Although collaboration offers many benefits for consumer goods manufacturers and retailers, too often their joint initiatives don't work out. To ensure success, partner companies should take these six actions together.
Supply chain collaboration is a hot topic today—and no wonder: companies that collaborate effectively across the supply chain have enjoyed dramatic reductions in inventories and costs, together with improvements in speed, service levels, and customer satisfaction.
Collaboration between companies—joint initiatives that go beyond their normal course of day-to-day business, with the aim of delivering significant improvement over the long term—is particularly attractive for the consumer packaged goods (CPG) sector. With pricing under pressure from recession-scarred consumers, the temptation for retailers is to transfer the pain upstream to their suppliers by passing on price reductions and forcing them to bear an increasing share of costs. On the supply side, however, there is less and less room for manufacturers to absorb additional costs as volatile input prices put the squeeze on margins and the marketing investment required to differentiate branded products from private-label competitors continues to rise.
CPG players are looking at collaboration initiatives as a way out of the damaging spiral of antagonistic relationships. That's one reason why collaboration efforts between manufacturers and their retailer customers have dramatically grown in popularity in recent years. That was clearly evidenced in the 2008 annual Customer and Channel Management (CCM) Survey, conducted by McKinsey & Company, Nielsen, and the Grocery Manufacturers Association,1 when chief executive officers in the CPG industry identified collaboration with partners as their highest strategic priority. In the 2010 edition of the same survey2, more than 80 percent of the companies surveyed said they were involved in at least one collaboration initiative, and some were involved in as many as 10 such arrangements.
Supply chain collaboration has delivered some real value for participants, but overall, these initiatives are more likely to fail than to succeed. Indeed, participants in the 2010 CCM survey said that only two in 10 of their collaboration efforts delivered significant results. The remaining 80 percent represent more than just lost opportunities to add value. If companies can't make collaborations work, they will not only fail to achieve the potential benefits that supply chain collaboration can provide, but they will also risk destroying the enthusiasm for further attempts, both inside their own organizations and with their trading partners.
The high rate of failure among today's collaborations is not inevitable, however. There are several ways CPG manufacturers and retailers can avoid some of the common pitfalls and achieve the benefits they seek. This article will first consider some of the conditions and practices that prevent effective collaborations, and then outline six actions manufacturers and retailer partners can take to ensure successful supply chain collaborations.