Retailers need OEM suppliers, and those suppliers need retailers — that's the obvious truth. However, retailers have more choice in selecting their trading partners than the manufacturers do when sourcing parts.
Notable exceptions include those brand names that have no substitutes, but the great majority of products have competitors vying for space on the retail shelves. Because of this the relationship that develops between supplier and retailer can be a tough one for suppliers that need to please their customers (the retailers) and find themselves at odds with their customers' continuing demands for lower prices, better terms, and countless other conditions.
The customer/supplier relationship takes on many different tones over its lifetime. However, cooperation and moving toward mutual goals is more productive than a more secretive stance from each organization. Trust is only built over time, but there are ways to develop and enhance the relationship that don't require giving in to every demand.
Kim Zablocky, founder of Retail Value Chain Federation, told me that the structure of retailers' buying systems has changed significantly over the last few years. Historically, retailers had buyers assigned to individual suppliers, and these staff members had responsibility for understanding each product and how it was performing. The buyers met with their suppliers, reviewed sales, and set strategy for maximizing sales.
However most retailers in today's market have slashed their buyer organizations and simply don't have enough staff to conduct the detailed and personalized interactions of past years. The individualized consultation has been replaced largely with standardized reporting and measurement strategies, typically known as scorecarding. Vendors that don't score highly on their evaluations or don't meet their customers' delivery requirements are penalized either through deductions from their invoices or outright removal of their products from the retailer's shelves. Those kinds of negative incentives often lead to adversarial relationships between the trading partners.
Like any relationship that has both cooperative and conflicting goals, maintaining a dialogue is the most productive positive approach to keeping on track. Even though the retailer's staff is diminished, reaching out to the buyer for clarification of the requirements is still possible.
Zablocky suggests that the responsibility for resolving issues and reestablishing a productive relationship rests almost entirely on the supplier:
- Vendors need to make the investments in their businesses to keep up with retailers' requirements. Find the easiest way to fulfill the orders to the letter of the requirements, and if that means doing things different from how they are being done, then make the changes. Specifically, communicate with the retailer, don't just complain, and be proactive.
Cooperation can't be one-sided, and in fact must be a mutual arrangement. Zablocky emphasizes:
The lowest common denominator is communication and change management. Understand what needs to be changed and put the changes in place. And that can't be accomplished without first communicating. Just do what is needed to make the agreements work.
Both retailers and suppliers share a common goal of maintaining profitable business relationships in increasingly competitive environments. OEMs need to tend the relationships across the supply chain, from buying the components in their products to building bridges with the retailers that sell those products.