For Retail Supplier Relationships, Less Is Sometimes More

Maintaining existing supplier relationships has become a crucial component of surviving and thriving during the current market disruption for many corporate buyers. It’s a challenge for many firms, however — particularly those whose source-to-pay processes remain manual and paper-based, as remote working requirements force a sudden digitization effort into the mix.

The retail space has felt this digital transformation pain more acutely than other markets, according to Eric Linxwiler, senior vice president of supplier sourcing firm CBX Software.

In a recent interview with PYMNTS, Linxwiler explained that large retailers are among the slowest to modernize, and have historically been reluctant to change the status quo — including with regard to how they source and manage their supplier base.

“Particularly large, tier 1 retailers are highly risk-averse, and slow to change,” he said. “It is difficult to get them to re-engineer highly ingrained business processes — even considering the words ‘digital transformation journey’ scares them to death.”

Like so many other industries, however, the retail space can no longer maintain its old ways. According to Linxwiler, the sudden need to digitize will present an opportunity for industry leaders to optimize their supply chains well after the coronavirus disruption settles.

Moving Buyer-Supplier Relationships Online

One of the most challenging aspects of moving the buyer-supplier relationship online for the retail industry is the need for retail buyers to not just pick products from a supplier, but to actually collaborate with their vendor partners.

Evolving consumer demands mean retailers must curate unique and often exclusive product lines, requiring corporate buyers to find vendors that are willing to customize what they manufacture and sell, and to negotiate exclusive agreements.

Linxwiler noted that this relationship has traditionally been cultivated through in-person trade shows and showrooms, or via emailed conversations and Excel spreadsheets.

“Buyers have to go to trade fairs around the world, go to their sourcing offices throughout Asia, physically touch the product and visit with the suppliers,” he said. “That’s the way business used to be done. Today? Can’t do that.”

Remote working requirements and the inability to travel means retailers are seeking technologies that can support this collaborative requirement. CBX Software recently positioned its TradeBeyond app as a strategic tool focused on the user experience to enable even the least digital-savvy corporate buyers to source and engage collaboratively with vendors, both existing and new.

Trimming The Supply Chain Fat

For some retailers, plummeting sales volumes mean delayed payments and canceled vendor orders, threatening their existing relationships. While it may seem detrimental, Linxwiler said this is actually a massive opportunity for these companies to buck the status quo of relying on the same overloaded pool of vendors, and instead shrink and optimize their supply chains.

“Most retailers will tell you they have too many suppliers already, so they’re rationing their supplier networks,” he said.

Linxwiler pointed to one hardware retailer that has buying communities all around the globe, some of which are procuring the same product from the same vendor at different prices.

“There’s so much disconnect and disjointedness within the retail buying communities and their supplier networks, that they often got top-heavy,” he added.

Once retailers have pinpointed their most valuable suppliers, corporates then have the opportunity to consider whether their existing relationships are truly optimal, or whether it may be time to try a new business partner on for size.

In a normal environment, this would rarely occur: Linxwiler explained that as retailers tend to maintain the status quo of their supplier sourcing and management processes, they rarely work with new vendors. The ability for a digital platform like TradeBeyond to pre-vet vendors is critical, particularly as retailers are finding that working with unfamiliar partners may be key to keeping the shelves stocked.

The New Normal

While these times are challenging for everyone, retailers do have an opportunity to find optimism. The current disruption is, in a way, forcing retailers to embrace digital transformation for the sake of engaging with suppliers online and optimizing supply chains to cut costs and promote efficiency.

In some ways, today’s volatility will give way to a return to normalcy. The manufacturers and vendors that have shifted their business models to meet consumer panic-buying demands will eventually return to their traditional models, while the retailers that were sourcing from new vendors to keep high-demand products on shelves will likely end those relationships once the demand ceases.

But, as Linxwiler pointed out, there will likely be a new normal long after the pandemic. As retailers gear up for the holiday season and next spring’s product lines, they’re finding that the digitization they were forced into may actually be a better alternative to the old status quo.

“We may never go back 100 percent to the way we used to do business, because we’re finding new ways to save money, cut margins and be more effective without all the overhead,” he noted. “Retailers are risk-averse and slow to move, but the paradigm is shifting.”