A white paper on the evolution of the Retailer/Supplier "Strategic Partner" relationship and how Supplier Performance management (SPM) is a vital tool to manage supplier performance and relationships to improve quality, reduce costs, mitigate supply risk, and drive continuous improvement in supply value.

1. Suppliers as Strategic Partners
A white paper on the evolution of the Retailer/Supplier "Strategic Partner" relationship.
The journey from Supplier to “Strategic Partner” is a Win: Win for both retailers and
their suppliers; with a focus on working together to fulfill consumer needs resulting
in improved performance and a more profitable relationship.
Anecdotal evidence, from conversations with major retailers and key suppliers, confirms that the evolution in
retailer/supplier relationships from being just a “Vendor” to “Supplier”, to that of a “Key Supplier”, then to a
“Strategic Partner” is beginning to take hold as more retailers and their suppliers embrace the twin pillars of
Efficient Consumer Response (ECR) and Supplier Performance Management (SPM).
But the question is, to paraphrase a WW2 Government slogan in times of petrol rationing: “Is your journey really
necessary?” For retailers, the answer is absolutely “Yes” - to enable them to build competitive advantage,
reduce supply chain costs and maximise profits. For suppliers, the Pareto principle will be a deciding factor: the
20% that account for 80% of a retailer’s business will need to make the journey in order to join the club, whilst
those in the next level will need to show they can improve in order to force their way into the top 20%.
Retailers
For their part, retailers are locked in an intense ECR best practices are about working together to
competitive struggle for market share and, as a result, deliver superior business results by reducing costs at
are transforming their businesses and requiring suppliers all stages throughout the supply chain, achieving
to add value in two core areas: efficiency and streamlined processes resulting in
Value chain: The supply chain is evolving into a improved range, value, service and convenience
“Value Chain” and often defined as being: “from offerings. This in turn will lead to greater satisfaction
the supplier’s supplier to the customer’s customer”, of consumer needs.
identifying the key relationships and value added
processes along the way. With extended supply Better managing the relationship
chains, particularly sourcing from low cost countries, With the implementation of ECR, and evolution to a
and the need to be price competitive, best “Strategic Partner”, what new capabilities will retail
practice retailers are moving to Efficient Consumer customers’ demand of their suppliers? How will the
Response (ECR) – a way of doing business that dynamics of customer management need to
involves trading partners working together to fulfil change?
consumer wishes better, faster and at less cost.
Relationship: Retailers today do not just want their In their recent report, The strategic agenda for
suppliers to sell them products. They want them to consumer products customer management, IBM
become “business builders”, helping to optimise the Business Consulting Services concluded a dramatic
retailer’s profitability with a deep understanding of paradigm shift was required in how consumer
their specific business needs, as a “Strategic Partner” products companies build, manage and sustain
Suppliers their customer management organisations. In
For suppliers, today’s key account relationships are particular, they say suppliers must pursue far-
becoming tremendously complex. They are reaching changes in their culture, people,
characterised by shifting customer needs and growing relationships and processes to elevate customer
polarisation in the retail market, requiring greater agility focus to the same level of importance as the
and responsiveness on the part of consumer products consumer-focused dimensions of their organisation
companies. In this environment, suppliers seeking to (e.g., marketing and brand management) and
make the journey to become a strategic partner need integrate the two to drive mutually beneficial trade
to work with their retailer partners to: relationships while maintaining strong brands.
Embrace ECR
Better manage the relationship, and Specifically, they say consumer products companies
Support, and even initiate, SPM will need to focus on two key areas to enhance
product performance and improve their business
Embracing Efficient Consumer Response with retailers:
ECR is based on two key principles:
Focus on consumers: A commitment to the belief Build a more agile, responsive organisation that
that sustained business success stems from efficiently and effectively responds to specific
providing consumers with products and services that customer needs
meet or surpass their demands and expectations. Empower account managers and teams to
Working together: The greatest consumer value can become more broad-based business managers
be offered only when organisations work together, with a wider array of skills to drive business value
both internally and with their trading partners, to for both the retail customer and the supplier.
improve efficiency and effectiveness.
"The greatest change in the way business is being
conducted may be the accelerating growth of relationships
based not on ownership, but on partnership” (Peter Drucker)

2. Suppliers as Strategic Partners
A more agile, responsive organisation However, many have been unsuccessful at building some
ECR is about companies working together to integrate of these capabilities to date. For example: in the IBM
their operations and eliminate barriers that impact their survey, only 9% of respondents felt that their suppliers had
ability to satisfy consumers and drive out unnecessary a good understanding of their business objectives.
cost. However, in the traditional key account
management structure, barriers often exist both between
trading partners and between business functions within
one business.
