Culture as a business accelerator
The value of collaborative sourcing - why it pays to care about culture in the supplier-buyer relationship
Our hero: Walmart
Walmart. The world’s largest retailer. Synonymous with superb supply chain management.
Built on a culture of collaboration with suppliers, they pioneered sharing big data. Enabled by the world’s largest private IT infrastructure, they now have the highest sales per square foot, inventory turnover, and operating profit of any discount retailer in the world.
Their story: Working with suppliers to become the biggest retailer in the world
Walmart’s is a story of how collaborating with suppliers drives innovation. It was back in the 1980s that they first started sharing data with Proctor & Gamble (P&G) to improve forecasting and inventory management. In just eight months they improved profitability on sales of P&G product by USD 50 million.i
Then in the 1990s they formalised the Retail Link data-sharing system and rolled it out to other suppliers. It lowered Walmart’s merchandising costs, and helped suppliers reduce their distribution costs.
For Walmart, collaborating included an element of healthy competition. Suppliers competed for shelf space by analysing the data Walmart gave them to make a case for stocking their products.
The suppliers were experts in their category; Walmart were experts in retailing. Both sides learnt from each other to their mutual benefit.
They pioneered big data analysis to drive efficiency
Walmart were pioneers of supplier collaboration and big data analysis before the terms we coined.
Strategic suppliers are connected to Walmart data by the world’s largest private IT infrastructure. Every link in the supply chain – from store POS terminals right back to manufacturers – is connected through a network, some of it by satellite.
Manufacturers and suppliers use the data Walmart share to predict demand, plan production, and schedule distribution
At its heart is Walmart’s Bentonville HQ database which suppliers access to analyse the data. There’s even a vendor managed inventory system, whereby manufacturers can manage stocks of their own products held at Walmart’s distribution centres.
Manufacturers and suppliers use the data Walmart share to predict demand, plan production, and schedule distribution. This allows them to reduce inventory, improve on-shelf availability, and reduce out-of-stock events. As a consequence, cost is removed across the supply chain, enabling the suppliers – and Walmart – to keep prices low and market share high.
They pursued both standardisation and diversity
Walmart were the first to introduce Universal Product Code barcodes across their whole company. Later they introduced radio frequency identification (RFID) for even slicker inventory monitoring. Both technologies only come into their own if everyone in the supply chain uses them. Establishing this level of co-operation involves intensive collaboration with standards bodies and numerous suppliers.
Becoming one of Walmart’s 100,000 suppliers is an exacting process, with stringent minimum requirements applicable to the supplier themselves, as well as all their sub-contractors and packaging partners.
The requirements cover corporate registrations, social and environmental policy, food safety, insurance, and so on – and at the end of the process there’s no guarantee of business once appointed.iii Some find it frustrating, others lucrative.iv But all suppliers have to conform to the standard to be part of the community.
But Walmart also champion diversity amongst suppliers. They have 3,000 suppliers which are companies owned and operated by minorities, women, veterans, and people with disabilities. They currently spend nearly USD 15 billion with diverse suppliers.v
As a result they achieved spectacular growth
Generally, Walmart’s sourcing strategy is to establish long-term, strategic partnerships with suppliers who can offer low priced product in high volumes.
Combined with ultra-efficient distribution and low prices to consumers, it’s driven phenomenal growth. They’ve become the world’s largest retailer, with 11,000 stores stocking USD 32 billion of inventory from 70 countries.vi
Walmart have gone from a turnover of USD 25 billion before the rollout of Retail Link, to USD 447 billion today, while some of their competitors have contracted.
Clearly, having both a culture of collaborating with suppliers, and the IT infrastructure to enable it to happen, is a recipe for commercial success.vii
The wider issue: A culture of collaboration matters in strategic sourcing
The vast majority of procurement professionals believe collaborating with suppliers improves business. A study of procurement professionals working in large businessesviii found that 92% believe supplier collaboration is essential to driving value in the business. And 85% said that their business success was tied to that of their suppliers.
‘Organisations should think of their own culture, as well as their suppliers’, consultancy firm Ernst & Young says. ‘Before considering business process outsourcing (BPO), chief procurement officers (CPOs) need to consider their organization’s appetite for outsourcing.’ix
Organisations should think of their own culture, as well as their suppliers
Once that’s established, they say, procurement can move on to assessing the suppliers’ cultural alignment with their organisation: ‘CPOs need to ensure that service providers offer the right qualifications and service levels and the right cultural fit for the organization. Vendor selection should focus on developing a mutually beneficial relationship, building partnership focus, and appropriate flexibility into the contract.’
Our opinion: The opinion of strategic supplier
Take the time to get a good fit
Martin Dove - SVP Managed Services Sales, Group Services at Dimension Data, believes in taking the long view when it comes to building a successful client relationship.
‘Managed services and outsourcing deals in IT tend to be long term,’ he explains. ‘We become an integrated part of the client’s business. So understanding how their business operates at a cultural level is critical to making sure we fit.
‘You need to take time to discuss at an executive level how your businesses operate. Then as a supplier, part of our job is making sure that we select people in the core team that we believe are going to be a cultural fit.’
