New Collaboration Model for CPG and Retail
By Ric Noreen
CPG manufacturers, being at least one or two steps away from the consumer, often lack the same insights as the retailer. While all parties understand the power of Big Data, the retailer is in a far superior position than the manufacturer to track the retailer-to-consumer interaction, compile that data, and gain valuable insights that could help all parties throughout the product supply chain.
While retailers take extraordinary steps to understand those interactions, they often do not share the insights from that data with manufacturers, and worse, often do not make best use of that information for their own benefit. The current retail crisis is often blamed on the emergence of e-commerce, or changing trends in Millennial buyers.But more than anything it is a reluctance of retailers to adapt, and a missed opportunity to include the CPG manufacturer in making best use of data that is collected. A closer alliance between manufacturer and retailer will lead to greater efficiencies, more insights, and a resurgence of retail success.
Conversely, manufacturers will typically spend millions of dollars on research to uncover the “why behind the buy,” but typically shield the details from retailers. It is ironic that between the two trading partners, they possess all of the insights needed to grow the brand and the category, but often lack the forum to exchange and process them to their mutual benefit. Joint business planning may be the key to unlocking these hidden assets.
Hidden Asset and Retail Transformation
The biggest hidden asset – currently underutilized and often not shared between retailer and CPG manufacturer – is the insights that trading partners can glean from interactions at the point of sale, and through data collection points such as loyalty cards. This valuable information holds the potential to inform decisions that manufacturers, buyers, merchandisers, and retail marketers are making.
Over the next ten years, the “retail apocalypse” will come to an end with a dramatic transformation of retail. It will be ushered in based on how that data is gathered and shared to inform merchandising selection and pricing decisions made by CPG manufacturers. so that they can better understand what’s moving, who’s buying it, and what trends suggest for future development. In this new transparent retail world, success begins much further downstream than is traditionally thought. Deeper collaborative planning between retail and manufacturer must be an integral part of the future of retail. Categories will be built with a much more collaborative process.
The biggest contribution to more effective retailing would be in unlocking that data, turning it into insights, and having it be the basis for collaboration and joint planning between manufacturers and retailers.
Collaborative planning can only go so far if a shared knowledge of the consumer is not in the middle of that joint business planning. No collaboratively-developed plan can be effective without having the shopper insights at the center of that plan. The agreed-upon implications of that joint analysis are the underpinnings of successful joint strategies and plans.
Supply Chain Efficiencies
In addition to retail insights that lead to more precision in manufacturing and sales decisions, there are opportunities within every supplier and buyer relationship for supply chain efficiencies, which can be improved with greater collaboration and sharing of data. These may include collaborative demand forecasting, a bilateral SNOP process, and smoothing out of supply chain issues to avoid inventory overstocks. Even simpler, things like shipping and fulfillment could be improved to save both retailer and supplier a great deal of money; for example, advance shipping notices, dock appointments, and avoiding sending out trucks that are not cubed out.
The execution of a joint business plan that takes even these simple things into consideration could take significant costs out of the system for both retailer and manufacturer. For example, it is common for a manufacturer and retailer to both have separate fleets of trucks on the road, a simple result of joint business planning would be to buy tires and fuel as a combined entity to achieve greater economies of scale.
Fixing the Retail Apocalypse
Part of the issue involved in the current retail crisis is simply an issue of retailers not adapting and adhering to the status quo. This comes not only from a lack of sharing information and insights between manufacturer and retailer, but on the retailer side: Not sharing information and vision between the retailer’s brick-and-mortar and e-commerce groups, setting up an uneasy alliance between old and new, with each party knowing only half of what they need to know to become successful.
Ultimately as e-commerce groups become more established within retailers, this trend will change for the better. Since the e-commerce group is more digitally aware (and more likely to be willing to share data across the board and to include the manufacturer in the process), retail in the foreseeable future will turn around, fix the retail crisis, and become more streamlined, more digitized, and more aware of what is driving consumer behavior and purchasing. Doing so will certainly require a deeper partnership and alliance between retail and manufacturer to achieve those levels of retail transformation.
Ric Noreen is managing partner of Waypoint Strategic Solutions, a boutique consultancy that helps clients worldwide design and implement retail-driven growth strategies.