Logistics Manager Magazine

Whether they really believed it or not, for years retailers have been fond of declaring that “the customer is king”: that their stores and staff exist purely to satisfy customer needs delivering service with a smile. Many “customers” might question the sincerity of such a platitude – especially those battling to prevent new supermarkets destroying their traditional and much loved high streets.

Today, that far from politically correct, maxim has been replaced by “customer centricity” and the focus on satisfying customers now stretches far further up the supply chain than just the end consumer and final distributor. It is a long time since anyone regarded supply chains as being “product driven”: demand-led supply pipelines have been the norm for decades, as any hard-pressed manufacturer will testify. Manufacturers no longer call the tune but have to adapt to the multiple needs of their increasingly powerful retail customers. Even passing on raw material price rises can be a problem – as Hovis recently discovered when Tesco de-listed numerous varieties that had been hit by the global wheat shortage.

Price apart, keeping customers happy with on-time deliveries and innovative products is only part of the story: complying with their various IT systems and processes is another. Again, not new: 25 years ago CPG suppliers regularly complained about the need to cope with a myriad of EDI systems from their various retail customers. Today those complexities are even more demanding.

A new study* by Martin Christopher, emeritus professor of marketing and logistics at Cranfield University, highlights the impact that the shift in power, as retailing is concentrated in the hands of a few major players, has had on both logistics processes and IT systems. In the past three years almost 70 per cent of the suppliers questioned for the study reported an increase in requests to participate in such technologies as collaborative forecasting, vendor managed inventory (VMI) or just-in-time (JIT) with almost 87 per cent expecting the rate of those requests to increase in the next three years. It is a similar story with complex transport models such as drop ship and cross-docking: 66 per cent had noted an increase in demand in the past three years while almost 80 per cent expect such demand to increase in the next three years.

Some 44 per cent of those questioned in the study reported that they have to produce customer-specific barcodes on packaging while more than 90 per cent reported a need for customised service solutions or packages. Equally, build-to-order is the norm these days rather than build-to-stock.

While the complexity is increasing so is the diversity: to achieve their particular vision of Collaboration can be something of a weasel word, especially collaboration for mutual benefit.competitive advantage and differentiation, retailers tend to define their own processes and IT systems in their own particular way. As Steve Keifer, VP of industry and product marketing at GXS points out, each major retailer has its own format for even such seemingly basic applications as advanced shipping notices. “Sainsbury’s has a 40-page document defining how to create an ASN and every other supermarket chain has a similar weighty manual with slightly different rules. They are intent on creating efficiencies for their own businesses but a supplier has to grapple with all these different formats and demands.”

As products and offers become increasingly commoditised it is hardly surprising that retailers focus on service or information to try to create points of difference in this customer-centric world. Even so, it seems surprising that where information systems increasingly benefit from standardised technology that so much still has to be customised for individual trading partners. In the early days of supply chain management systems and integrated ERP platforms there were enormous issues involved in persuading the various systems used by trading partners to talk to each other, let alone make regular and meaningful data exchanges. Today it is different: most systems providers appreciate that they need to integrate with the competition in some way or other. As Tilman Goetke, head of field enablement at SAP, puts it: “…ad hoc connections are possible because there is an underlying lingua franca for enterprise systems.”

That lingua franca is increasingly enabling collaborative projects – as Goetke continues: “We are certainly seeing an acceleration in collaborative projects – but there has to be an underlying business case for them to be successful.”

Collaboration can be something of a weasel word, especially collaboration for mutual benefit, but Christopher’s study rather implies that what collaboration there is tends to be rather one-sided. Suppliers must bend over backwards to collaborate with their demanding retail customers whereas the powerful retailers simply ask suppliers to sing to their tune.

For suppliers the solution is increasingly to use managed services and outsourcing to cope with these multiple demands. “Suppliers cannot take it any more,” says Steve Keifer, “they depend on managed service providers to take on the complexity.”

Add in the recession and the pace of IT change and it is small wonder that many companies are opting to outsource their entire IT operations. Just as the supermarkets are wiping out our high streets, they might be playing a part in eradicating in-house IT departments as well.

“Enhancing Customer-Centric Supply Chains” sponsored by GXS.