Have a framework for collaboration
It’s also important to have a governance framework that separates day-to-day operations from more strategic issues. ‘Our governance structure has four layers,’ Martin continues. ‘The first two are Business-as-usual, which is the run of the mill operations, and Projects, which are finite pieces of work. Within these we have agreed ways of sorting out any issues, with clear responsibilities, accountabilities, and timescales.
‘The third layer is the Roadmap, the strategic aim that we’re both trying to achieve together – whether that’s taking cost out of the business, efficiency, or availability. And the final one is an Innovation Forum, where we can sit down and figure out how we can both extract more value from the relationship.’
Be open and honest with each other
‘The best clients,’ Martin says, ‘are the ones who trust that by being open, sharing, and collaborating, they’re going to drive a better business outcome than by driving a price-based procurement process.
‘The reason I think culture is so critical is, when you go into a managed service or outsourcing contract with a client, we become very tightly integrated into their business.
‘Because of that level of interaction, we have to be able to trust each other. It doesn’t mean we need to be the same, it means we need to respect each other’s culture, understand how each other operates, and find common ground.’
Cultural fit is particularly important in outsourcing deals where Dimension Data takes on members of a client’s internal IT team. The company has developed a six-step methodology to ensure that the process of onboarding and engaging employees that join the organisation as part of such contracts is a seamless as possible. Human resources teams are involved right from the early sales engagement stage of the deal, through to transitioning and integrating employees into the organisation.
Sourcing the technology to do what Walmart did
What sort of supplier relationship would you need to do what Walmart did and reap the value of your data? The answer depends on two things: you and your supplier.
It depends on you, because you’d need to determine what you wanted to do with the business, what insight you’d need to get from your data to do that, and what data to collect and share with business partners.
And it depends on your supplier, because only then could they say what infrastructure you’d need to make all that happen. You’d need the sort of supplier who not only had the technical capability (that’s a given), but also a culture aligned to yours so you could work together over a long period.
Designing an infrastructure to harness the power in your data is not a one-off purchase
Designing an infrastructure to harness the power in your data is not a one-off purchase. Markets change, competitors appear, technologies advance, and your tactics will need to respond. You’ll need an infrastructure that can adapt, while keeping you on track.
To deliver a constantly evolving solution, you’d need a mature supplier relationship. One where there’s a shared vision about what you’re trying to achieve together, and aligned business interests to keep you going when things get challenging.
Technology is just technology – it’s people who make it work. That’s why cultural fit and a collaborative approach are so important in strategic IT sourcing relationships.
The proof of the pudding is a happy client
Financial services provider Alexander Forbes needed an integrated, multi-channel strategy to attract consumers and comply with regulations. The company asked Dimension Data to take over their entire IT infrastructure – from data centre to desktop – across countries and continents.
Brad Eliot, Alexander Forbes’ Group IT Director, explainsx that cultural fit was crucial in achieving a successful long term relationship. ‘It’s important for us to partner with the right organisations and people. The more you can share with your service providers the reality of the ecosystem in which you operate, the better and more enriched their solution will be. That’s why we chose Dimension Data more than a decade ago.
‘The long term nature of our partnership comes down to the similarity of our cultures. We have similar ways of thinking, similar visions of the future, and that was one of the key factors in our decision. It has proven a very successful partnership over the years. There’s a good working relationship between our executive leaders, because they understand our business, and that makes a big difference.’
Back to our hero: Where’s Walmart heading next?
Walmart recently announced a deal to acquire e-commerce retailer Jet.com for USD 3 billion in cash.
Jet have technology which gives customers savings in real time on items bought and shipped together, passing on savings in logistics costs.
Elsewhere, retailers are using big data from web platforms, apps, and social media to predict trends, and share intelligence back through the supply chain to meet demand.
It seems there is no end to the business value to be derived from collaborating and sharing data with suppliers.
ii Clara Lu, Incredibly successful supply chain management: how does Walmart do it?, Trade Gecko, 8 May 214, https://www.tradegecko.com/blog/incredibly-successful-supply-chain-management-walmart
iii Walmart’s guidelines for suppliers, accessed August 2016, http://corporate.walmart.com/suppliers/apply-to-be-a-supplier
iv Walmart supplier forum, accessed August 2016 http://walmartsupplier.typepad.com/
v Walmart supplier diversity, accessed August 2016 http://corporate.walmart.com/suppliers/supplier-diversity
vii Matt Waller, How Sharing Data Drives Supply Chain Innovation, Industry Week,12 August 2013, http://www.industryweek.com/supplier-relationships/how-sharing-data-drives-supply-chain-innovation?page=2
viii Marino Donati, Supplier collaboration key to business success – survey by Tradeshift, Procurement by the Chartered Institute of Procurement and Supply, 20 April 2015, http://www.cips.org/supply-management/news/2015/april/supplier-collaboration-key-to-business-success--survey/
ix It’s time to talk differently about procurement, Ernst & Young, http://www.ey.com/Publication/vwLUAssets/EY-It's_time_to_think_differently_about_procurement/$FILE/EY-5-BPO.pdf
x Alexander Forbes case study, Dimension Data, accessed July 2016, http://www.dimensiondata.com/Global/Downloadable%20Documents/Alexander%20Forbes%20Case%20Study.pdf
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