Segmenting the Supplier Base
The objective of segmentation is to identify suppliers that reflect the retailer's strategic vision. This ensures an improved focus of time and effort on high-value, primary suppliers, yielding closer relationships, increased revenues and reduced costs.
Unfortunately, not everyone will agree on which suppliers should have primary status because each area of the business has different needs. For instance, merchandising might measure suppliers on gross margin and sales volume. Stores and warehouses may measure delivery accuracy and the amount of pre-retailing done by suppliers. Neither are wrong, but a partnership can only start if your organization has similar views on the supplier.
Another tool helpful to understanding a relationship with the supplier is to know the current value to the organization.
Measuring Suppliers' Value/Contribution
Information technology can help greatly in this area, but it is important to have an open and honest dialogue with suppliers to understand the costs and incomes of both parties. Discussions also reveal duplication of work and other inefficiencies.
Making a Case
A department store chain client needed to enhance supplier alliances. Specifically, the retailer was plagued by several challenges, including:
- Too many suppliers, resulting in a lack of focus and a dilution of relationships
- No formal process to monitor and control the number of suppliers
- High-volume suppliers that were not cooperating with the retailer's vision
The retailer created a supplier segmentation model to begin its measurement and improvement process. Specific criteria included:
- Gross sales
- Uniqueness of product
- Brand image,
- Electronic Data Interchange
- Logistic capability (lead time, hold stock, delivery window)
- Pre-retailing capability (ticketing, hanging, store allocated vs. bulk shipment, bar coding.)
After segmenting suppliers, establishing performance goals determining alternative actions and holding numerous discussions with suppliers, both the retailer and its suppliers benefited. Specifically, there was a reduction in cost of approximately 5 percent, quicker response times,
For more information on this topic contact Pat Fitzpatrick at Atlanta Retail Consulting Inc