November 28, 2007
Trade Partners: Communication Breakdown
By Tom Ryan
What follows is an excerpt of an article published in Sporting Goods Business, presented here for discussion.
An informal, confidential survey of top execs at 18 large and small sporting goods chains by Sporting Goods Business found that while competitive issues such as product allocation are a concern, service issues (i.e., on-time and accurate deliveries, the buying process, and overall follow through) are a much bigger headache.
Many store execs believe suppliers – many of them public companies – are reducing expenses in service areas in order to reach bottom-line targets.
“There’s just less sales people,” said one head buyer at a larger regional chain. “They’re making people’s territories bigger; giving them more accounts. You wind up having a heck of a time getting around to see people. We’ve got order takers; we need sales people.”
Some are looking for more flexibility in the buying process around cancellations or delayed orders. A few are looking for vendors to increase their ability to handle reorders.
Another niche specialty store exec is frustrated that suppliers can be so heavy-handed on issues such as getting orders in on time and other buying issues, yet so sloppy in shipping and communications.
“One of the things I find difficult about trying to build relationships is that when there’s a faux pas on their side, we tend to look past it. Those things happen,” he said. “But they cause problems.”
Late and inconsistent delivery continues to be an ongoing headache for most. Many stores don’t find out about delays until they open the boxes. The lack of notification is particularly problematic. Advertising commitments have to be made well before shipments arrive, and a missing item often finds itself in an ad. But product also has to be there at the beginning of the selling season to achieve optimal sell-throughs.
Said an exec at a small regional chain, “If you miss two weeks, you can miss your whole season.”
On the brighter side, retailers roundly agree that technology is enhancing the working relationship, particularly in placing and checking on orders. Moreover, several retail execs claim to be working more closely than ever with their key suppliers – regularly sharing information on sell-throughs and setting profitability goals together in the true spirit of partnership.
“Everyone’s under the same type of pressure,” contended a CEO at another larger regional chain. “How do you leverage all of your resources? Each manager has to make that call. What’s the appropriate number of people, whether in product, marketing, or sales, all the way to the reps? What are their roles? Those are tough choices.”
Discussion Questions: Are the service issues vexing sporting goods chains common in other retailing channels? What are others doing to address and correct these issues?
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Service level challenges continue to exist in channels that still rely on old communication methods around the order and shipment functions. Specialty retailers are doing quite well in several markets because consumers like what they offer. However, they are very inefficient to deal with as a group for suppliers. Fax machines and call centers have not completely disappeared, believe it or not. The tech savvy ones use Web-based options and more are coming online each year.
I’m not trying to make excuses for poor service levels from suppliers…just wanted to point out that you are taking about a very difficult channel for suppliers to deal with. Oh, and don’t forget the role and complicating impact of the independent broker, who still thrives in this domain.
The service issues being experienced by sporting goods stores are not completely unlike the scenarios being experienced in certain product types and categories in the greater domain of mass markets. In most cases, the service issues are caused by one or more of the following realities:
1. Inaccurate forecasting – the retailer or the manufacturer might be guilty in either case.
2. Improper budgeting – often manufacturers and/or retailers under-estimate the real cost to keep up with supply and demand. In many cases the service issues are caused by improper funding and timing for cash flow.
3. Untimely marketing – all too often the cart is put before the horse, or the other way around, and demand is timed improperly with supply and replenishment.
4. Logistics glitches – the more obvious reasons for service issues caused by the unplanned, the unknown, and the acts of human-nature.
What it all comes down to is good communication between manufacturers, marketers, and retailers, with all parties challenging each other early on in the process to be sure that ample thought, planning, and funding are invested into all what boils down to predictable and adequate service.
The issues the sporting goods industry are documenting are not unique to them. As pressures on the supply chain in all retail categories and channels continues to increase, margin pressures on suppliers increase. Suppliers see their first priority as delivering goods they can profitably invoice, and only then do they focus on supporting those sales.
Margin pressures, in particular, continue to contribute to delivery issues. Suppliers are trying to thread the needle when managing production and shipping schedules. Twenty years ago, it wasn’t unusual for a supplier to bring goods in 30 days early or more, to assure timely delivery. Those days are long gone.
Similarly, communication is hardly a new issue. Technology has improved the situation, and brought supplier and retailer into closer business partnerships, but the supply chain is not seamlessly integrated, nor is it likely to be in the foreseeable future.
