Essentially, a trust-based business relationship can be achieved by ensuring true like-with-like comparisons, from the buyer’s perspective, of all solutions to buyer need. Numbers can help in adding precision and objectivity, thus minimising opportunities for misunderstanding to complicate the development of the relationship.
Each party can help by ensuring there are no surprises, except of course in exceeding expectations, and even then in a trust-based relationship, 110% performance levels should be no exception…
Business potential of the relationship
In supplier-retailer relationships, it all starts with a clear assessment of the potential business, the sales and profits realistically achievable by the business partners acting in harmony. A quick comparison with actual sales and profit allows each party to assess the level of investment each party is required to make, on a fair-share basis, given their respective risk-reward profiles.
Relative risk-profiles
In other words, it is important to define buyer and sellers’ risk profiles in terms of being risk-seeking, risk-neutral or risk-averse in order to ensure a complementary fit between the partners.
Definition of offering vs. available competition
Next comes a clear definition of the offering, that combination of Product, Price, Presentation and Place, making true like-with-like comparisons with available alternatives from the buyer’s point-of-view. If our offering does not seem to fit, or the buyer remains underwhelmed, we (not the buyer) did not do it right. In other words, back to the drawing board that contains the only thing that counts, buyer need.
Buyer ‘want’, or how buyers express their requirements is merely a basis for probing and defining real need. See Buying Mix Analysis tool.
Driving ROCE
Essentially the supplier’s role is to drive the ROCE of both supplier and retailer. Based on a realistic assessment of the retailer’s latest financials (Companies House, Annual Report), the NAM identifies the customer’s current performance in terms of ROCE, Net Margin and Stockturn vs. other equivalent players, to arrive at a measure of where the retailer needs to be financially i.e. ROCE 15%, Net Margin 5%, and Stockturn 20 times per annum.
Supplier’s financial impact on the retailer’s business
The supplier’s job is to help the customer achieve these levels of performance (marketing colleagues may express this more elegantly in terms of consumer satisfaction with the supplier’s brands, but financial improvement of the retail business is all the buyer ever hears at this point).
It follows that the NAM has to calculate the cost of any investment made in the retailer’s business, and be able to calculate and demonstrate the financial impact in terms of incremental sales achieved by each party. Nothing else matters, other than the fact that a trust-based partnership makes it a lot easier…
A Trust-based Contract
Having agreed the mutual objectives of the relationship, spelled out in financial terms, jointly agreed, it is vital that supplier and retailer draw up a fair-share contract that specifies investment and return for each party, with appropriate KPIs.
The contract should be then used as a working tool as the relationship builds, with a combination of transparency, defensibility and above all trust helping the partnership to meet or even exceed mutual expectations. Whilst the contract needs to be robust and legally enforceable, it is essential that it be seen as merely confirmation and a record of the basis of trust that exists between the two parties.
Finally, conducting a risk analysis in terms of assessing the impact of all the things that could go wrong with the supplier-retailer relationship along with their potential impact on the business and chance of occurrence, should help in justifying any necessary investment in building further trust between the two partners.
In practice, it can be very tough achieving all of the above if the supplier-retailer relationship is based on trust, but if NAMs and Buyers have to spend half their time second-guessing one another, forget it….
