Given the combination of scale, and ability to write the cheque, the supplier-retailer relationship is always going to be an unequal game. When losing a customer means closing a factory, relative power becomes more obvious, and risk more acute.
In order to be able to negotiate more effectively as ‘an equal’ in unprecedented times, it is vital that NAMs take steps to increase their power and influence within both organisations. However, given that a NAM role combines full responsibility for the entire relationship, with relatively little designated authority, success means being able to analyse organisational power and use it to optimise profitability for both organisations.
As always, it is important to begin with customer needs, but with a difference. The game is now being played for money, in real time…
Despite significant advances in the evolution of the role, a buyer is still primarily driven by Gross Margin and Sales increment. However, when the buyer is also a shareholder, the connection between share price and Return On Capital Employed can be made more obvious. ROCE can then be shown to link other KPIs such as Stockturn, Sales per sq. ft., Credit Terms, and especially GMROII to increase profitability and thus improve the value of share options…
Essentially, in the current climate most retailers need an ROCE of 15%, Gross Margins of 25%, Net Margins of 5%, a 20 times Stockturn, 30 days credit, 30% Gearing and a GMROII of over 500% to remain in the ring (see NamCalc). It remains for a NAM to be able to demonstrate how the supplier’s brand margins, terms, service level and trade-funding can help the retailer comfortably meet and even exceed the above KPIs, as a minimum skill-set…
A basic knowledge of Retail Finance will obviously help to increase a NAM’s influence with the buyer, but the systematic application of different types of power will make a real difference.
Essentially, a NAM can derive power from a combination of Expertise (customer finances), Ideas (output-focused solutions), Goodwill (networking), Information (customer and especially category and channel-norms), Gatekeeping (on/off access to resources), Status (in each organisation), Rewards (monetary, social, political, or psychological), Politics (influencing right people) and Coercion (enforcement).
By definition, the successful application of these sources of power will also increase a NAM’s influence in the supplier organisation. Having developed some additional influence, it is important that the NAM should try to manage power, allowing it to flow naturally when focusing on an account problem and working for its solution. Given that a NAM thrives below the radar, the obvious pursuit of power for its own sake rather than as an aid to problem solving can over-raise the NAM’s influence-profile within both organisations, resulting in alienation of colleagues and trade partners alike….
To fully understand the power-process within both organisations, check out what people are doing for each other, who helps whom, who goes to whom, who is likely to support/oppose new ideas, what kind of informal sub-groups or cliques exist, who makes up their mind quickly, who needs extra time, and who is more likely to respond to logic than emotion?
In fact, everything that normally takes years can all be concentrated into a couple of weeks’ intensive study by making a focused effort to build a positive power-base with improved joint -profitability as the key output.
Both suppliers and retailers are emerging from an unprecedented four years where even long established trading relationships have been put under stress and power abused, with many casualties in the process. The drive for cash has resulted in grossly unfair payment terms, and the obsession with low shelf prices has brought about the meat crisis. In fact this is the mere tip of a fundamental challenge to brand integrity, where the consumer has been short-changed in terms of discrepancies between content and what it says on the tin… NAMs need to manage and optimise personal power in order to cope with the fall-out.
However, we need to accept that we are headed into a flat-line decade under the scrutiny of a super-savvy consumer, demanding demonstrable value-for-money and who is unwilling to outsource any purchasing decision-making to marketers or retailers.
This makes it vital that NAMs develop and manage a productive power-base within the trading relationship, or suffer the consequences…
