In my previous article dated August 1st, 2013, we discussed the value of monitoring transportation performance to ensure on-time deliveries, thus minimizing profit-draining out-of-stocks. We concluded the value was not only in cost reduction and populating the purchase order lifecycle, but also identifying bottlenecks to ultimately reduce supply chain days. These are all key steps to mitigating the margin risks retailers’ face on a daily basis. In this article I touched on the importance of over communicating not only your expectations to your vendor community, but their performance results as well. In part five of our five part series on mitigating retail margin risks, we will examine the importance of over communicating to your vendor partners and some best practices leading retailers are utilizing today to collaborate with their vendors.  

“Communication IS Leadership”

One of the best perks of my job isn’t 5 star Hotels, lavish dinners, private jet travel, or the throngs of admiring fans; it is spending time with highly-successful people at highly-successful companies. One insightful visit was to The Container Store in Coppell, Texas. If you have ever had the privilege of listening to Chairman & CEO Kip Tindell speak at a conference as I have, you know The Container Store takes a culture-first approach to doing business. One of their Foundation Principles listed on their website is ”Communication IS Leadership”. An excerpt from their site is as follows:

“Unlike other companies, we don’t work on a “need to know” basis, but rather we ask ourselves, who will benefit from having this information? Who needs this communication to help them do their job better and to help them be the best employee, the best leader, the best person they can be?”

How powerful is that? How many companies do you know who provide information to their employees, their vendors and even their customers on a “need to know basis”? From my vantage point, too many retailers fall into this category, particularly as it pertains to their vendors. By not communicating their expectations to their vendor partners and following up by communicating vendors’ performance results, retailers run the risk of an inconsistent and bloated supply chain. With this inconsistency comes retail margin risk.  While many retailers are lax in this area, some are excellent. Let me share with you some of the best practices I have observed over the years starting with the crucial first step, the plan for mutual profitability.

The Plan for Mutual Profitability

I wish more retailers would use this term rather than “routing guide” or “vendor expectations manual” as I believe it’s more descriptive and collaborative in nature. After all, both the retailer and the vendor benefit from a fast, highly responsive supply chain.  But whatever the name, creating a consistent, well-documented set of expectations and communicating them to your trading partners is the first step in a consistent, predictable and profitable supply chain. I have seen both extremes of this equation; some retailers who are vague in their expectations while others are clear in their expectations, but change them on a monthly basis. Both can be detrimental to overall supply chain performance. A clear, consistent, and realistic path to mutual profitability that changes on an annual basis is best for all parties involved. Once performance guidelines are established, there are additional best practices leading retailers employ take to over-communicate to their vendor partners.