The first installment of a three-part series.
This post is the first in a three-part series on Collaboration 2.0 for retailers and suppliers. Source content for these posts is from FMI Connect 2015, specifically a session entitled “Collaboration 2.0. A Next Generation Model of Better, Consumer-Focused Partnership,” moderated by FMI’s Pat Walsh.
I walked into a Tuesday morning breakout session at FMI Connect 2015 and noticed about 20 people in the room 20 minutes before the start of the event. Attendees continued to steadily flow in. Just prior to session kickoff, an estimated 100 to 120 filled the room – at 8 a.m.! After that, I didn’t look back from my perch in row three. My eyes were glued to a stellar panel of experts spanning retail, supply, technology and analytics.
Pat Walsh from FMI moderated “Collaboration 2.0. A Next Generation Model of Better, Consumer-Focused Partnership,” backed by a panel of veterans including Mel Bomprezzi, VP of grocery, Natural Foods, and multi-cultural merchandising at the Kroger Co.; Colleen Flaherty, VP/GM of the Kroger Team at Kraft Foods; Geoff Kuzio, VP of the Kroger Team for the Campbell Soup Co.; and Jerry Stephens, VP of business development at Market6.
It was clear from the outset that momentum is building around this topic as suppliers and retailers push toward joint business planning nirvana. As the session kicked into gear, it also became clear that every plan, every step in the analysis, every promotion on which suppliers and retailers collaborate, will all need to be focused around the customer.
With more than 127 years of experience spanning supply chain, grocery retail, multi-channel marketing, technology and analytics, this panel delivered real insights on how collaboration works.
Facts Describe the Challenge Ahead
Collaboration 2.0 has the potential to transform how retailers and suppliers work together in support of the customer. This session started with a summary of metrics that can be improved upon.
- $634 billion lost to out of stocks annually
- OOS represent 8-10 percent of everyday shelf items
- OOS represent 13-15 percent of items on promotion
- 67 percent of trade promotions lose money
- 85 percent of new items introduced to the market fail
- 9 percent of consumers shop in more than one grocery store.
Sound dismal? Well, it’s not. By taking collaboration to the next level, a sea change is occurring and the ultimate beneficiary is the consumer. Sure, others win as the connected chain of players synchronize, communicate, budget, plan, ship, stock and promote. But make no mistake about it – the consumer is the ultimate winner and, in turn, a positive financial ripple radiates back through all aspects of supply and retail.
Collaboration in Action
Varying definitions of collaboration may exist today. For now, let’s define it this way: “A process jointly shared by retailers and suppliers consisting of planning, budgeting, analysis, promotion and measurement.” Of course to make this work, both stakeholders need to apply the same solution, view the same integrated data and make decisions on the same set of analytics. Without these fundamental building blocks, the process breaks down quickly. What’s the real benefit? Again, the answer may vary but most widely agree that reducing out of stocks, increasing on-shelf availability and optimized promotions are clear by products of an efficient collaborative process. Most would agree that addressing the goals of category managers while taking into account supply chain data is a foundational requirement of collaboration.
Let’s abstract this to the higher level of Joint Business Planning since JBP requires collaboration to work. One key takeaway for me in the first part of this session was that while the panel agreed JBP is complex and difficult to achieve, there has been success that we can learn from.
For example, Colleen Flaherty summarized how Kraft direct shipped customized palettes to each store creating an optimized mix of flavors based on customer needs. As stores displayed more products in a targeted way, the consumers recognized flavors they wanted. Savings was achieved throughout the process. Sales were optimized, out of stocks reduced and customer satisfaction increased.
Geoff Kuzio relies on insights to discover growth pockets and profit pools. His view of Joint Business Planning is firmly grounded in a process of discovery where cross functional teams develop solutions and then deploy them. In one example he pointed out that doubling the amount of trucks delivering product within a short time period created pressure point flare ups resulting in missed appointments, lower store service levels, cut items and out of stocks.
Cross-functional teams consisting of merchandising, customer supply chain, procurement, sales, customer logistics and customer management built a menu of seasonally-based customer pallets delivered straight to stores in support of merchandising events. They smoothed out inventory levels using extended payment terms which had the dual effect of improving working capital for Kroger. Last but not least, they folded in a direct store delivery program for high-volume stores. This collaboration effort resulted in $7-10 million in savings for a single holiday season.
Mel Bomprezzi succinctly summarized how complex Joint Business Planning really is. Kroger operates in 34 states with 21 operating divisions each with their own divisional budget rolling up to the company level. The company's goal was to apply JBP to 80 percent of its business and still have time left in the day. They knew that a well thought out score card replete with timely, accurate facts by category would facilitate this process. The scorecard had to inform retailers, CPGs and management teams across the ecosystem. By using both Market6 and Dunnhumby, Kroger was able to build on a successful customer-centric strategy known as Customer First.
Customer First is driven using 4 pillars:
- Kroger people in the stores that provide great services
- Relevant products
- Great shopping experience
Best practices in collaboration and joint business planning are operational today. While Joint Business Planning may be hard work spanning hundreds of stakeholders, there are real examples of how collaboration has supported and addressed these challenges. In the first part of this session, I witnessed three examples of “collaboration in action,” including: 1) new approaches to personalized delivery driven by custom palettes by store; 2) cross-functional planning where data discovery was used as the foundation for improved plan development and deployment; and 3) near real-time scorecards supporting both the supplier and the retailer leading to a customer-centric approach designed to delight.
Jerry Stephens is intimately familiar with the demands of a fluid supplier-retailer ecosystem at Kroger where dozens of stakeholders continue to work diligently toward ground-breaking collaboration. It’s changing the lives of the consumer in a positive way. He said it best when he summarized the challenges that collaboration solves, including: 1) out of stocks using granular data; 2) optimized, targeted promotions based off unified retailer-supplier data; 3) predictive analysis driven from the supply chain and daily purchasing; and 4) methods for effective new product introduction. Today, more and more grocery retailers and suppliers are applying these tactics in support of tangible solutions that make a difference in our everyday lives.
This post originally appeared as a Guest Viewpoints blog at Progressive Grocer.