In the current market turmoil resulting from the 2008 (!) global financial crisis, the only real certainties are that both supplier and retailer need to generate an acceptable profit on resources put at risk in the business. The brands, shops and consumers are simply a means of achieving this goal.
In general, these aims are easier achieved by collaborating via a supplier-buyer interface than through a non-cooperative pursuit of profit at the other party’s expense…
For ease of communication, this common goal is – or should be! – expressed as Return On Capital Employed for each of the two businesses. In the current climate ROCE needs to be at least 15% to preserve independence, continuity and autonomy at all levels in the organisation. Most retailers are currently achieving 8% or less, hence the pressures on the supplier-retailer relationship, everywhere…
As you know, the company is tasked by the stock market and/or the owners to deliver an acceptable reward for risk, or ROCE. Failure to do so, especially in these uncertain times, means that the money moves elsewhere. In practical terms, the share price falls, and profit is further diluted by the increased size of dividends required to prevent further deterioration in that share price.
As a result, the company’s market capitalisation, or the open-market value, falls to a point where competitors or private equity companies can afford to take it over, and then make the long-overdue cuts that were probably the cause of its current problems in the first place…
In other words, in order to place their role in a realistic and up-to-date context, NAMs need to check out their company’s current and target ROCEs, and agree what ROCE performance on their account is required to meet corporate targets. This is about portfolio management of customers in the way that marketing colleagues practice portfolio management of brands.
In practice, NAMs need to have the courage to revisit the fundamentals of the business in a radically changed and challenged environment, and to ask:
- What business are we in?
- Where are we headed?
- At what speed?
- Against what competition?
- At what cost?
- At what level of risk?
- With what objective?
Both company and NAM need to appreciate that the world has changed radically, and the pre-2008 answers to these questions are no longer appropriate…
Given the freedom to negotiate, the NAM is in a position to enhance or dilute supplier profitability in the same way a buyer affects retailer performance. They have goals in common…
In effect, the NAM has become a business consultant, and is expected to be an expert on the market and the category as a whole, with the retailer as client. By working together, the NAM can combine broad experience of how the category is retailed in every type of channel, with the buyer’s in-depth but narrow knowledge of how that category works in a specific shop environment, as one of 450 categories competing for share-of-wallet. The NAM knows a lot about a little (i.e. a few categories), whereas the buyer knows a little about a lot (of categories).
This complementary fit becomes a realistic basis for potential synergies for each party, provided each is constantly focused on output. Moreover, by converting their dialogue into numbers, NAM and Buyer can more easily track cost to each party, and relate each cost to equivalent incremental sales in order to maintain clarity within the investment-return relationship.
In other words, for each £10k invested by a supplier on 9% net profit, incremental sales of £111k are required to break even, whilst a retailer on 5% net profit receiving £10k from a supplier is being given the equivalent of £200k in incremental sales. Continually relating the discussion to these numerical relationships will maintain a focus on output for each party.
Essentially, business account management is nowadays about optimising sustainable profit, whatever the circumstances. In other words, despite flatline demand, escalating demands from retailers for margin-support, more trade funding and increased levels of service, with the constant threat of deductions, the NAM job is still about ensuring that their share of category rewards represents a fair return for risk.
ROCE-based KPIs will ensure a win-win result, despite other uncertainties….
