rather than meeting a short-term tactical need for your business, it is important to interact with suppliers who are financially secure. Those suppliers will have the capability to invest in research and development for the future, either in terms of new product development or continuous improvement in ways of working.

MARKET DEVELOPMENT

A supplier who has a demonstrable intent and commitment to grow the market is more attractive, when it comes to assessing potential suppliers, rather than a supplier who is seeking to simply take market share from competitors. This may be demonstrated by market research to better understand the potential and existing consumers and customers or by various marketing initiatives designed to stimulate additional demand.

STRONG BRAND

In most cases, developing a relationship with a supplier who owns or has developed a portfolio of strongly branded ranges is highly advantageous. This can mean that all your product requirements for a sector or category may be sourced from one supplier rather than buying many individual products from multiple sources, which can be both time-consuming and costly. This is less relevant in categories, where brand awareness is minimal or non-existent, as in the case of plants. The ability to produce and supply products under your own label may be considered, in categories where this is the case.

WELL MANAGED

It is people who make a business and who make the difference to how the business performs, and therefore it is worthwhile gaining an understanding of how well managed the company is. Indicators of a well managed business include, the professionalism and proactivity of the account management, and the innovation and effectiveness of the functional management team. Businesses that are technically advanced in terms of systems and support processes tend to be more efficient now and into the future.

HIGHLY COMPETITIVE

If these first four criteria are met, then it is reasonable to assume that the supplier will be highly competitive when it comes to the overall value of their offer, specifically; range, quality, service, promotions and price. The price you pay needs to reflect the benefits of scale and also to recognise the specific way that you do business with the supplier, such that you pay for the service elements that you take but not for those that you do not require.

WHAT SHOULD YOUR SUPPLY BASE LOOK LIKE?

Having defined the characteristics of your long-term strategic supplier, the next stage is to determine the overall size and shape of your supply base. It is, of course, necessary to achieve a balance and to find the optimum number of suppliers with whom you deal. Too many, and it is practically impossible to manage effectively, establish a dialogue to build the relationship, gain commitment or achieve any economies of scale. Too few, and you might feel that you are compromising your range too much and that your business is exposed to too much risk, if one of your suppliers underperforms or ceases trading for some reason. General guidance is to proactively assess each product sector and to decide on the lowest supplier number which will help to balance the trade-off between maximising profit and minimising risk.

But what about the quality of the supply base? It takes almost the same amount of time for a buyer to manage a small turnover supplier as it does a large one. However, it takes considerably more time to manage a bad supplier who consistently underperforms, than a good supplier who delivers on commitments. Therefore, it is essential to identify those suppliers with a good track record of performance and those who honour their commitments. To avoid misunderstandings, it is also important to be clear about what you expect from them. Equally, it is perfectly legitimate for the supplier to clearly state their expectations of you and your business. Ultimately, this process is about ensuring the highest possible level of compatibility between trading partners.

WHAT DO YOU WANT FROM YOUR SUPPLIERS?

The next stage is to determine exactly what you want from this strategic relationship and what you are able to give to it, such that it becomes a ‘win-win’ relationship for both parties. Both participants in the relationship have their own set of business objectives, but by working cooperatively to better meet consumers’ needs they are more likely to achieve their objectives, than by working independently or in conflict. I have grouped sample requirements that you might have of the supplier below, but stress there may be other specific needs that you have that are unique to your own business:

SALES GROWTH

Your strategic supplier should have a commitment to help grow your share of the market, including access to market research data, involvement in national advertising and promotions, specific bespoke promotional activity and exclusive ranging opportunities. Many suppliers provide product demonstrations, display samples and equipment, point of sale material and a merchandising service but it is important to remember that these all cost money and you will pay for them if you use them. New product development (NPD) is the “lifeblood” of most businesses, and in a strategic relationship it is important to get as much early insight and input to this process as possible and to ensure that as a trusted trader you get first access to new products.

COST REDUCTION

In addition to sales driving activities, there may well be joint cost reduction initiatives that can be assessed that could take costs out of the supply chain to the benefit of both parties. such as pack count optimisation, stock holding reduction or order-delivery-receipt processing improvements. There may also be opportunities in rationalising your supply base to place more business with your chosen long-term suppliers in return for improved terms, depending on the number of suppliers you have.

You may also have specific requirements in terms of minimum order quantities or delivery lead times and it may be appropriate to have a service level agreement in place with the supplier to ensure the best on-shelf availability to your customers, thereby increasing customer satisfaction and maximising profit.

WHAT MIGHT THE SUPPLIER WANT FROM YOU?

As stated this relationship can only be successful if a mutually beneficial process and continuous dialogue exists. I don’t know of any relationship that works where only one party’s needs are met! Therefore, it is fundamental to understand what the supplier wants to achieve from the relationship. From experience, it is clear that the best way to find out is to ask them outright. This frank exchange of requirements, which is essential and desirable, can be very revealing, it gives a starting point where each party knows where they stand. It highlights points of agreement (and often there are many), and potential ints of contention, which can be worked through to a mutually agreed solution. Ideally the output from this discussion would be a jointly agreed business plan that can be implemented. Typical requirements that a supplier might ask, in addition to a general commitment to support the development of the account, could include:

● A longer-term trading agreement, two to three years rather than annual

● Support of their brand values - in terms of pricing and promotion

● Comprehensive listing of the range - rather than “cherry-picking”

● Priority over competitors, listing and positioning

● A high profile presence, during major national marketing initiatives

● Shared demand forecasting, including EPoS data exchange

● Input to new product development, including product testing and trials

● Joint involvement in future business development issues

RISKS AND BENEFITS

There is however a fine line between working cooperatively and becoming complacent. It is imperative that the buyer constantly challenges the status quo and explores the possibility of a better, alternative source of supply. And, it is incumbent on the supplier to continue to innovate and prove to the buyer exactly why they should continue to do business with them.

I am convinced that with a strategic approach towards one’s suppliers it is possible, over a period of time, to establish a deep and thorough understanding of each other’s business, such that efforts are directed at building the size and profitability of the product category. This involves a significant commitment to each other, by recognising that the trading relationship can be mutually beneficial. In essence, the focus moves from management of today to development for tomorrow which, for most people, is a much more productive and satisfying activity. ✽

ANDY CAMPBELL is an independent business development consultant specialising in the garden centre industry with 40 years’ retail experience. Contact details: 0044 (0)7788 567011 / www.andy@ andycampbellconsulting.co.uk / www.andycampbellconsulting.co.uk