ECR aims to break these barriers down and, while the
optimal organisation structure will vary depending on the
company's strategic intent and the specific category's
role, a number of principles hold generally true:
internally, supply management requires true cross-
functional working, within manufacturers and
retailers;
joint supply management requires a new type of
Retailer satisfaction with suppliers’ understanding of their
interface structure between manufacturers and
business objectives.
retailers; and
Performance measures need to be re-aligned from
According to IBM, 65% of US retailers surveyed believe trade
narrow functional criteria to measures which focus
relationships have improved over the past three years,
on end-to-end supply chain service levels.
however they continue to express low satisfaction with suppliers
across many key areas of their relationships. In addition,
Empowering account managers and teams
retailers are starting to use more sophisticated methods of
The roles of key account managers and customer
measuring supplier performance. For example, retailers with
teams are changing dramatically. To enable their
over US$1 billion in sales are measuring supplier performance
customer teams to deliver on these new retailer
on economic metrics such as supplier contribution to profit
requirements and be viewed as trusted partners, while
and supplier share of turnover as well as the people
also driving their own growth and profitability, suppliers
components of their relationship.
will need to address two key challenges:
Managing complex customer relationships: Customer
Broadening key account manager skills and
relationships have evolved from “one point-of-contact”
capabilities: Key account managers need to
through the sales representative to “multiple points-of-
both drive account profitability and help their
contact” coordinated by a key account manager who
customers achieve their own business objectives;
orchestrates the activities of a multifunctional team.
however, they often lack the strategic
management and analytical skills required to do
The key account manager will often work with virtual teams
so. Among the companies interviewed as part of
across the organisational matrix, including individuals who
the IBM study, account team skills development
may only be working with the given customer for a short
and joint planning and goal setting with retailers
period of time. To help them perform this role more
were mentioned most frequently as the customer
effectively, suppliers will seek ways to provide their account
management capabilities most needed to
managers with a holistic view of all customer activities,
improve profitability.
including greater access to information.
To improve performance in this area, account
managers and teams must better understand the
retailer’s business and shift from a focus on “selling
products” to a focus on “addressing the
customers’ business requirements”. They will need
to develop new skills which will enable them to
address shifting retailer needs with greater agility
and impact. At the same time, however,
traditional relationship-building and sales skills will
still be important. The key will be to develop
business management skills, while maintaining
strong sales ability, to benefit the supplier in the
long run.
“The purpose of investing in a relationship with a supplier is to improve their performance in fulfilling the needs of the
buying organization, thereby improving the buying organization’s performance and creating mutual benefit.”
(Source: Chartered Institute of Purchasing & Supply)

3. Suppliers as Strategic Partners
Supplier Performance Management
The second pillar of the “Strategic Partner” evolution, Supplier Performance Management (SPM), is absolutely critical in
closing the ECR and relationship loop by implementing the process of regular reviews to measure, analyse, and manage
supplier performance and relationships to improve quality, reduce costs, mitigate supply risk, and drive continuous
improvement in supply value.
The discipline of SPM is vitally important and recent research by the authoritative Boston-based research company, the
Aberdeen Group, confirms the intuitively obvious conclusion that using SPM programs will produce higher value supplies.
Their research found that companies with SPM On-time
Price Quality Service
programs achieved performance improvement in Delivery
every category that was studied - an average SPM program 23% 23% 21% 21%
supplier performance improvement of more than
20% across the four main areas - compared with No SPM
13% 11% 5% 17%
those that had no formal SPM program. program
They conclude that “organisations that use formal supplier measurement programs outpace their peers in on-time delivery,
quality, service, price competitiveness, and other supplier performance areas”. Their recommendations are:
“Organisations that don’t have formal SPM programs should
investigate the benefits of developing them, aiming first to “When you measure and communicate supplier
improve key supplier performance in key performance performance regularly, suppliers improve their
categories. cost, quality and responsiveness. Done in an
They also should develop standard supplier performance automated, systematic way, performance
metrics, involve key suppliers in the SPM development process, improves dramatically, in some cases by over
and include key internal stakeholders in the process.” 50%.” (Source: Aberdeen Group)
Where are suppliers on the “Strategic Partner” Journey?
