April, 2005

Fruits of Thought

Show Me The Love

Around 15 years ago, one started hearing a lot about partnerships between retailers and shippers. The term fell into disrepute almost immediately because shippers quickly learned that an invitation to become “partners” with a retailer typically meant the proverbial “offer you can’t refuse” to fund whatever activities the retailer had taken a fancy to.

The truth is that the adversarial culture long established between buyers and sellers was, at that time, still too prevalent for these partnership proposals to have any chance of success. These habits of thought were deeply inbred. If you could get in the head of a buyer, you would learn that he understood his role as getting the lowest price possible on goods. The salesperson had his focus on maximizing the price.

There is a sea change sweeping the business. More and more produce suppliers are being confronted with supermarket chains wanting the shipper to partner on an entire category of business, including coordination of the whole process, from determining the quantities required to handling the purchase orders to enticing consumers to buy the product.

Every company is different, of course, and these methods of doing business are still developing. Even when the retailer doesn’t want the shipper to be the sole supplier, sometimes the shipper is asked to take all the billing and re-bill the retailer so the retailer only has to deal with one vendor and one invoice. Other times, the shipper enters purchase orders directly in the retailer’s own system — the retailer thus effectively outsources the work of dealing with multiple vendors, but without burdening the shipper with carrying such a large receivable. Sometimes the cooperation with the shipper stops on the procurement end; other times, it continues all the way through consumer research and marketing. Some retailers ask the shipper to put staff in the retailer’s headquarters so the shipper can function like a member of the retailer’s team.

Interestingly enough, although some of these initiatives are driven by retailers who are looking to gain efficiency and to experiment with systems that they understand to give Wal-Mart an edge, much of the impetus for these initiatives is coming from shippers who have experienced the Wal-Mart way and are telling their contacts at other retailers to shape up or be prepared to be last on the list when things get tight.

It’s the inevitable result of vendors getting experience with the Wal-Mart system and that experience starting to color their evaluation of how other retailers conduct themselves. All of a sudden vendors turn to retailers and say that in this business they don’t need any friends who call only when they are short. Who call only when they need someone to lose money because they are on ad and out of product. They are saying that, as vendors, they want to build businesses and companies. They want to be evaluated based on performance and know they won’t be thrown out because some buyer makes a new best friend. In the end, the vendors are saying we will show our love to those who love us.

In a sense the old buyer-seller thing stops making any sense. Right from the start, if you know the end result is marriage, you have to behave differently than if all you are looking for is a one-night stand. Indeed the whole process of supplier development is really a matter of seeing potential and then helping to develop it. Much like those old movies where the girl picks the boy because she knows he will go far, especially with her there to guide him along.

It may seem odd to throw in terms like love and marriage in a business relationship. But it is not so strange. Arthur Koestler once wrote that becoming a Communist was an affair of the heart — which is just a reminder that people can get passionate about many things. Well, for many in the industry, our hearts and souls are committed to this trade and to building our businesses.

And there is the irony. The Wal-Mart system, with its extensive quantitative measurements of success, is designed to eliminate the role of emotion in evaluating suppliers. Yet this very objectivity is a pre-condition for the kind of commitment that makes both marriages and business relationships strong.

Despite the romantic notion that love is a kind of torrid and unpredictable affair, for most people, most of the time, what they really want is clear rules. To know that if they are faithful, don’t drink too much, don’t gamble the mortgage money away, etc., that they can count on their relationship being there.

A business that is dependent on the whims of a buyer is a much less valuable business than a business that can count on keeping its customers as long as it performs.

So good vendors are talking with retailers and speaking frankly. Those who try to abuse them are being fired as customers, with vendors saying, “I simply can’t do business like this.” Those who are good and loyal customers but simply haven’t formalized the relationship are being told, like many a man who fears commitment, that the time is drawing near to take the plunge.

And a vendor community once cowed by consolidation has come to realize that it is not easy to keep those stores in good quality produce at a fair price and that those who can consistently beat tough rejection and out-of-stock metrics bring a special value to the table. And today, the comeuppance of consolidation is that the vendors do not sit down in meek silence. Instead they insist to retailers, “Show me some love and I’ll give you love right back.”  pb