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06/02/2012

Building Industrywide Collaboration

Dennis J. Belcastro
Executive Vice President
Industry Affairs & Collaboration
Grocery Manufacturers Association

It sounds so obvious. To effectively compete in today's marketplace, companies must focus on their customers.

Over the past decade, too many companies have assumed that their product or service is so superior that customers will continuously come back for more – no matter what possible force or new trend surfaces within "their" sphere of influence. In the highly competitive marketplace, industry executives can no longer tolerate such complacency. Why? Because customers' expectations are rising. They have become increasingly bold and aggressive in their demands for superb quality, value and responsive service. Because so many options exist today, if a company doesn't meet these expectations and demands, customers will simply go elsewhere.

Collaboration requires balancing competing priorities, sharing benefits and aligning motivations.

Today, top executives are forging long-term relationships and, in some cases, strategic partnerships with their best customers to help stabilize an increasingly dynamic market and drive their organizations to become customer-centric. A heightened focus on "customer relationship management"(CRM) is driving fundamental change at leading organizations and building industry-wide collaboration.

The Trading Partner Alliance, led by executive leadership at the Grocery Manufacturers Association and Food Marketing Institute, is dedicated to helping member companies sustain profitable growth by identifying, developing and sharing successful industry practices for collaborating for growth.

While both retailers and suppliers understand the benefits of collaborating, many of the advantages have been slow to materialize. A recent McKinsey & Co. study revealed that more than 80 percent of companies surveyed said they did collaborate, yet only 20 percent said collaborating delivered significant value. In most cases, the key obstacles are driven by different goals and metrics in their core business structures.

Most retailers are interested in driving category growth and operational efficiencies in their collaboration efforts. In contrast, the majority of manufacturers typically seek partnerships that can help them boost sales, strengthen brand appeal and increase market penetration in specific categories. Conflicting incentives often cause collaboration efforts to stall. For example, retailers may take advantage of promotional pricing and overstock certain items to boost profits or cover expenses, while manufacturers want improved returns on their investments in product promotions.

Collaboration requires balancing competing priorities, sharing benefits and aligning motivations across retailers and manufacturers to ensure that they are both pulling in the same direction. Based on the McKinsey research, overcoming these challenges is worthwhile as the value of collaboration between trading partners has delivered more than 4 percentage points of earnings before interest and tax. This impact translates to more than $10 billion in value at stake for the industry as a whole.

Six high-value opportunities emerged from the research into high-impact collaboration efforts. These opportunities range from delivering revenue growth to cost reduction, and span almost all functional areas of an organization.

One key area and a great place to start is with demand planning and fulfillment within the supply chain. Read more about successful supply chain collaboration in the special report inserted with this issue of Retail Leader.