The Retail Supply Chain: Purchasing & Logistics Are Not Aligned

KANE recently completed research on the retail supply chain with supply chain executives at both retailers and suppliers.  The aim of the research was to identify the biggest alignment gaps between retailers and suppliers.  Read a summary of this Retailer-Supplier Collaboration Research.  

After forecasting, the area of greatest misalignment was how well the retailer's merchandising/purchasing function was integrated with the retailer's logistics team. On this subject, retailers give themselves pretty high marks, whereas suppliers feel that there is limited communication between buyers and their logistics colleagues down the hall.  

One upside of better coordination, from the suppliers' perpsective, is more efficient freight transportation. Said one supplier, "It's hard to get retail locations to optimize transportation, such as consoliating orders to avoid multiple partial shipments."  

Managing inbound freight is a major issue for small to mid-sized suppliers, who often have to use higher-cost, less predictable LTL shipments to meet the demands of retailers for smaller, more frequent shipments. For freight that shifts from LTL to consolidated truckload shipments, savings for the supplier could be upwards of 25%–35%. 

The Purchasing-Logistics Disconnect

The problem stems from retail buyers and their logistics colleagues having misaligned incentives.

A buyer’s job is to purchase goods at the best possible price and get them delivered on time. They don't much care how many trucks show up at the DC, or what’s loaded on each truck, or when those trucks hit the dock.

As for the logistics department at the retailer, its main job is to move product through the DCs and out to stores. Any inefficiencies on the inbound freight side is viewed as something they can’t control.

Within the retailer's organization, there appears to be no incentive for making a cross-functional effort to optimize the retail supply chain. This Purchasing-Logistics disconnect creates inefficiency not only for suppliers, but for the retailers themselves:

• Excess traffic and costs at the receiving doc.  As LTL carriers arrive at all hours to deliver big and small loads from hundreds of vendors, it's very hard to manage an efficient receiving process.
• Excess carrying costs.  Because an LTL shipment moving from your supplier to your DC passes through multiple sorting points, you can’t be sure it will arrive on time, so you have to tie up cash in safety stock.
• Hidden costs.  The price of every product a retailer buys includes the cost of transportation and fuel surcharges. No matter how great a deal buyers negotiate, if retailers don't control inbound freight expenses, they are probably paying a premium.
• Large carbon footprint.  When each vendor manages transportation on its own, it takes many more trucks (and more CO2 emissions) to deliver the goods than if you consolidated those shipments.

Suppliers Want a More Efficient Retail Supply Chain

The research clearly indicates that suppliers would like to see greater internal coordination within the retailers' organizations. Here are additional supplier comments from our research interviews: 

• "At the retailer, sales and marketing goals aren't always aligned to those in supply chain group."
• "Too many buyers are on different paths without coordination. The only one that gets burned is the supplier."
• "Retailers need to look ahead in their daily/weekly orders to enable shipment consolidation."
• "Most collaboration between retail customers and the supplier is done through the buyer representing the customer and the responsible sales person from the supplier.  That's not enough. There should be annual meetings between the respective supply chain organizations of retailers and suppliers."

There are disconnects between retailers and suppliers that create barriers to greater retail logistics collaboration. But disconnects between departments within retailer organizations could be contributing to the problem.