And beware the supplier that delivers savings from nowhere - if it looks to good to be true, it is, says Les Flanagan

With all sectors continuing to feel the pinch, support service suppliers are feeling the strain of ever-increasing scrutiny and growing expectations for them to deliver cost-saving solutions.

But while the credit crunch has focused our attentions on reducing expenditure, pushing a key supplier relationship too far, or switching suppliers based purely on cost, may ultimately be to the retailer's detriment. Dramatic cost reduction needs to be regarded with caution.

Streamlining a process or introducing new concepts to improve efficiency is the Holy Grail in terms of cost saving and improved performance; but beware the supplier who delivers savings from nowhere. The recession has seen many businesses ruthlessly strip assets to claw back deficits. While this is understandable, cost reduction that isn't sustainable is just the first step onto a slippery slope of compromise and unrest for both parties, and is almost certain to be the death of the working relationship an asset that when managed well has the potential to deliver ongoing cost and performance benefits for all involved.

We are seeing probably the most challenging operating conditions the industry has ever experienced. So how are retailers and suppliers weathering this perfect storm?

Recent pressures have seen 'consolidation' become the buzz word for retailers, with many operations being cut, pulled and slashed. This necessity has resulted in pressure being applied on suppliers to deliver savings and prove that they are delivering value to ensure a business's long-term health.

However, another 'c' word is offering suppliers and retailers the opportunity to work together to weather the recession. Collaboration, while certainly not a new phenomenon, has become increasingly relevant for retailers and suppliers. Like all long-lasting collaboration, relationships have to be built on trust and the provision of reliable service. Empty promises are a sure-fire way to see a contract not renewed or even terminated early. But equally, unrealistic expectations or moving goalposts are likely to have a detrimental effect on a contract.

Good relationships are forged when suppliers can demonstrate to customers early on that the promises made at the tender stage were not just hot air. They can be improved further when the customer is willing to view the supplier as a partner and not simply as a service provider.

A good example of the two working together is when the supplier supports its customer moving into a new area. When supermarkets decided to start selling petrol, they benefited from expertise, consultancy and operational support from supply chain providers that had experience in transporting energy.

The ability to continually improve service and deliver new initiatives cannot be expected without the customer's trust and the desire to innovate. Without these, many initiatives would never see the light of day.

Success in any partnership can only ever be achieved if both parties are able to grow and develop and a supplier that feels forced to reduce cost to an unsustainable level is no longer performing as a business in its own right. This sort of relationship will never result in the sort of sustainable initiatives that can make a real difference to a business and its success.

Les Flanagan is managing director of retail operations at Wincanton.

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