n There's no gain without pain in the drive towards global sourcing, but who stands to benefit most from world domination ­ retailers, suppliers or consumers? John Porter investigates The phrase "partnerships with suppliers" rolls slickly off many tongues in the retail industry. But the reality is that those relationships, prickly at the best of times, are changing. The much trumpeted advent of global sourcing, quickly and enthusiastically implemented by operators such as Wal-Mart and Ahold and actively pursued by the likes of Tesco and Marks and Spencer, means mega change for suppliers large and small. While the debate rumbles on about how far the likes of Wal-Mart will get in achieving one price worldwide, and how much the efficiencies will be worth in practice, the industry is already gearing up to meet global sourcing head-on. The more visionary manufacturers are reacting by rethinking strategy and realigning their organisations, but the inevitable reduction in the number of buying points as giant retailers streamline their procurement systems, will create as many losers as winners. On the face of it, there is genuine synergy between manufacturers' and retailers' aims. Both want maximum product availability, with minimum stock in the supply chain, at the lowest cost. Nothing new there. And many large manufacturers welcome retailers' drive for global buying ­ even if they suffer a violent allergic reaction to demands for an end to regional pricing. In a world where even big hitters face an erosion of brand premiums through commoditisation, they have everything to fight for. Nestlé's Tom McCuffog, director of planning and logistics, says: "Collaboration with customers to improve product availability to the consumer while reducing total supply chain costs is a key objective." For Coca-Cola, the advantage of global supply comes through a reduction in the bureaucracy of pricing and ordering. Paul Gordon, trading director, grocery, for Coca-Cola & Schweppes, says: "The sharp end business of delivering large volumes of product to retailers' warehouses becomes simpler to manage." And in that, Gordon believes, there is no conflict between the aspirations of manufacturers and suppliers. Areas such as category management, which directly affect the way a carefully nurtured brand image is presented, are far more troublesome, he believes. "Something like category management has a lot more inherent conflict, but the wins are relatively quick. Supply chain management doesn't have those conflicts and the process of working together is much easier, but the wins are slower." The point is taken up by Nestlé's McGuffog: "It is important to remember that any substantial supply chain has to be run in a fairly similar way for most, if not all, customers and suppliers. It is unlikely that any company will be able to run a whole series of ad hoc supply arrangements. We all benefit, especially the consumer, from having common, simple, standard, speedy and certain ways of doing business, including collaboration on new product launches, efficient replenishment and promotions." For cross-border procurement to pay off, big retailers clearly need big suppliers with whom to play ball. And to a large extent suppliers are keen. But then there's the thorny issue of price. Nestlé's CEO Peter Brabeck-Lethmathe has been one of few from the supply side willing to speak out. In October he said the likes of Wal-Mart would have to be prepared to think global and price local. For all the rhetoric of closer co-operation, the battle lines are drawn when it comes to the cash that changes hands. "The food business is a local business. Even global brands need local positioning," he said, pointing out that only a handful of lifestyle brands, such as Coca-Cola and McDonald's, had successfully translated around the globe. And if the big players are uncomfortable with some of the disciplines of worldwide procurement, that is nothing compared with the smaller fry. While Wal-Mart Europe president and CEO Allan Leighton may insist global sourcing will not be at the expense of national or regional brands, it is inevitable that in a world of supply chain slimming, small and medium sized players will suffer. Asda's trading director Mike Coupe said last month that a lot of UK suppliers would benefit from a more global approach. "One of Wal-Mart's goals is to be the most efficient customer to supply," he told a conference in January. And, it expects no less from those doing the supplying. The message is clear: shape up or ship out. Dale Hughes, a supply chain research consultant for a number of national and international retailers, says: "Suppliers of lower volume products, as well as those with brands which, however strong their regional or national following, have no genuine global potential, don't fit easily into the global supply jigsaw." Hughes believes the drive for fewer, bigger brands will be escalated by the growth of internet shopping. "We're already seeing how important e-commerce is becoming to supermarket operators, and home shopping favours established brands and fewer stock keeping units. Some relatively familiar brands are simply going to be squeezed out of existence." Technology is playing a huge part in the new world order, both at the consumer end and at the business to business pit face. For conglomerates with a diverse brand empire, companywide procurement has never before been a practical option. Instead, individual fiefdoms negotiated their own terms. Now, internet based ordering systems, which automatically combine orders and direct them to a preferred supplier as a single chunk of business, enable economies of scale that even the most visionary purchasing director could only have dreamed of. A 28 country study of 160 corporations by management consultants AT Kearney found that within two years 20% of companies' expenditure would be ordered via the internet. That compares with less than 2% today. The volume of external transactions handled via the internet is predicted to increase by more than 1,100% between 1998 and 2001. "This increase is much higher than anticipated," says Michael Jacobs, vice-president of AT Kearney's Strategic Sourcing practice. "We predict that the traditional procurement function will cease to exist, while the remaining strategic component will become a boardroom level competitive weapon. Clearly, there will be an impact on jobs." But technology is only the facilitator. Jim Spittle, Kingfisher's supply chain director, says the move to rationalisation was in place before the hard and software came along. Spittle, with Tesco for 10 years before joining Kingfisher five years ago, says: "We have been looking at rationalising our supply base for some time, and indeed have done so, but that's the natural evolution in retailers. It's not necessarily technology led." It is only now, with web based technology truly finding its feet, that its benefits are becoming obvious. Spittle and others talk about a virtual supply chain based on information rather than inventory. It's about "end­to-end systems" which lay the supply chain bare from point of sale to point of manufacture. Suppliers that don't meet the techno criteria will be dropped. Partnerships from here on in will be about megabites of data as much as hand holding. Wal-Mart calls it CPFR ­ Collaborative Planning, Forecasting and Replenishment. And Asda signs up this year. From September suppliers will be expected to tap into its Retail Link, an intranet mine of category data from every transaction in every store Procter & Gamble's vice-president for customer business development in Europe John Millen, says he wants to get ever closer to retail partners. "Increasing consumer loyalty both to brands and to stores is the key to long-term success. To increase loyalty, retailers and manufacturers must continually increase their value proposition to a defined target consumer. "When shoppers look at brands on a store shelf, they can't distinguish the role of the manufacturer and the role of the retailer in what's being offered ­ sizes, product quality, pricing, promotions. In other words, as far as the consumer is concerned, we are one. By definition, we are in this business together, and the more satisfied the shoppers, the better the impact on brand and store loyalty. We believe that as an industry we need to agree on practices that are likely to build customer satisfaction, and hence loyalty." Global supply is not simply a way of making a slick system slicker or products cheaper. The reality is that the business of getting products on to supermarket shelves is still complex and far from an exact science. Coca-Cola's Gordon points to the maths that tells the story: "What we want is 100% availability. We don't achieve that." While CC&S meets service standards of 99.5% in terms of orders fulfilled on time, out of stocks vary from 5% to 20%, depending on store and time of week. "The supply chain is breaking down somewhere, and the problems we have are getting the product from the back of store to the shelf quickly and consistently," says Gordon. World scale retailers are giant irons seeking to eliminate such supply chain creases. Clever suppliers are getting on with the spring cleaning. n {{COVER FEATURE }}