It's Time to Get Strategic with Suppliers

Future success with shoppers will require business partners, not tactical suppliers

Article Summary:

  • There is a radical disruption taking place to the traditional business model
  • Marketplace disruptions are coming too quickly to rely on traditional models
  • Despite streams of data there are major gaps in industry understanding
  • Innovation is more important than ever
  • Best in class suppliers need to become strategic partners

 

Upscale department store retailer Nordstrom has been testing a program that has key product vendors drop-shipping online orders directly to consumers. The goal is to build a more efficient fulfillment system that reduces shipping times, costs and offers greater product choice.1

Meanwhile, Target Corp. is shipping online orders from more than 1,000 stores this holiday season, a change in supply chain strategy that not only reduces costs for the retailer but improves the shopper experience by shortening delivery times.2 It also helps the retailer balance out chain-wide inventory and, potentially, reduce the need for markdowns later on.

On the other side of the negotiating table, Procter & Gamble is testing MyTide.com, a website that lets consumers personalize their laundry detergent by choosing their own scent, size and cleaning "boost" (like stain removal vs. lasting freshness).3 They can even personalize the product further by giving it a name. Right now, the service is only available in four cities.

That's just one of the direct-to-consumer sales experiments P&G has undertaken. In Atlanta, the Tide Wash Club lets fans of the brand's Pods line subscribe for periodic delivery — a la the national Gillette Shave Club. In Chicago, Tide Spin is a branded laundry service that includes pick up and delivery.

The actions of all three companies illustrate the changing needs of today's consumers. More significantly, they also represent the radical disruption to the traditional business model that's taking place for retailers and consumer product manufacturers, and the extent to which these companies are responding in a bid to stay relevant.

There's been a lot of discussion about how pervasive digital technology and the empowered consumer it has spawned is requiring retailers and product manufacturers to collaborate at a deeper level — a level that goes well beyond deciding how products can be sold and how efficiently those products can be made, delivered and marketed to establish true partnerships based on:

  • an intimate understanding of respective needs and objectives.
  • a commitment to leveraging any and all internal capabilities to drive mutual growth.
  • a joint focus on building real innovation that can deliver loyalty-building solutions for today's empowered consumers.

But there hasn't been much discussion about how this need for strategic partnership should also extend in the other direction — not just throughout each organization internally, but outwardly to encompass suppliers who traditionally have been considered little more than tactical providers of contracted products and services.

Given shifting retail requirements, for leading companies, finding a supplier partner skilled at delivering the right product at the right time to the right place is no longer enough. Fulfilling the exact product specifications, expertly executing the creative brief, doesn't suffice anymore. Those capabilities are table stakes now.

Today, marketplace disruptions are coming too often and too quickly to rely on the old service-based contract. Today, retailers and product manufacturers need suppliers who don't just deliver what's requested, but who can also help determine what's needed.

In short, best-in-class suppliers can't act like suppliers anymore. They need to become strategic partners, devoting the time and resources needed to fully understand the business of their clients and the changing environment in which they operate. They need to be just as committed to growing the client's business as their own.

Nordstrom acknowledged this by acquiring a minority stake in the software firm that it's using to build out the supply chain —the underlying implication being that these changes are so critical to ongoing success that a typical supplier relationship just wasn't going to work.

Such literal business partnerships aren't a requirement, of course. But retailers and manufacturers do need to reevaluate their supplier base, looking deeper than basic capabilities and skills to find partners who can deliver the innovation, the insights and the data needed to help them navigate the ongoing disruption in the marketplace.

Innovation. Now that consumer choice is almost literally unlimited in terms of both what to buy and where to buy it, innovation has become more critical than ever.

WestRock operates a cross-functional group that's responsible for maintaining a pipeline of innovation for clients. The group leverages our legacy internal design and structural expertise to deliver breakthrough ideas that range from simple enhancements to transformational concepts.

We've bolstered these existing functions by partnering with Plug and Play, a Silicon Valley innovation incubator/accelerator that matches established corporations with relevant groundbreaking startups. We'll use this exclusive partnership to develop proprietary packaging and retail merchandising platforms that will attract and retain today's consumers.

Our pipeline flows two ways. We're continuously looking for innovative platforms that can be applied across clients. But we're also frequently sitting down with each client to evaluate specific needs and identifying custom solutions to solve them.

And then, of course, we have industry-leading production capabilities that can directly translate innovation into action through best-in-class packaging and merchandising.

Insights. Consumer and shopper behavior is evolving so rapidly that it’s now impossible to develop an effective go-to-market strategy without having ongoing access to timely, accurate and actionable insights.

At WestRock, we supplement the learning we gain from various secondary resources with online tests, focus groups and other forms of primary research to help our clients follow the key trends driving behavior across the industry and within their own categories and retail channels.

So we're proactively building a deep knowledge base that can inform any client or add value to any program. One example is "Packaging Matters," an annual study first conducted in 2013. In the last four years, we've surveyed 15,000 consumers in 10 countries about their attitudes on packaging in nearly every key product category.

But as we do with innovation, we also undertake exclusive research to solve the unique needs of particular clients. An important aspect of those efforts is the virtual testing environment for designs and materials that we operate internally — a first in our industry.

And then, of course, we have industry-leading production capabilities that can directly turn insights into action through best-in-class packaging and merchandising programs.

Data. The most vital ingredient for both innovation and insight is, naturally, information. But despite the nearly relentless streams of data that feed many areas of the consumer goods world, there are still some gaps in industry understanding.

One of those gaps is the store, where there's still no ongoing source of data to track behavior and measure programming effectiveness. Without that, assessing the impact of in-store programs remains a tricky proposition.

To address this issue, WestRock joined with the Wake Forest University School of Business Center for Retail Innovation in late 2014 to launch the Retail Learning Labs, which track shopper movement through the store thereby determining which in-store stimuli are driving purchases.

The labs are currently operating at ten stores in the North Carolina-based Lowes Foods supermarket chain, letting WestRock and its clients evaluate marketing effectiveness in a real-world environment — and in real time. The ultimate goal is to expand the network across the U.S. and include other key retail channels, giving clients a new view into programming effectiveness.

The partnership gives WestRock a proprietary database of in-store understanding that it can share with clients. And have we mentioned that we also have the production capabilities to turn the data into best-in-class packaging and merchandising?

WestRock has long been valued for its world-class production and fulfillment capabilities. But the consumer goods industry has changed dramatically, and suppliers who simply make and deliver things well aren't going to effectively help their clients address the changes that are taking place.

What's needed now are strategic partners who can provide the innovation, the insights and the data that are have become paramount to success. At WestRock, we're already committed to being the strategic partner that's needed for the future.

 

To find out how we are developing solutions to meet a rapidly evolving retail, consumer and shopper environment please call your WestRock representative.