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Segmenting Collaboration Models

Feb. 27, 2020

Dan Gilmore


Supply Chain Digest

I was at a small meeting of retail and consumer goods supply chain executives some 10 years ago when a VP of supply chain from a manufacturer made an interesting comment.

My memory is slightly faded, but it was something very close to: “When we sit down a with retail customer, we can tell in about the first 10-15 minutes whether the retailer team really is interested in what I would call deep supply chain collaboration – or they are not.”

So what type of collaboration partner are you, whatever side of the table you are on (retailer, wholesaler, or vendor)?

Supply Chain Digest Says...

...the relationship model can change over time – and it is important to be able to identify and react to those changes.

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That comment also made me think about the ground breaking thinking of Dr. John Gattorna, starting with his book “Living Supply Chains” in 2006, followed by updates in 2011 (“Dynamic Supply Chains”) and 2019 (“Transforming Supply Chains").

Gattorna. of the Sydney Business School (Australia) and Cranfield School of Management (UK), and an ex-Accenture consultant, makes a simple but powerful point: far too many companies spend significant time, effort and dollars trying to collaborate with trading partners that for a myriad of reasons really don’t want to collaborate.

Does that sound familiar?

Gattorna says that supply chain collaboration is a waste if you continue to put effort and focus to "entice" a customer or vendor to collaborate when they simply don’t value the exercise. In addition, by doing so you suck attention and resources away from those trading partners that do.

Gattorna says you can (and ultimately must) segment customers (and vendors) into four types, based on what they truly value in the relationship. Those four meta-types are:

Continuous Replenishment: Characterized by predictable demand, these are generally the ones that both want to and benefit from tight collaboration. High levels of loyalty.

Lean: Mostly consistent demand, main focus is on efficiency and cost.

Agile: Unpredictable demand, opportunistic, need for quick response to new needs.

Fully Flexible: Very unpredictable demand, customer looking for lots of customization in product design, programs and services. Values innovation.

Gattorna says that many customers will have characteristics of two of these types, but that one will be dominant.

That is obviously a vendor/manufacturer perspective. From a retailer/wholesaler point of view, the key is to identify which types of supply chain relationships you want to have with what types or groups of vendors.

While clearly there will be a lot of focus on the Continuous Replenishment and Lean models, some vendors/product categories may more appropriately fall under more Agile or Fully Flexible collaboration models.

This then leads to rethinking how a vendor might segment retail or wholesale customers – and how a retailer or wholesaler might segment its vendor base.

Gattorna advocates setting up separate supply chain teams focused on meeting each of these types of relationships, each focused on the differentiated approaches, relationships and services the segment requires.

He also believes that companies often simply optimize inventory, transportation and service trade-offs against basically a universal customer or vendor type, and as a result develop a single supply chain strategy when a more segmented approach is what can deliver success.

That said, the relationship model can change over time – and it is important to be able to identify and react to those changes. What’s more, the relationship type might vary even within a given partner, depending on product category or some other attribute.

All this clearly had vendor management implications - the metrics that are important for say Continuous Replenishment vendors are likely to vary compared to what matters in Agile relationships.

This is where vendor management software tools can really help, used to define, capture and report on vendor performance specific to each segment type and metrics.

I highly recommend any of the three Gattorna books, available from all the usual sources.

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