Vietnam’s textile industry has increased significantly since normalizing relationships with the United States in the 1990’s. Vietnam was granted most favoured nation status (MFN) in December 2001, which led to a dramatic reduction in import tariffs in the US market. Vietnam’s induction to the World Trade Organization (WTO) in 2007 and the Vietnamese government’s strong support of the textile and garment sector, have provided strong incentives to attract foreign investors.  The textile industry is now the second biggest exporter in Vietnam and is expected to become the biggest in 2009. However the financial crisis has had a severe affect on Vietnam’s textile industry, which has suffered from a slump in demand from key export markets in the US, Europe and Japan.

Labour cost advantage

In the textile industry, companies are increasingly looking for lower cost countries that can provide outsourcing opportunities. The rising cost of land and labour are diminishing China’s labour cost advantage and Vietnam is increasingly seen as a low cost sourcing alternative to China. Estimates are that wage levels in Vietnam are about one third of those in China’s coastal region.  Companies that are chasing lower labour costs are increasingly moving production to Vietnam. In a 2008 Booz Allen Hamilton survey 88 percent of companies originally chose China for its lower labour costs. Of the companies surveyed, 55 percent believe China is losing its competitive edge to countries such as Vietnam. The survey also indicated that 63 percent named Vietnam as their top low cost sourcing alternative to China. However, costs may be rising.  The Navigos Group, a leading recruitment solutions provider in Vietnam, announced early in the year that there had been a 16.47 percent increase in Vietnamese workers’ average gross salaries between April 2008 and March 2009.

Low cost location

However, low cost labour is hardly a competitive advantage in the long term. Labour cost keeps changing and today’s low cost location is not necessarily tomorrow’s viable outsourcing location. If it is not China or Vietnam, it could be Bangladesh or Cambodia. Ig Hortsmann, a professor of business economics at the University of Toronto’s Rotman School of Management notes that Nike originally off shored manufacturing to Japan.  As labour costs increased, manufacturing was later moved to South Korea and Taiwan. When labour cost increased in South Korea and Taiwan, it was moved to China and later also to Vietnam.  Justin Wood, a Director of the Economist Intelligence Unit Corporate Network in Singapore makes the point that in the last 15 years Vietnam has moved from a low to a middle income country. The move towards a middle income will likely put additional pressure on Vietnam’s low cost labour status.

The Vietnam advantage

Elisabeth Rolskov, founder of ER-Couture in Vietnam, notes that manufacturing advantages in Vietnam go beyond labour cost and the country has some competitive advantages compared to China. “Vietnam has very good embroidery skills and needle work”, says Rolskov. “A lot of designers and manufacturers need embroidery skills and Vietnam has kept in touch with its traditional roots,” she adds.

However, for local designers, Vietnam has limitations as a sourcing location. “Sourcing material, buttons and zippers from Guangzhou is much better,” says Rolskov.  In Guangzhou you can find everything in air-conditioned shopping areas and the shopping experience is less hectic.” This can have a negative impact on a designer’s creativity as the designer is restricted by what is on offer in the local market.

Rolskov thinks Vietnam is currently a great location for smaller manufacturers as the market is more flexible. “China is more volume focused”, adds Rolskov, a view supported by Rebecca Lebold, director of apparel product and technical development at Lilly Pulitzer. “Vietnam has higher production minimums than many other countries. Lower minimums would allow smaller companies to source their product in Vietnam”, Lebold notes.

Intellectual property threat

For many companies outsourcing to Vietnam, intellectual property (IP) remains a concern. Within the fashion industry, IP is not as enforced as it is within the film and music industries. Designers can “take inspiration” and it is seen as a major driver for setting trends in the industry.   The World Intellectual Property Organization (WIPO) has called for stricter intellectual property enforcement within the fashion industry to better protect companies and promote competitiveness within the textile and clothing industries. “It is a hard thing to take care of and you just have to be faster than everybody else”, says Rolskov.  For smaller designers and labels it is much easier to switch manufacturing.  However to prevent the copying of designs is a challenging undertaking.

Infrastructure development

For Vietnam to advance as an outsourcing location, the textile industry supply chain needs to be considered.  Local logistics are influenced by direct and indirect cost.  In Vietnam’s textile industry raw materials are often imported, which increases cost compared with those countries able to source locally. Managing reverse logistics can also be a challenging undertaking in Vietnam.  Procedures, processes and infrastructure are sometimes not in place to manage repairs, returns and warranties.

