Sainsbury has made great progress but the climate is getting tougher, with suppliers under renewed pressure. Siâ® Harrington reports from the annual supplier conference
It has been a year of great progress at Sainsbury, but the stakes are rising and the support of suppliers is needed if it is to remain a strong player. This was the message from Sir Peter Davis to 180 of the group's main suppliers last week.
Speaking at its annual supplier conference Sir Peter said: "Growth in the market has slowed, the market is even more competitive and, with Wal-Mart expanding and Tesco way ahead in market share, international buying power is going to be a major issue for us."
He pointed out that over the past 12 months, Sainsbury's three-year profit decline had been reversed, sales were up 7% to £14.9bn, and customer numbers were up 7%. "We are committed to delivering strong double-digit underlined profit growth in each year of the recovery. But the recovery programme does not stop in March 2004," he said. "We need to deliver a radically improved, fitter and more competitive business in the longer term."
Key to this is the work being undertaken in IT. According to assistant MD Stuart Mitchell: "Systems are going to be a major revolution in Sainsbury."
From January there will be the roll out of a Marketmax system allocating the right space in the right store as dictated by Sainsbury's format strategy. Mitchell also promised the installation of Retek's merchandising system with its automated billing would mean an end to invoice disagreements, as well as more efficient payment to suppliers and automatically updated information.
Collaborative product development using Globalnetxchange would help Sainsbury to be first to market with innovative new products and ranges, he added, as he urged suppliers to register with this and to plan for the future now. A system freeze after Christmas would mean no new products could launch in certain periods.
Sainsbury said it had listened to suppliers since the last get-together, with compliance one of the major issues being fed back. "We have much to do," Mitchell conceded, "and it will become more and more important as we move into the new generation of systems which demand compliance. If we get it right you will see the displays you want to see."
So improved availability, improved compliance, innovation and creative opportunities in new formats, simpler, smoother systems, speeding up product development, and the obligatory benefits of working together' ­ these were the carrots being dangled.
But there is the pay-off, the foremost of which is that to finance all this investment Sainsbury is looking to suppliers to "challenge" their costs by 5%.

Blow to own label suppliers
According to the sales director of one major brand owner that figure was likely to have the biggest effect on own label suppliers, particularly in light of the contentious issues of open book costing and factory gate pricing, both of which are being driven by Sainsbury. But supply chain director Martin White said there was a "lot of froth" about FGP and that Sainsbury was shipping 200 million cases a year though it.
And Sainsbury's PICO initiative, whereby suppliers open their books so the retailer can understand their costs and work to identify ways in which these can be reduced, merited a remark from Mitchell, who said: "Gone are the days when the cost of the supply chain, the cost of trading and the benefit to retail would not be added up to a single equation."
To mitigate some of this a new customer complaints system, CARES, is to be launched. This means if a customer brings back a product Sainsbury can more accurately determine what the problem is and ensure the charge is only pushed back to the supplier in the right cases. Colleagues at the front line are being empowered to deal with more complaints in store to save money for both Sainsbury and suppliers.
White also said Sainsbury was starting to deliver the first phase of its transformation of the supply chain, designed to close the £60m-a-year systems and warehousing gap with Tesco and Asda. Its Hams Hall mega warehouse is near its go live date, and Sainsbury had taken every step to ensure change went smoothly. It will take volume from a number of depots in this period.
"We have given a lot of time over to testing and there has been a sensible ramp-up curve," said White. "I know of one competitor which is putting two weeks' stock in stores because they think we will fall over. I can assure them we will not."