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Effective Supplier Alliances: Q&A With CVS Caremark And The Neiman Marcus Group

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This is Part 2 of the Retail TouchPoints series, titled: Retailer-Supplier Collaboration: The New Operational Imperative. Based on conversations with retailers, analysts and other industry experts, this 4-part feature examines the dominant trends, challenges, technologies and achievements now at the forefront of attaining full retailer-supplier collaboration. Part 3 of the Retail-Supplier Collaboration feature will appear in the February 26 newsletter. To access Part 1, click here.

 
CVS Caremark
and The Neiman Marcus Group are among the retailers aggressively pursuing strong retailer-supplier collaboration. RTP spoke with Ron Link, SVP of Logistics, CVS Caremark, and Jill Barron, VP, Supply Chain, The Neiman Marcus Group, to gain and share a better understanding of their collaboration views and successes.

These retail executives share their insights on the following 5 questions:

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1) What are the key business issues motivating supplier alliances at your organization?

2) What specific advancements in technology and analytics are helping to streamline your collaboration? Who are your providers?

3) Please describe the specific benefits these technologies are providing to your organization.

4) What trends in the Retailer-Supplier collaboration scenario are you observing?

5) What other essentials are important for retail technology executives to know regarding Retailer-Supplier collaboration, either in general or yours specifically?


RTP:
What are the key business issues motivating supplier alliances at your organization?

RLinkRon Link: Our motivation continues to be customer service, in-stock position, top-line growth, increased margins, better share in the marketplace and improved efficiencies in the supply chain. A more diverse and complex supply chain environment, primarily fueled by the following activities, drives energy around our collaboration efforts:

1) Manufacturers increasingly are sourcing their operations globally, which adds lead time and increases the need for accurate forecasting, promotional planning and supply chain execution.

2) Merchandising and assortment planning has become much more complex as both retailers and manufacturers better understand how the consumer faces them, what products are demanded and when, by which customers, and in which channels and markets. This more intricate channel-specific and local market assortment tailoring increases the need for better forecasting as well as the complexity of the product flow paths required for inventory optimization and supply chain efficiency goals.

3) Speed-to-shelf has become a major focus for many retailers, due to the increasing share of sales being fulfilled through online retailers. Being successful with speed-to-shelf is heavily dependent on a highly effective planning process and error free execution in both organizations.

JBJill Barron: For Neiman Marcus, the key motivation in working with vendors is to improve operational performance in order to move goods through distribution points faster and error-free. The less time merchandise stays at the DC, the faster it arrives on the selling floor and/or is in stock for customer fulfillment. The other motivation is better vendor relations: More collaboration typically means less noncompliance charge-backs and a better, stronger overall relationship with the vendor partner.


RTP:
What specific advancements in technology and analytics are helping to streamline your collaboration? Who are your providers?

Link: There are several, and they’re coming at us faster than ever before:

1) The market now is mature for ERP; manufacturing planning; forecasting and replenishment; transportation planning; and WMS systems. Now we are seeing Internet portal-based technology tools that enable a collaborative supply chain planning process ― and increasingly, the actual execution management and monitoring process ― to be shared between retailers and suppliers from a work flow perspective, in real time. In some cases, this is supplemented with portal interfaces for Master Data Management, which is absolutely essential to flawless execution in the supply chain.

2) Today’s more powerful computers enable us to process enormous amounts of data faster, while newer Business Intelligence software helps us mine this Big Data domain more effectively. This gives us the ability to make targeted customer offers to maximize promotional effectiveness, and provides day-to-day visibility into non-promotional consumer purchase behavior by channel and market. All of this enables improved top line and margins, and helps define optimal inventory deployment and product flow in the supply chain.

3) The evolution of mobile phones into mobile-networked devices in the hands of consumers is just beginning to change our interaction with our customers in powerful and personally specific ways we have yet to fully understand.

CVS partners with a number of technology providers: INFOR for our Facilities Maintenance Management and integrated WMS /LMS systems; ReddWerks and Intelligrated for our material handling systems controls; and Descartes Systems Group for our portal-based collaboration applications, our Outbound Delivery Routing and Inbound Transportation Management Systems.

Barron: Real-time updates to requirements through our Neiman Marcus Group Operations Portal System (NMGOPS) are huge technology advancements. NMGOPS.com is a great tool for push notifications when requirements change and alerts must be communicated to our large population of vendors. 

The analytics now available to our industry are incredible. When retail operations utilize a WMS system, the amount of data available on vendor performance is vast. Retailers now can pull together an operational performance review for vendors in relatively short time. Inventory management, becoming more popular as the need for omnichannel selling increases, also can provide great insight to vendor inventory levels across all of our fill points.

Our WMS provider is Manhattan Associates. For 2013 and into 2014, we will be working on a more automated and complete scorecard provided on vendor demand and accessible through the web. This project still is in the investigation stages: We are looking at several providers, as well as in-house programming, that can provide the best solution. 


RTP:
Please describe the specific benefits these technologies are providing to your organization.

