Market forces, including ecommerce and private label growth, store consolidation and an overall slowing of sales, are putting significant pressure on Retailers to continually cut prices to remain viable. They are in turn demanding their suppliers fund these cuts, take on new expenses and keep them margin whole. Naturally, this is causing significant tension in relationships. However, instead of working together to ease tensions, address market forces and bring stability to the downward spiral of price-cutting, they are engaging each other as adversaries, using competitive tactics and power plays to beat the other. Eventually both will lose.
There is no reason suppliers and retailers should engage in win-lose approaches and tactics, when in many cases they share common goals: innovate, cut costs, find efficiencies and grow sales & profit. By engaging in more collaborative strategic partnerships, joint business planning and cooperative negotiations, both retailers and suppliers, where appropriate, could achieve their goals and ensure the long-term health of the industry.
Strategic Partnerships and the use of Joint Business Planning (JBP) are two approaches effective in finding opportunities for innovation, cost-cutting and sales & profit growth. In the 2000s, Target experienced accelerated sales growth with suppliers with whom it engaged in annual joint business planning over those it engaged in simple transactional relationships. Where it engaged in enhanced partnerships with key strategic suppliers, implementing long range plans and projects, it experienced even greater growth. Today, similar results are being seen at other strategic-minded retailers and suppliers that understand the only way to grow (vs simply divide) the pie is through cooperation.
Strategic Partnerships and Joint Business Planning drive growth by using facilitated, collaborative discussions to understand each other’s core strategies and priorities, set common goals and brainstorm unique solutions that work for both. Often, these partnerships lead to innovative, mutual growth-driving ideas around product, experience, marketing and supply chain, while setting clear expectations around sales and profit. Partnerships and joint planning take time and effort to do them in value-creating ways and realize success. As such, only a handful of partners should be engaged in these activities, at least at first.
Cooperative Negotiation: Another opportunity for retailers and suppliers to engage more productively is through cooperative approaches and practices in every day negotiations. Like partnerships, here, more effort is spent on understanding each other’s most important needs in the negotiation and crafting solutions together that meet those needs. This expands the possible outcomes, unlike competitive, win-lose negotiations, that focus on a single issue like cost.
Collaborative practices in the form of strategic partnerships, JBPs and cooperative negotiations can create substantially more value for retailers and suppliers, particularly at this stage in the evolution of retail. By strategically using them with the appropriate partners, retailers and suppliers may find new opportunity for both to grow sales and profit.