According to a new market research report from Transport Intelligence (Ti) entitled Vietnam Logistics 2009, the high cost of logistics remains one of the biggest stumbling blocks in Vietnam. According to TI analyst John Manners Bell, logistics costs are estimated at 25 percent of Vietnam’s GDP. Even with cheap labour cost, poor infrastructure remains a major barrier for entry.   This is largely due to Vietnam being in the early stages of infrastructure development.

Many experts believe that China’s advanced infrastructure gives it a major competitive advantage. Electricity and transportation costs will likely come down even further and and  this will have a significant impact on the total cost, even if their labour is more costly. The Vietnamese government is aware of this dynamic and has invested billions of dollars in the country’s infrastructure.  The government is actively encouraging foreign direct investment in the country’s infrastructure. This is visible with projects such as the Cai Mep Container Port in the Mekong River Delta and the new Long Thanh airport that’s projected to be completed by 2015.

Through assessing the overall supply chain, rather than a singular focus on labour costs, it is easier to identify where Vietnam’s opportunities and challenges lie in the textile industry.  While small scale designers and manufacturers take advantage of a flexible environment, infrastructure and logistics processes will need further investment to make Vietnam an outsourcing destination and source for tomorrow’s fashionista wardrobes.

Personally, I am not very fond of the term, slums. I think it is loosely defined term for a type of informal market. However, with all their problems and challenges there is a lot to learn from slums from a business perspective.

Entrepreneurism – slum areas are highly entrepreneurial, with a high degree of business activity. Most houses also double as business premises. While this is often out of economic necessity, there are some interesting models coming out of these organic (and often unregulated) businesses. During my first visit to Lagos’ Makoko, I was impressed with the supply chain of Nollywood movies (Nigerian films). Nollywood hawkers were everywhere, with no shortage of supply (and demand). The lack of law enforcement also provides some advantages to entrepreneurs. Because the market is informal, most businesses trade without bothering to fill out any paper work, keeping start-up costs low and speeding up the notoriously slow process of starting a business in Nigeria.

Low cost distribution – slum area are normally densely populated. Because such areas often have poor infrastructure, a conventional route system is normally ineffective in these areas. However, with some ingenuity, high density can be converted into quick delivery and turnaround time. For example, in Dhaka’s Motijheel Thana there is a highly effective cold chain (ice) distribution system catering to fish mongers. Deliveries are made with pushcarts and completed before 11 am. In 1999, while working in the Coke system in Ethiopia, my team and I rolled out a low cost manual distribution system to cover our outlet base in an informal market area. The model was by no means unique to Ethiopia or Africa. However, what made it different was that it was a managed distribution system that required detailed planning and implementation. The distribution model also created a high number of jobs in this poor area, about which The Harvard Kennedy School wrote a case study. The distribution system has since been adopted by a number of companies operating in Africa.

Environmentalism – poverty inspires frugality as well as innovation. When walking around in slums, you notice the importance of waste recycling. From computers to packing material, nothing gets wasted. Soda cans are hammered and reshaped into toy airplanes to sell to tourists. Grain sacks become patches on frayed clothes. Individuals living in slums already understand fully the environmental call to “reduce – reuse – recycle”.

Community projects – the extreme social and economic challenges faced by those living in slums has inspired innovative social programs and partnerships. In Nairobi’s Kibera there are a number of NGO projects focusing on how to convert waste recycling into stable income generation, as a means to lift individuals out of poverty. A number of organizations are also evaluating the potential of distributing “social products” such as condoms and vitamins to such areas. Simon Berry and his highly visible Cocalife campaign, is a great example. Escaping the slum is an unlikely reality for most and companies and NGOs need a fresh approach to operate in these areas.

Channel strategy – companies must map out a clear channel strategy and identify which channel the selected distributor will service. A poorly defined channel strategy can severely damage any distributor roll-out. It is critical that companies understand how channels function and operate. One size does not fit all.

Selection criteria – companies need to understand the key components of a successful distribution partnership. Many distributors fail because critical components of the selection criteria are overlooked. The selection criteria will likely include important components such as capital, infrastructure, warehousing, transportation and required organizational structure.

Management – do we have management buy-in and is the distributor fitting in with our strategic goals? A distributor roll-out requires patience and a continuous improvement mindset. Small incremental changes can sometimes go a long way.

Territory – is the territory well defined and does the distributor have the ability to service the territory? Companies must build distributor capability and schedule joined training sessions. Companies must also ensure they have detailed territory maps and a clear understanding of the outlet density.

