Executive Briefings

Carrot or Stick? Beating Up on Your Suppliers Doesn't Yield Good Results

Suppliers of consumer goods have long complained of the draconian policies of many major retailers, when it comes to complying with shipping instructions. Now comes a report suggesting that the punitive approach doesn't even work. In a survey of 100 top retailer and consumer goods companies by the Supply Chain Consortium (SCC), 67 percent of respondents said they imposed financial penalties on shippers-with 90 percent of those having done so within the last 12 months-and 55 percent cut back on orders with suppliers due to poor performance. Yet 58 percent of the same companies rated their compliance programs as "ineffective or only marginally effective," SCC says. "It is clear from the survey results that there is a need for sound supplier relationships based on joint expectations," says Bruce Tompkins, principal of Tompkins Associates and author of the Supplier Collaboration Report. "Today, companies want collaborative tools for communication and real-time information sharing for a more seamless supply chain." So what's the alternative? Some survey respondents said they establish expectations from the beginning with a service level agreement, or less-formal written guidelines, depending on their history with a given supplier. But, instead of focusing on punishment for transgressions, these companies emphasize collaborative initiatives aimed at improving performance and sharing information. That approach is helping to cut order lead times and facilitate the flow of inventory and forecast data, SCC says. In addition, the partners agree from the start on formal performance metrics, shown in scorecards, which help to boost the speed and accuracy of orders. Incentives for compliance can also be used to balance out the penalties for failure. Of the companies surveyed, 61 percent meet with suppliers on a monthly basis to discuss performance, and 29 percent meet quarterly. Still, there's work to be done, even among the survey participants. Two-thirds lacked a formal improvement-suggestion program with suppliers, and 76 percent did not receive feedback from suppliers on the effectiveness of their internal processes, SCC said.

Visit www.supplychainconsortium.com.

Suppliers of consumer goods have long complained of the draconian policies of many major retailers, when it comes to complying with shipping instructions. Now comes a report suggesting that the punitive approach doesn't even work. In a survey of 100 top retailer and consumer goods companies by the Supply Chain Consortium (SCC), 67 percent of respondents said they imposed financial penalties on shippers-with 90 percent of those having done so within the last 12 months-and 55 percent cut back on orders with suppliers due to poor performance. Yet 58 percent of the same companies rated their compliance programs as "ineffective or only marginally effective," SCC says. "It is clear from the survey results that there is a need for sound supplier relationships based on joint expectations," says Bruce Tompkins, principal of Tompkins Associates and author of the Supplier Collaboration Report. "Today, companies want collaborative tools for communication and real-time information sharing for a more seamless supply chain." So what's the alternative? Some survey respondents said they establish expectations from the beginning with a service level agreement, or less-formal written guidelines, depending on their history with a given supplier. But, instead of focusing on punishment for transgressions, these companies emphasize collaborative initiatives aimed at improving performance and sharing information. That approach is helping to cut order lead times and facilitate the flow of inventory and forecast data, SCC says. In addition, the partners agree from the start on formal performance metrics, shown in scorecards, which help to boost the speed and accuracy of orders. Incentives for compliance can also be used to balance out the penalties for failure. Of the companies surveyed, 61 percent meet with suppliers on a monthly basis to discuss performance, and 29 percent meet quarterly. Still, there's work to be done, even among the survey participants. Two-thirds lacked a formal improvement-suggestion program with suppliers, and 76 percent did not receive feedback from suppliers on the effectiveness of their internal processes, SCC said.

Visit www.supplychainconsortium.com.