Dive Brief:
- Becoming a preferred supplier with top retailers is about to become a heated competition as supply chains accelerate and retailers increasingly focus on "speed and precision," a McKinsey&Company article reads.
- Some retailers like Kroger and Walmart are already fining late shipments from suppliers, plus delivering smaller shipments faster, as retailers seek more control over inventory.
- Suppliers that exceed retailers' expectations will "have the opportunity get ahead of their rivals by capturing market share in increasingly important online channels and securing preferred-supplier status with major customers," according to McKinsey.
Dive Insight:
As retailers adjust to meet consumer expectations, their supply chains must follow suit. For suppliers and manufacturers, that means adopting the same tactics retailers are using to meet those consumer demands.
McKinsey outlines four ways for suppliers to keep up with the evolving retail landscape:
- Improve predictive analytics
- "Make execution flawless, but flexible"
- Restructure the flow of the supply chain
- "Master the complexity pipeline"
In a way, the success of a supplier or manufacturer depends on the success of a retailer. If the retailer isn't satisfied with the flow and management of goods from its suppliers and manufacturers, the retailer can easily nix the relationship and find someone else.
Predictive analytics can help suppliers and manufacturers better manage their own inventory, which in turn will help the retailer manage inventory. If inventory is aptly managed at every stage of the supply chain, all companies involved will be more profitable, which could strengthen supplier-retailer relationships.
"One large, global CPG company applied machine-learning algorithms to more than 100 specific demand drivers, including demographic and socioeconomic data on the people living near its stores, as well as local weather conditions," McKinsey's analysis reads. "The approach allowed it to improve forecast accuracy by 10 to 15 percent, and extend forward-looking visibility from 10 days to three months."
But inventory management isn't just about forecasting. Controlling the flow of new products can make or break a supplier's financial health, so for some suppliers, simply being better about new product rollouts can help them be savvier components to the fast-evolving retail supply chain.
"Poorly controlled new-product-introduction processes can lead to portfolio proliferation and skyrocketing numbers of SKUs to forecast, manufacture and manage," the McKinsey analysis reads. "To avoid this trap, one major consumer player implemented an end-to-end complexity reduction program. The company revisited its existing SKU portfolio and pipeline through the lenses of design-to-value product design, total cost of complexity by SKU, price pack architecture, and strategic importance."
Furthermore, restructuring one's supply chain to include robotics, automation, and demand planning, or to outsource some operations and logistics to other companies can help a supplier streamline operations and become quicker and more receptive to retailer needs.
Some or all of these methods could help suppliers get their supply of goods back on track so as to keep profitable business relationships with top retailers.