Outlet base – are traditional and non-traditional channels well defined? in most emerging market, determining the outlet base can be a challenging undertaking. Companies need to understand both the existing and potential outlet base. A well defined every dealer survey (EDS) is a key component of any successful distributor roll-out.

Customer service frequency – Are they over or under servicing their customers? Companies must have a clear understanding of the service frequency that both the distributor and the customers require.

Role definition – do we have a clear understanding what the company and the distributor are responsible for? What does the organizational structure look like and how will the company support the distributor? Does each profile (e.g. salesperson) have a clear understanding of his or her role?

Account development – account development is a critical component of any distributor operation. Not all accounts are equal. In most cases companies need to prioritize and focus their attention on high value or strategic customers. Companies also need to determine how they will split the account development activities between the company and the distributor.

Cost to serve – the true cost to serve is sometimes underestimated and companies must have a clear understanding of the cost to serve for both the distributor and the company. In many cases in emerging markets, financial cost centers provide limited data and financial modeling is essential to determine the true cost to serve . Many distributors also fail because the remuneration is set too low and not adjusted for inflation on a periodic basis.

Transportation – is the distributor making use of low cost distribution? For example pushcarts or motorbikes. Is the vehicle or cart load configuration inline with our requirements?

Warehouse – the warehouse function is sometimes overlooked when a company implements a new route-to-market system. Companies need to understand how the new system will impact the warehouse function and what changes need to take place.

Key Performance Indicators – focus on the key performance drivers of your business and don’t overextend yourself. Sometimes less is more. Include key performance measurements in your business planning process and evaluate on a yearly basis whether you are using these measurements to track and improve your business. There is no point it tracking something just for the sake of tracking.

Flow- are the processes and systems well defined and do we have a clear understanding of the product, cash and information flow? Are processes and systems standardized?  Always aim to eliminate non-value adding activities where possible. Standard Operating Procedures (SOPs) simplify your business procedures and help to ensure the same quality in all operations. Emerging market operations often lack critical skills and don’t make any assumptions what people can and can not do.

Complexity – can the distributor handle the level of complexity in the business? In many cases distributors that distribute all SKUs to all channels fail. Always aim to reduce the complexity in the business.

Collaboration – how will the distributor share information with the company? Too often critical information is only available at distrbutor level and not shared with the company. What role can technology play in all of this?

Take note of the evolution – too often supply chains in emerging markets just evolve without any strategic intend. Modern trade and retailing are expanding and middle class consumers shopping patterns are changing. How will these changes in the market affect your business and are you taking the necessary steps to adapt to these changes?

I recently spoke to Rasmus Buskov, Managing Director at Penta Business Solutions, a seasoned professional in the Enterprise Resource Planning (ERP) industry in Vietnam.

TN:  What is Penta Business Solutions?

RB:  We are a team of experienced business consultants focused on providing affordable yet sophisticated open source ERP solutions, namely Openbravo, to businesses in Vietnam. One of our focus industries is medium size manufacturers, for example the textile industry.

TN: What are the advantages of open source ERP?

RB:  In short, open source gives you access to the source code and you are free to use, change or distribute the software. With open source you are also not tied to a specific vendor and if you are not satisfied with the service you receive, you can go to a third party. Proprietary software is not that flexible and it does not allow you the same freedom. The open source community also attracts a large group of software developers that are always searching for challenges and looking to overcome technical difficulties. With open source you are part of a much bigger community, because you are not tied to restrictive licensing fees and there are no hidden costs. With proprietary software, normally half the cost of the ERP system is the license fee and the other half is the implementation cost.

TN: What advice would you give to a company when implementing an ERP system?

RB: It is important not to try to do too much. Manage scope creep and focus first on the basics when implementing an ERP system. Extreme customization is likely to land in trouble.  It is also important to have a serious look at your business processes. For example, the basics would include knowing your inventory levels and having a clear understanding of the value and cost associated with them. It is also important to establish clear terms with your vendor and assign detailed responsibility. A successful implementation of an ERP system is normally also based on a good partnership with you service provider.

TN: What advice would you give companies when training staff with regards to ERP?
RB: I would focus on one-on-one training or small groups. From experience I can tell you, putting a large group of people in a training room just does not work.

TN: How has the ERP market changed the last 5 years?

RB: ERP has moved to the forefront and a lot of companies have implemented ERP or are seriously looking at ERP solutions. WTO entry has a lot to do with that, as local companies look to compete with foreign entries.

