Searching for global trading partners
Elsevier Food International Vol.9, Number 1, February 2006 Fiona McTavish
As suppliers enhance their global account management strategies and develop their relationships with global customers, they become more positive about global account management.
This is a conclusion drawn from primary research IGD conducted in 2005, including exclusive interviews with senior management of leading international retailers and suppliers and two industry-wide surveys.
Between 2003 and 2005 there has been a significant shift in suppliers’ attitudes. Today 72 per cent of suppliers are feeling positive towards global trading relationships, compared to 21 per cent in 2003 and 54 per cent in 2004. A very significant shift is that the majority of suppliers (37 per cent) said to be actively approaching customers to establish global trading relationships. In 2003 only seven per cent felt this way.
The ‘IGD Transition Curve’ (figure 1) shows the stages of development a supplier needs to go through whilst establishing a global account management strategy. Our survey shows that suppliers are evenly split across the five stages and 70 per cent has moved past stage two, ‘fighting against resistance’. Suppliers should decide where they ultimately want to sit on the transition curve, as it is not necessarily desirable or possible for every supplier to move to stage five.
Pitfalls
The majority of respondents believe that global relationships are part of their success strategy. This attitude is characteristic of companies in stage three or four of the transition curve. Global trading relationships will evolve as retailers and suppliers decide how to develop their strategies. Clearly a greater polarisation of retailers and suppliers engaged in global account management will happen, as some will seek to move to stage five while other suppliers will decide that it is not the right strategy for them.
Suppliers will continue to learn from earlier mistakes and benefit from best practice transfer within the FMCG industry. As a result, many are refining their global account management strategy which enables them to create mutually beneficial global relationships and make effective use of internal resources.
Assessing the benefits gained, the majority of respondents refer to soft benefits like ‘building a better relationship with the customers’, ‘joint business planning’, ‘best practice transfer’, ‘efficient negotiation’, and ‘data sharing’. Over a third is gaining tangible financial benefits from their global trading relationships. ‘Softer’ benefits form the foundations for achieving financial targets, so benefits of global account management will develop over time and positively affect the bottom line.
Furthermore, as price competition intensifies, which is especially the case in European markets, there will be an increasing focus on negotiating trading terms as part of a global relationship. Illustrative is the significant increase in the number of respondents who now have regional/global pricing included in their global trading relationships. This has increased from 13 per cent in 2004 to 41 per cent in 2005.
Global suppliers conduct effective and ongoing customer segmentation as a key part of their global account management strategy. In order to evaluate their global supplier management capability, suppliers assess factors like the centralised capability, scale and global reach of the leading international retailers.
Figure 2 maps the leading international retailers engaged in global relationships against these factors onto a matrix. The size of the bubble represents the retailers’ scale (turnover).
This matrix shows which global retailers have the capacity to develop beneficial global trading relationships and which retailers will make stronger local or regional partners. Only those with a strong global presence and central capability will suit a centrally coordinated global account management strategy.
Polarisation
There is an increasing polarisation of retailers engaged in global trading relationships. Retailers such as Carrefour, Tesco and Wal-Mart continue to use their scale, global reach and centralised capability to develop their global trading relationships, whilst there has been a decline over the past year in the number of global relationships that suppliers have with Agenor/Alidis, Ahold and IRTS.
In deciding which retailers would make suitable global partners, it is useful for suppliers to understand how these relationships are rated by other suppliers. Table 1 shows the results of IGD’s survey, asking suppliers which of their global trading relationships were beneficial.
Overall, global trading relationships are becoming more satisfactory. Many of the most beneficial relationships are found with those ‘global’ retailers who have centralised operations. The key reason for this is that these retailers typically have a dedicated point of contact at a global level, which is capable of influencing country teams and ensuring that centrally agreed projects are executed locally.
The less satisfactory relationships tend to be with retailers who operate a decentralised structure. A decentralised operating structure can be challenging for retailers to communicate a global strategy to national management, and as a result, it becomes more difficult to influence local teams and execute agreed plans locally.
The retailer’s perspective
Retailers, on the other hand, also segment their suppliers and have differing approaches to dealing with their international suppliers who are engaged in a global trading relationship. The level of collaboration largely depends on a supplier’s international strategy and central capacity and the strength of the existing relationship. Typically retailers segment their global partners into three equal tiers.
First-tier global suppliers
This tier comprises of international branded suppliers who have not yet fully developed their global account management capability. Typically, these suppliers have recently formed an international agreement with the retailer which only includes the core elements of a global trading relationship, namely best practice transfer, resolving conflict, data sharing and training country teams. At this stage, the relationship does not tend to include supply chain objectives or collaborative strategic projects.
Second-tier global suppliers
These suppliers have developed a global account management capability and have a satisfactory relationship with the retailer based on a degree of collaboration. The global relationship includes the same basic elements as first-tier suppliers (i.e. best practice transfer, resolving conflict and training country teams), but also includes collaborative projects.
Third-tier global suppliers
These suppliers have the scale, centralised capability and resources to develop strong global partnerships and develop strategies with global retailers. Suppliers who are frequently quoted as being in this tier are P&G and Unilever. There are no more than 20 suppliers who are truly part of this segment and who receive the full benefits of global trading relationships. The global trading relationships with these suppliers include the full range of elements that are usually included in a global trading relationship, including supply chain objectives, engagement in global projects, best practice transfer, data sharing, resolving conflict and training country teams.
In many ways, the internal challenges that retailers experience when establishing a global supplier management strategy are similar to those faced initially by suppliers, namely:
• Balancing the decision-making power between global and local teams.
• Seeking to drive global efficiencies, whilst tailoring stores to meet local needs.
• Deciding how much resource to dedicate to the global supplier management strategy.
• Finding the right calibre of people to manage their global trading relationships.
In addition to these internal challenges, retailers also experience obstacles in developing a global relationship with a supplier. The external challenge most frequently mentioned is when suppliers fail to commit fully to global account management. Other external obstacles are conflicts between a supplier’s central and local teams, suppliers who do not fully understand the retailer’s trading strategy and best practices being poorly transferred by local teams.
Suppliers who are seeking to enter into global trading relationships with retailers must ensure that they have a comprehensive international strategy. On the other hand, retailers who do not have the capacity to develop a full global supplier management strategy should consider gaining the benefits of best practice transfer and collaborative projects regardless.
Suppliers need to ensure that there is a dialogue between global account directors and local teams to agree objectives and suitable measurements, before developing a joint business plan with a retailer. It is also important that retailers implement the right structures with effective internal lines of communication and clear accountability. These responsibilities should be clearly communicated to suppliers' central and local teams.
Suppliers must recognise the benefits that retailers are seeking to exploit from their global trading relationships. They should prepare a response to retailers' requests for regional pricing as securing favourable trading terms is regarded as a key benefit of global trading relationships by retailers.
Common pitfalls of global account management
1. Managing too many accounts on a global level.
2. Entering into global relationships with the wrong customers.
3. Ineffective management of global customers.
4. Choosing the wrong global account director (e.g. a person not senior enough within the organisation).
5. Failure to gain senior level support.
6. Failure to gain support at a local level.
7. Lack of clear measurable targets to measure progress.
8. Implementing the wrong management structure.
9. Poor information systems.
10. Not understanding the strategic direction of the customer.
11. Entering into global account management due to peer pressure.
This article is based on the report 'Global Trading Relationships' which was published by IGD in October 2005. For more information, click www.igd.com or call +44 (0)1923 857141.
Fiona McTavish is senior business analyst in IGD's international research team.
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