Link: CVS continues to invest in upgraded capabilities where we see financial and operational benefit. For example, we have developed and deployed a standardized WMS technology platform that has upgraded the performance of our Logistics Network, allowing reduced cost to serve and improved speed and accuracy in servicing our stores. We also are rolling out UCC128 ASN- based receiving this year, which we expect will significantly streamline the receiving and PO reconciliation process between ourselves and our supplier community, as well as improve inventory accuracy.

Since it’s very important to include our carriers in the collaboration process, since they are moving the freight, we are just completing the roll-out of our yard management system in the network. This gives us total visibility to what is where in the yards, from a prioritization perspective, but more importantly, it is the last link in our portal-based inbound visibility system. We designed our system to show us what is in our carriers’ yards waiting for an appointment in our network, and will implement this capability with our carrier partners when our network is fully deployed later in 2013.

Later this year we will deploy new forecasting and replenishment technology. This is a time- based forecasting tool in which we will use a store/SKU-centered forecast that rolls up to the DC level based on store POS sales by forecast clusters. We also will implement a more efficient replenishment process as part of this deployment which focuses on optimizing inventory investment and ― not or ― supply chain processing costs.

Barron: As mentioned, our operational portal is a great tool for communicating requirements and operational alerts and notifications. Vendor analytics are available through our WMS and other DC operations systems. Neiman Marcus is working today to bring vendor KPI’s together, from multiple systems, into one scorecard. Today this is a manual process and scorecards are generated upon verbal request by the vendor, prior to compliance/collaboration conferences and vendor meetings and visits.

One of the largest benefits of increased technology in the supply chain is the standardized retailer/vendor processes. This consistency allows both organizations’ needs to fit better than they have before. Prior to the infusion of technology, both sides had many manual processes, and vendors were doing nothing but exception processing, which increased time and expense in the supply chain.         


RTP:
What trends in the Retailer-Supplier collaboration scenario are you observing?

Link: Today we regularly are approached by more suppliers to engage in total supply chain collaboration, with emphasis on supporting the “end-to-end” business process between supply chain partners. As a result, we have developed a much better team-to-team relationship across our combined organizations. There are regular weekly meetings between CVS and multiple suppliers’ supply chain team members to work on solutions to deploy across our supplier base.

Results we have seen from these activities include the development of our inbound appointment schedule portal as well as some very innovative collaborative transportation processes in which suppliers share inbound transportation with each other for inbound deliveries into our DCs.

This portal simplified the appointment process and was widely accepted by the supplier community as innovative and effective. The transportation collaborations have resulted in better inventory optimization, reduced transportation expense and reduced number of appointments handled in the network. In one example, three separate suppliers share a single inbound trailer on a best fit basis depending on which two of the three participants have a better load fill balance that week. We also have suppliers that will combine shipments for multi-stop inbound deliveries into our DC’s on a single trailer at truckload rates rather than shipping LTL. This is faster for us, reduces safety stock, and is less expensive for the suppliers.

A more extreme example of end-to-end collaboration involves a key supplier and a collaborative goal to double the rate of growth over the next five years to achieve a specific top line sales target. The teams are working to double the volume without the commensurate doubling of capacity. This requires our two organizations to plan and act as a single entity. We already are discussing how we can share transportation and physical space capacity to achieve this goal. The key takeaway for the industry is that intellectual collaboration will ultimately lead to physical asset and capacity collaboration where both parties behave as one company.

Barron: A continuing trend is the opportunity to get together in collaboration conferences where retailers can meet with 20+ vendors over the course of a few days. Alternatively, it would take several weeks of travel to meet with this number of vendors. As also see more vendors overall with increased interest in collaboration. Some are creating Supplier Compliance groups that work with several retailers and their varied requirements, and ease retailer communications with a single touch point at the vendor firm.


RTP: What other essentials are important for retail technology executives to know regarding Retailer-Supplier collaboration, either in general or yours specifically?

Link: To truly operate the supply chain in a one company model, both entities need the ability to truly share process and asset costs. The industry needs to crack the code on true asset collaboration ― whether by contributive allocation agreements where savings generated on both sides can be booked to internal accounts then reinvested, or by mutually funded asset utilization. Picture this as multiple suppliers partnering with retailers to asset-internalize what might now be a type of 3PL [third party logistics] services.

Collaboration should be a part of strategic and business operations planning between supplier and retailer, not a list of independent projects.

At CVS Caremark, we’ve been successful with cross-supplier collaboration in the transportation space and in working with key suppliers using the one company model. This model enables both organizations to view working capital, supply chain risk, and asset utilization as a partnership rather than a cost competition. It’s a win-win view that creates the ability to perform key supply chain activities once, in the right place at the right time in the overall process, rather than in multiple places on each side. A great example of this is UCC128 receiving, which we think can open the way for a Supplier Certification program in the future.

Barron: As far as real-time collaboration, the challenge is that as retailers communicate their operational issues, is there really anyone on the other side ready to take immediate action and adjust? Unless you have partners that truly can make some immediate changes, real-time collaboration will not glean the benefits you seek.

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