In a competitive environment, Consumer Packaged Goods (CPG) companies are increasingly forced to get within arms’ reach of the retailer and consumer. CPG companies that have a Route-to-Market strategy that includes a direct focus on mom-and-pop stores are the most successful in reaching the “base of the pyramid”.

The buy-in-bulk mentality is unlikely to have a major impact in developing markets, as transport limitations, poor cash flow and infrastructure will restrict purchasing options. Nielsen’s research has indicated that modern trade is on the increase in a large number of emerging markets. However, even with the increase in Modern Trade, mom-and-pop stores will continue to command a major share of the retailing environment.

Some of the advantages of well designed Route-to-Market strategy dealing with mom-and-pop retailers are:

Increased outlet penetration – the Route-to-Market strategy is designed to penetrate small, high frequency retailers, and increase availability within such outlets. The strategy allows “trial” SKUs entry and assists companies in controlling the SKU range in their identified strategic channels.

Improved merchandising – even though merchandising space in quite limited in these outlets, companies will find it easier to negotiate merchandising space compared to modern trade retailers. Multi-nationals have more leverage with mom-and-pop retailers, and can negotiate better space allocation and control the message in these outlets. Innovative merchandising designs (e.g. hanging shampoo racks) will further support this strategy.

Improved retail and consumer Insights – by removing the supply chain layers, CPG companies gain a better understanding of retailers and ultimately the end consumer. This grassroots approach will improve communication between the various parties and provide the company with valuable insight about their consumer base.

Improved profitability – a well designed Route-to-Market strategy will yield improved margins and reduce incentive and retailer discounts being paid to Modern Trade retailers.

However it is important to highlight some of the challenges that companies will face with such a strategy:

Increased Route-to-Market complexity – increasing the outlet base to include mom-and-pop outlets adds complexity to the Route-to-Market and the business. Drop sizes will be much smaller and the increased outlet base could put additional pressure on resources.

Information flow dilemma – penetrating smaller retailer distribution networks is unlikely to justify investment in information technology. e.g. mobile devices to support Enterprise Resource Planning (ERP) systems. CPG companies will be forced to reevaluate sales data processing and information gathering.

Increased personnel count – managing, controlling and monitoring an increased outlet base will require additional human resources. Employee turnover tends to be higher for employees dealing directly with mom-and-pop outlets. Market conditions are tougher and increased and specialized training will be required.

Companies can benefit immensely by expanding their retail base and penetrating smaller retail outlets. For companies to succeed, market development and training activities must be on the forefront of Route-to-Market strategy. Such strategies will require a major rethink and redesign. Changing to a Route-to-Market strategy that includes smaller mom-and-pop outlets will affect all aspects of the business, including supply chain, sales, marketing and human resources. A strategic shift should not be taken on lightly. However, for the winners, the rewards will be large.

Article fist published in 17th of July 2007 for the Gerson Lehrman Group Councils website

Aquatabs – the Hybrid Social Distribution Model

Last month I spoke to Michael Gately, Marketing Director of Medentech.  The company is well known for its Aquatabs brand of rapidly dissolving tablets. It is one of the best known and most respected names in point-of-use water purification globally and is used to disinfect billions of litres of water every year.

TN: What is the public private partnership?

MG: It is a collaborative model that involves WHO (World Health Organization), UNICEF (The United Nations Children’s Fund) and at country level it also includes central, local governments and NGOs (Non-Governmental Organizations).

TN: Your Route-to-market strategy revolves around a hybrid model. Can you elaborate on this?

MG: The hybrid model includes three legs:  Emergency preparedness, retail sales supported by above the line advertising and door to door social marketing.  At the retail level we normally work with local importers. However , in a number of countries, NGOs such as PSI (Population Services International) can also fulfill the role of importer and distributor at the retail level.

TN: Can you explain the door to door distribution?

MG: In some countries NGOs are organizing a door to door sales person. This person fulfills the role of a community based distributor and also an outreach worker. They derive their income from the sales of Aquatabs and other products. Door to door distribution is very important as the sales person finds himself right there where the child might be sick today. The sales person also has the opportunity to hand them a behaviour change message and handle any objections they might have. This is very hard to do with above the line advertising.

TN: What is your pricing strategy?

MG: We don’t arrive in a country with a price point and we normally work backwards to make sure everybody in the sales channel earns a livable wage. We also want to make sure that our prices are in line with what people are willing to pay for our products. The margins that people can earn are very attractive and Medentech has a long term commitment to keep their prices affordable.