The journey from Vendor to Supplier, to Key Supplier, then a “Strategic Partner”
can be tracked through four stages, dependent on how their performance is
rated by their retailer customers:
Early: “Red Zone”; Low ratings; New/occasional, vendor; “Me too” products,
price-based; Irregular contact/orders; Strictly transactional relationship;
Efficient: “Orange Zone”; Below average ratings; Low consumer
franchise; Some USPs; Regular contact (one point); Moderate
importance to retailer; Proficient in supply and service; Delivers results;
Effective: Average/above ratings; Proven products, solid USPs, high value,
ranked 3-5 in category; Moderate/growing consumer franchise;
Beginning ECR; Key account rep main contact, frequent call cycle;
Shares responsibility for results.
Excellence: “Green Zone”; High ratings; A Strategic Partner can be
defined by a number of key characteristics, some of which are:
Suppliers are at different stages of the
journey to “Strategic Partner”. It is
important that retailers understand
where each key supplier in their
portfolio sits so they might, together,
develop strategies for improvement.
Many suppliers are now taking the
initiative and implementing their own
Key Accounts Review programs – SPM
in reverse – in order to improve their
performance and reach their full
potential to contribute value to the
retailer and to gain a competitive
advantage and cement their
“strategic Partner” position.
“If you want to have early warnings about possible problems in a relationship and a way to surface issues and to address
them collaboratively, you have to have a mechanism to take the temperature of the relationship, comparing its
effectiveness up against agreed metrics, and then talking about the results.” (Source: Vantage Partners)

4. Suppliers as Strategic Partners
SPM in Australia
For many years both Woolworths and Mitre 10, and recently Myer, have used formal supplier reviews as the basis for their
“Supplier of the Year” programs and awards. However, to our knowledge only a few retailers undertake formal annual, or
quarterly, performance reviews with their suppliers, using Key Performance Indicators and a formal rating process that looks
at the entire business relationship.
The advent of web-based, multi-user software makes the implementation of SPM easy and it encourages a collaborative
approach to continuous performance improvement in what are complex business relationships, with multiple touch-points
in both organisations, often spread over many geographic locations.
Our Performware™ platform is a suite of non-prescriptive on-line tools designed to add value and drive business partner
performance improvement. Based on traditional Performance Management techniques, it allows organisations to review
their business partners and agree on action plans to improve performance and to better manage the often complex
relationships - for mutual benefit. Retailers can assess the performance of key supplier partners, using their own KPIs and
importance weightings, with input from multiple stakeholders (plus supplier self-assessment) and even stores.
Case Study - Mitre 10
The Mitre 10 Supplier of the Year program involves their key suppliers being reviewed by their 540+ stores, National Office
Business and Category Managers and Retail Area Managers. The suppliers are rated on their performance using four
groups of KPIs. Suppliers undertake a self-assessment and also assess Mitre 10’s performance on specific KPIs.
Mitre 10 Managers receive a range of reports,
including supplier ratings and rankings - overall,
by Business Unit, State, and Store Brand. Each
Business Unit Manager receives a report on his
area and each supplier gets a full report on
their ratings and rankings, with detailed
breakdowns and verbatim comments from
store and National Office assessors.
The example “Action Matrix” uses the two
dimensions of DIFOT and Service and Support. A
number of suppliers, including the Supplier of
the Year, along with the supplier’s self-
assessment average, are positioned in the
“Strategic Partner”, green zone, with high ratings;
The worst performing supplier is shown in the
bottom left, bordering on the red “Vendor”
zone. The average ratings of each of the six
product categories/ Business Units are shown in
the “Effective”, average or above, zone.
Summary
Our experience is that suppliers are keen to participate in, and contribute to the costs of, Supplier Performance
Management reviews. They see value in the constructive feedback and the ability to access results on-line to identify their
weaknesses and put action plans in place for improvement - resulting in higher levels of engagement and a closer
business partner relationship. In fact, some are already taking the initiative themselves and inviting their key accounts to
review them on a regular basis, using jointly agreed KPIs.
The journey to that of a strategic partner is not easy. It requires paradigm shifts by both parties, particularly in attitudes,
requiring openness and trust, information sharing and a commitment to meeting consumer needs. But it is a journey worth
making with the result a Win: Win, for both, of improved performance and a closer and more profitable relationship.
Contact: Ph: (02) 9959 3815
Ron Latham, Managing Director Email: ron@lathamconsulting.com.au
Latham Consulting Pty Ltd Web: www.performware.com.au
41b Spruson Street, Neutral Bay, NSW 2089 www.lathamconsulting.com.au
"The greatest change in the way business is being conducted
may be the accelerating growth of relationships based not on
ownership, but on partnership” (Peter Drucker)