Value creation chain must be the focus in trading relationship

The retailer-supplier relationship remains as contentious as ever. All too often the agenda revolves around transactions, where a small margin reduction/increase can feel like a major victory. The big supermarkets need to forget about only being the cheapest and stop hammering supplier margins. They need to refocus on working with suppliers to create genuine value for shoppers.

Suppliers, too, need to look at altering the current mindset. Instead of viewing retailers as a channel for selling products, suppliers should consider them part of their value creation chain, helping to build unique product propositions.

To improve the relationship, both parties need to view each other as partners rather than adversaries, and here are my tips for achieving that.

First, identify and size the prize. Suppliers and retailers should jointly agree the biggest opportunities in a particular category and focus accordingly.

Second, choose partners carefully. In each category, retailers only realistically have the resources to deal with a few strategic suppliers. It’s not necessarily about the biggest; some smaller companies may bring incredibly innovative ideas.

Third, confirm common goals and guiding principles. A mutual appreciation of each other’s capabilities, assets and goals is essential; sustainable relationships can only be built on open, two-way discussions, to arrive at solutions that genuinely benefit both parties.

Fourth, be open. Having become accustomed to an adversarial environment, trading teams may be overprotective of people and information, preventing suppliers from communicating with other departments, or holding back key information such as inventory status. An opening up of discussions could reveal opportunities.

Finally, be consistent. Regardless of whether the relationship is ‘strategic’ or otherwise, a consistent approach will improve relationships all round.

By stepping back from the negotiating table and considering areas of mutual benefit, both retailers and suppliers can get back to doing what they’re best at: building greater value for shoppers and consumers.

Liz Claydon is UK head of consumer markets at KPMG