Customers are becoming ever more demanding, but expectations extend far beyond the right balance of price and quality. From the complexity of right product, right place, right time across multiple channels – including new international joint ventures and franchises – to the spotlight on sustainability and ethical trading, customer expectations are having a growing influence on a retailer’s supplier decisions.

Yet while there is a desire to build stronger, long term supplier relationships in order to improve performance and minimise supply chain complexity, rising prices in markets such as China, South East Asia and India are pushing retailers to explore new, untested sourcing locations. Without full visibility of the true cost of on-boarding these suppliers – from the costs and delivery challenges associated with poor transport infrastructure to an understanding of a supplier’s ethical performance – the potential business risks are huge.  And it isn’t just an international issue; local factories and retailers in the UK are also coming under scrutiny for the treatment of their staff.

As Daniel Weston explains: full visibility of every aspect of the retailer/supplier relationship is key to minimising risk, enabling cost savings by reducing complexity and meeting those ever increasing customer expectations.

Extending Supply Chain Complexity

The retail supply chain has been microscopically reviewed over the past two decades as retailers have looked to achieve the end to end visibility required to improve efficiency and drive out cost.  These supply chains have coped with a fast expanding global landscape, from China through South East Asia and the Indian subcontinent; as well as new international sales channels, via franchises, joint ventures and online sites that has created a complex outward as well as inward supply chain model. This has meant increased demands on suppliers to provide additional value-adding services that help to mitigate this growing complexity.

And yet, while logistics operations are growing increasingly advanced, there remains a major gap and potentially catastrophic blind spot between the retailer/supplier processes. A blind spot that could prove extremely costly as companies increasingly look to new suppliers in more unknown markets such as Africa and Myanmar. However, the risk is just as high for those suppliers closer to home, operating in the same country as the goods are sold. Suppliers operating in advanced, western countries also require the same performance measures and controls in place to safeguard a brand’s quality and reputation without increasing lead times.

Today, in the vast majority of retailers, suppliers may be ranked differently by different departments. A supplier scoring well on product quality and price, could score badly on ‘time in full’ delivery, and appallingly on ethical performance.

All of these elements need to be available in one place in order to complete a full supplier score/risk assessment. For example, the supplier might be deemed business critical solely because the brand is key to the market; but it might also be far from achieving a robust infrastructure with supply chain implications that are incredibly challenging. Unless you have this visibility in one place it is very difficult to accurately assess the risks and rewards associated with introducing or retaining a supplier.

Customer Expectation

The implications of a retailer’s buying decisions have become ever more critical as customer expectations have risen. In an omni-channel retail environment, it is a given that customers expect the right products in the right place at the right time – and failure to deliver supply chain consistency will rapidly impact the customer experience. But in a world with an increasing awareness of ethical good practice and environmental sustainability, growing numbers of customers also want to know how products are manufactured and sourced. Bad practice at any stage of the supply chain – including a supplier’s sub-contractors – can have a devastating impact on brand value.

Given long lead times and the cost of on-boarding new suppliers, retailers’ inability to create a complete measure of a supplier’s performance, relationship and business value is a risk. Furthermore, in a market where retailers are also actively looking to work with suppliers to improve performance and deliver innovation rather than endure the cost and risk associated with continually moving between companies, the complete view of performance is critical to ensure the relationship focuses on key areas of pain.

A disconnect between departments is no longer acceptable. Organisations need to ensure that everyone involved with supplier interaction is sharing information and that buyers are empowered to make supplier decisions based on every aspect of performance, not just product quality and price.

End to End

With a single view of every aspect of supplier activity, a retailer can take a far more holistic approach. From the initial on-boarding process to driving continual improvement, the ability to compare suppliers based on the full range of information – from product/price to on time in full delivery, ethical standards and supply chain implications – can transform performance and mitigate risk. With a single set of criteria for all suppliers – rated according to the retailer’s specific priorities – all stakeholders can work effectively together.

This depth of consistent insight also supports strategic decisions – from evolving and assessing sustainability and ethical standards to exploring suppliers in both well-known local markets and previously untested markets, such as Africa. With a complete view of a supplier’s performance and logistics – including the supplier’s factory and subcontractors – it is far easier to determine the potential impact of raising ethical requirements on the supply base and the need for additional investment and/or suppliers; while the appeal of a lower product price can be accurately compared to the additional costs associated with a location with limited road or rail infrastructure.

In addition, real time decision making is becoming important to enable retailers to exploit automation to drive down costs, support promotional activity or maximise weather driven sales opportunities. With this complete supply chain visibility, a retailer can now confidently assess new sourcing models, for example the increased use of dual sourcing to combine low cost Far East suppliers with slightly higher cost providers in the UK or Europe that offer the benefits of shorter lead times; or leverage modes other than shipping, to respond to specific customer demands.

Optimising every supplier/retailer relationship not only improves performance but opens up new opportunities to add both flexibility and control to a complex business model.

Conclusion

For every retailer the supply chain is now a global entity that flows both inwards from multiple suppliers and outwards to stores, joint ventures and franchises – as well as direct to customers. And while retailers are working hard to build strong, increasingly long-term relationships with suppliers to minimise inconsistency and drive up performance across the supply chain, rising costs in countries such as China are pushing buyers to explore new, untested markets, or even look to bring business back to local shores.  The potential implications on the supply chain – and hence the customer experience – are very significant.

While it is clearly essential for retailers to maintain control over cost within this increasingly complex business model, decisions cannot be made on product cost alone – the business risk is simply too high. Buyers clearly require full visibility of the full implications of on-boarding or retaining a specific supplier if the right decisions are to be made and the supplier/retailer relationship optimised.

It is by combining all the key information regarding supplier performance, from supply chain implications to ethical constraints, that retailers can gain control over this complex model and achieve the perfect balance of cost, sustainability and supply chain performance required to meet ever rising customer expectations.

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About The Author

COO at Adjuno

Daniel is the Chief Operating Officer at Adjuno.