Service is critical in a collaborative, consumer-centered business environment. However, not everyone is working from this paradigm. Companies that are happy to have EDI connections for automatic ordering and use that as a rationale for cutting salespeople are missing the point and will lose business in the long run. Having an EDI connection for automatic ordering takes care of the order taking part of the sales function. So what are the salespeople supposed to be doing? Not their old job. Salespeople need to be proactive business development managers working closely with their customers to develop joint business plans. If the salespeople are not working closely with their customers planning strategy and rely upon EDI connections for sales, they will last only as long as their prices are low and their competitors are not developing strategic relationships. When their competitors begin developing strategic relationships, they will last as suppliers only as long as consumers demand their products and/or they have low prices. If the consumers are not demanding their product and are willing to use substitutes, the supplier will last only as long as they have low prices. And that doesn’t last forever–then they lose the customer.
It is important to look at these service issues holistically and within the context of product mix and merchandising decisions. Yes, as Dan mentions, specialty retailers need to apply best practices for order-shipping-billing systems. In parallel, they also need to evaluate buying decisions under new, broader criteria including impact on the supply chain.
In a retail world focused on providing everything a sports person could need, learning some principles of efficient assortment and more targeted merchandising could go a long way to positively impacting service and the P&L.
Every retailer has a list of consistently troubled suppliers who misship, communicate badly, run out-of-stocks, etc. This issue isn’t limited to the sporting goods category, it’s in every category, and probably will be a problem forever.
The nature of organizations is that there will always be (at least) a few underperformers in every category. And in some troubled categories, there’ll be more than a few. Often the troubled suppliers get cured after a top management coup. The new management installs people, technology and procedures that are competitive. The old management either denied the issues or decided they weren’t worth fixing or ineptly threw money and people at the problems to no avail.
Using Wal-Mart as an example, their focus on logistics from the retail end has created a lot of expectations for just-in-time inventory, not to mention a lot of expectation for holding down costs.
In the race to improve the bottom line and still keep prices low, something has to give and both retailers and suppliers are understaffed. Retailers have wishful thinking that suppliers are implementing technology and better procedures so they can reduce expenses on the retail end. While such improvements are helpful when they do happen it just isn’t practical for any retailer to blame the supplier that it didn’t get done, or to expect this will change soon. Improved use of technology is clearly the best and most cost-effective answer for companies with the vision of the Sam Waltons of the world.
Meanwhile, the need to “supply right” is important enough that the cost of doing business to meet it is what it is. Prices may need to go up to assure the consumer gets what they want when they want it, although at a price a few pennies higher than they would like. And with the cost of transportation going up and the logistics of handling Asian-made goods not getting easier, we may just regret having given up so much American manufacturing. Fortunately, in the core of my industry this isn’t an issue. However, we are seeing the production/plant-growing side of the business becoming more localized, which reduces supply line complication as well as cost,and improves timely delivery to next day or sometimes same day.
If the number of out of stocks I see at my local Wal-Mart are any indication then there is massive communication breakdown. Having spent years on the DSD side of the grocery business I can assure your that this is the primary reason that many vendors continue to insist on DSD rather than utilizing the grocer’s warehouse and delivery system to deliver product to the shelf. Management (the modern silver bullet types) get their pants in a wad over a competitor getting a better price or a larger allocation. The fact is most could probably do more for their customers and shareholders by simply insuring their buying and delivery systems were functioning at an 80% level of efficiency. The issue is not the distribution system; it isn’t hard to locate the problems! The problem is that management wants to solve the problem with minimum wage labor who is never provided with enough training and/or incentive to do a great job. Ask a beverage salesman how to manage his shelf space and you will get a graduate level explanation. Ask ANY employee in a chain grocery store the same question and you will get a blank look. This ain’t rocket science, but it isn’t sexy and requires real work, so don’t look for any improvement in the near future.
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Service level challenges continue to exist in channels that still rely on old communication methods around the order and shipment functions. Specialty retailers are doing quite well in several markets because consumers like what they offer. However, they are very inefficient to deal with as a group for suppliers. Fax machines and call centers have not completely disappeared, believe it or not. The tech savvy ones use Web-based options and more are coming online each year.
I’m not trying to make excuses for poor service levels from suppliers…just wanted to point out that you are taking about a very difficult channel for suppliers to deal with. Oh, and don’t forget the role and complicating impact of the independent broker, who still thrives in this domain.
The service issues being experienced by sporting goods stores are not completely unlike the scenarios being experienced in certain product types and categories in the greater domain of mass markets. In most cases, the service issues are caused by one or more of the following realities:
1. Inaccurate forecasting – the retailer or the manufacturer might be guilty in either case.
2. Improper budgeting – often manufacturers and/or retailers under-estimate the real cost to keep up with supply and demand. In many cases the service issues are caused by improper funding and timing for cash flow.
3. Untimely marketing – all too often the cart is put before the horse, or the other way around, and demand is timed improperly with supply and replenishment.
4. Logistics glitches – the more obvious reasons for service issues caused by the unplanned, the unknown, and the acts of human-nature.