TN: How do you forecast demand?

MG: Pre-positioning is a big part of what we do and we have stock pre-positioned all over the world. The businesses we are in have enormous search capacity. You don’t know when another Tsunami might happen.  We normally plan five years ahead and are currently constructing a new factory in India. Our capacity is way beyond what any urgent search might require. However, having products available in local shops is the ultimate in crisis preparedness.

TN: Do you provide any training to partners?

MG: We have developed a comprehensive training program for emergency water treatment. It is a day long training program that we provide to all of our distributors. The training program covers key issues such as water treatment options and what to do in an emergency.

TN: What does the future hold for water purification?

MG: The water sector is going to become more and more stressed and the need is growing.  There are 5,000 children a day dying due to diarrhea and we can have a substantial impact. Hybrid social marketing is still a relatively new science and we are learning all the time.  However, there are organizations with expertise in the area, in particular, PSI, AED and Path. The mood among our network is that we just need to get on with it and do it.

The market handles more than 450 different types of seafood at the markets more than 1,500 stalls. The first market in Tokyo was established by Tokugawa Ieyasu during the Edo period to provide food for Edo castle (now Tokyo). Around $20m dollars of fish and other foodstuffs are bought and sold at the market on trading days. The tuna auctions are a particular attraction and are a series of auctions in various parts of the market. Traders can sometimes be seen closely examining the fish with torches prior to bidding.

I recently spoke to Patsy Day, an intellectual property attorney from Rouse Legal based in Ho Chi Minh City, Vietnam. Rouse is a leading global intellectual property firm, with offices in more than twenty countries. Rouse has been handling IP cases in Vietnam since 1997.

TN: Which sectors are most infringed?

PD: The sectors where we see most infringements are alcohol, clothing and pharmaceuticals. As the Vietnam market becomes more sophisticated, so do the infringements. Infringers have also become more IP savvy and we are seeing a move away from direct copying to “lookalikes”.

TN: What is important for companies entering the country?

PD: Vietnam has made considerable progress over the last couple of years with regards to intellectual property rights. However, there is still a gap between the law and the implementation of the law. This is important, as companies need to have confidence that their IP rights will be protected.  Franchising is essentially an IP driven business and franchisors are concerned that they won’t be able to control their franchisees or stop third parties from imitating their brands.

TN: What advice would you give to franchisors?

PD: Protect your intellectual property.  Register your trademarks, domain name and any copyright. Do your due diligence and pick a partner that understands the importance of IP. Get a strong contract in place with your franchisee. Many international franchisors use their standard agreements which have been developed over the years. This is a good thing as it makes it easier for the in-house legal department to manage. However, it is important to run it by a local lawyer. For example, some standard agreements have very detailed insurance provisions. The insurance market in Vietnam is still developing and the franchisee may not be able to obtain the level of insurance you require. You could be putting an obligation on them that, from a practical point of view, they cannot adhere to.

TN: How can franchisors assist franchisees with regards to IP rights?

PD: Education is very important. Communicate to franchisees the key objectives you would like to achieve with your brand. Franchisees need to have clear guidelines on how to use your brand properly.

TN: How can you track your brand?

PD: Do regular audits and keep an eye on the use of your brand. Ensure that the standards are being maintained. For many companies, their brand is essentially their biggest asset. You want to have control over your brand.

TN: For many companies, parallel imports are also a big issue. What can they do?

PD: It is very difficult to stop parallel imports because it is not illegal. Products are just imported through a different channel. Some brand owners will identify the weak link in their supply chain by tracing back the parallel products and then rely on contractual obligations to control the flow. It is, however, critical that you register your own trademarks.  In the past a more relaxed attitude was to allow the distributor to register your trade marks in their name. However, when the relationship goes bad it is very difficult to recover your trademarks.

TN: The Danone and Wahaha trademark dispute in China was followed by many industry observers. What are the lessons for Vietnam?

PD: Do your due diligence carefully and deal with intellectual property disputes as they arise. Ensure your contracts have carefully drafted IP transfer clauses and that any intellectual property rights that are meant to be assigned, are in fact assigned and any licences registered, as appropriate. It is also important to look at the structure of your business in Vietnam and what role you will play in the company. In some cases a joint venture might not be the right option so companies should explore, for example, licensing agreements.