What it all comes down to is good communication between manufacturers, marketers, and retailers, with all parties challenging each other early on in the process to be sure that ample thought, planning, and funding are invested into all what boils down to predictable and adequate service.
The issues the sporting goods industry are documenting are not unique to them. As pressures on the supply chain in all retail categories and channels continues to increase, margin pressures on suppliers increase. Suppliers see their first priority as delivering goods they can profitably invoice, and only then do they focus on supporting those sales.
Margin pressures, in particular, continue to contribute to delivery issues. Suppliers are trying to thread the needle when managing production and shipping schedules. Twenty years ago, it wasn’t unusual for a supplier to bring goods in 30 days early or more, to assure timely delivery. Those days are long gone.
Similarly, communication is hardly a new issue. Technology has improved the situation, and brought supplier and retailer into closer business partnerships, but the supply chain is not seamlessly integrated, nor is it likely to be in the foreseeable future.
Service is critical in a collaborative, consumer-centered business environment. However, not everyone is working from this paradigm. Companies that are happy to have EDI connections for automatic ordering and use that as a rationale for cutting salespeople are missing the point and will lose business in the long run. Having an EDI connection for automatic ordering takes care of the order taking part of the sales function. So what are the salespeople supposed to be doing? Not their old job. Salespeople need to be proactive business development managers working closely with their customers to develop joint business plans. If the salespeople are not working closely with their customers planning strategy and rely upon EDI connections for sales, they will last only as long as their prices are low and their competitors are not developing strategic relationships. When their competitors begin developing strategic relationships, they will last as suppliers only as long as consumers demand their products and/or they have low prices. If the consumers are not demanding their product and are willing to use substitutes, the supplier will last only as long as they have low prices. And that doesn’t last forever–then they lose the customer.
It is important to look at these service issues holistically and within the context of product mix and merchandising decisions. Yes, as Dan mentions, specialty retailers need to apply best practices for order-shipping-billing systems. In parallel, they also need to evaluate buying decisions under new, broader criteria including impact on the supply chain.
In a retail world focused on providing everything a sports person could need, learning some principles of efficient assortment and more targeted merchandising could go a long way to positively impacting service and the P&L.
Every retailer has a list of consistently troubled suppliers who misship, communicate badly, run out-of-stocks, etc. This issue isn’t limited to the sporting goods category, it’s in every category, and probably will be a problem forever.
The nature of organizations is that there will always be (at least) a few underperformers in every category. And in some troubled categories, there’ll be more than a few. Often the troubled suppliers get cured after a top management coup. The new management installs people, technology and procedures that are competitive. The old management either denied the issues or decided they weren’t worth fixing or ineptly threw money and people at the problems to no avail.
Using Wal-Mart as an example, their focus on logistics from the retail end has created a lot of expectations for just-in-time inventory, not to mention a lot of expectation for holding down costs.
In the race to improve the bottom line and still keep prices low, something has to give and both retailers and suppliers are understaffed. Retailers have wishful thinking that suppliers are implementing technology and better procedures so they can reduce expenses on the retail end. While such improvements are helpful when they do happen it just isn’t practical for any retailer to blame the supplier that it didn’t get done, or to expect this will change soon. Improved use of technology is clearly the best and most cost-effective answer for companies with the vision of the Sam Waltons of the world.
Meanwhile, the need to “supply right” is important enough that the cost of doing business to meet it is what it is. Prices may need to go up to assure the consumer gets what they want when they want it, although at a price a few pennies higher than they would like. And with the cost of transportation going up and the logistics of handling Asian-made goods not getting easier, we may just regret having given up so much American manufacturing. Fortunately, in the core of my industry this isn’t an issue. However, we are seeing the production/plant-growing side of the business becoming more localized, which reduces supply line complication as well as cost,and improves timely delivery to next day or sometimes same day.
If the number of out of stocks I see at my local Wal-Mart are any indication then there is massive communication breakdown. Having spent years on the DSD side of the grocery business I can assure your that this is the primary reason that many vendors continue to insist on DSD rather than utilizing the grocer’s warehouse and delivery system to deliver product to the shelf. Management (the modern silver bullet types) get their pants in a wad over a competitor getting a better price or a larger allocation. The fact is most could probably do more for their customers and shareholders by simply insuring their buying and delivery systems were functioning at an 80% level of efficiency. The issue is not the distribution system; it isn’t hard to locate the problems! The problem is that management wants to solve the problem with minimum wage labor who is never provided with enough training and/or incentive to do a great job. Ask a beverage salesman how to manage his shelf space and you will get a graduate level explanation. Ask ANY employee in a chain grocery store the same question and you will get a blank look. This ain’t rocket science, but it isn’t sexy and requires real work, so don’t look for any improvement in the near future.