Managing supplier relationships used to be a zero sum game. Most companies focused on short terms goals where price was the main focus. Bullying suppliers were commonplace in some organizations. Employees took great pride in “facing down suppliers” and relationships were viewed on “how much money we will make”. However, with the increase in outsourcing and volatility in commodities, supplier relationship management (SRM) has moved to the forefront of organizational strategy. Companies are spending increased time on their selection criteria and determining clear best practices to manage partner relationships. However, few companies have mastered supplier management and SRM is in its infancy.

The question of quality

With the increase in outsourcing and the growth in world trade, product quality is increasingly an important factor. Many companies in the pet food, toy and dairy industry are still reeling from recent quality scandals in China and other parts of Asia. These scandals have put increased pressure on companies, as consumers are progressively more concerned about product quality. These quality scandals of late, as well of those in the apparel industry over the past decade, have highlighted the importance of managing relationships and the importance of supplier tracking and auditing. The days where companies could plead “we don’t have control over our suppliers” are gone. Environmental concerns and an increased scrutiny of labour practices also are demanding improved supplier relationships.

Outsourcing to the “unknown”

With outsourcing to Asian countries on the increase, companies need to understand culture issues. Many companies have been burned when outsourcing manufacturing to countries such as India and China. Management practices that worked in one country are not necessarily going to work in another country and companies need to change the way they think and work in other markets. Country values are also different. For example, cutting legal corners is seen as a survival technique and is much more tolerated in some countries. It is important to understand the value system of each country and it is important to assume nothing.

Outsourcing to emerging markets provides companies with unique challenges. Companies must develop contingency plans as delivery delays are normally more frequent. As one executive put it, “getting on time deliveries from our Asian suppliers, is one of our key challenges”. Working in the “unknown” also provides companies with unique legal challenges. Foreign companies trading in China and India have complained in the past about unfair legal practices. Companies must avoid disputes and ensure contracts are clear to all parties involved.  Do not assume all parties will read the fine print and try to avoid legal terms. Always aim to simplify matters for suppliers. Consult lawyers that not only understand local laws but also cultural issues. The interpretation of the law can differ from country to country and cultural issues need to be taken into consideration.

Technology

In recent years, companies have seen technological advances in managing supplier relationships. The day of managing suppliers with spreadsheets are gone, and SRM is increasingly complex. Companies are demanding increased visibility. The need for real time information is on the increase. Companies are investing significant resources in managing suppliers and the use of supplier relationship software is becoming more common place. Supply chain managers are increasingly using the web to collaborate and to communicate with supply chain partners.

Find the right partners

Previously, partner selection only focused on price, with value sometimes taking a backseat. Today, companies are spending increased time and resources to develop and implement a comprehensive supplier qualification process. Companies need to establish a strategic road map and clear selection criteria. For example, the selection criteria may include important components such as strategic vision, capability, capacity and environmental issues. Companies need to evaluate if potential suppliers meet their required standards. Furthermore, supplier selection is not just limited to procurement departments, and companies are increasingly making use of cross functional teams. Employing external agencies to monitor and track supplier relationships is also on the increase.

Building relationships

Companies must always act with the relationship in mind. Companies must have a clear relationship development plan for each partner with clear goals. Building trust is key in any relationship, and trust must be built at all levels of the organization, and not just at senior management level. For example, companies can introduce department induction programs and in some cases even embed suppliers in the organization. The more partners understand each others businesses, the better for all parties involved. With clear communication channels, partners will have the confidence to address problems head on.

Advantages of relationships

One of the key advantages of long term relationships is cost reduction. Companies work together to solve supply chain problems and learn from one another. Better collaboration and communication will lead to increased sales. Improved collaboration can also lead to better demand planning and route scheduling. For example, when Kellogg evaluated Tesco’s inventory levels it realized that most out of the stocks occurred in the middle of the week. Kellogg worked with Tesco and changed its delivering schedule to accommodate the retailer. By changing the delivery scheduled, Kellogg reduced stock outs, increased sales and improved both customer and consumer satisfaction. As the Kellogg example demonstrates, working with suppliers can provide mutual benefits to all parties involved.

In today’s world, companies require suppliers that are results orientated and are demanding increased speed from suppliers. Not all suppliers are equal and all suppliers need to be segmented. Segmentation is critical, as it will determine the importance of the partnership and how much time companies need to spend on building supplier relationships.  All members of the supply chain must have clear accountability and each member of the team must be aware of his or her duties. Companies need to monitor compliance and implement and communicate clear Key Performance Indicators (KPIs). In today’s high speed world, SRM is on the forefront of any successful company.  SRM has changed significantly over the last couple of years, and suppliers are now seen as an extension of the business.