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FEATURES OF FORMATION PARTNERSHIP IN SYSTEM "THE MANUFACTURER (SUPPLIER) – RETAIL"

Автор Доклада: 
N. Parhaeva

 

 

FEATURES OF FORMATION PARTNERSHIP IN SYSTEM

"THE MANUFACTURER (SUPPLIER) – RETAIL"

 

N. Parhaeva, Doctor of Sciences

Donetsk National University of Economics and Trade after M. Tugan-Baranovsky

 

The article is devoted to the theoretical and methodological approaches to determination of organization of mutually advantageous cooperation with manufacturers and suppliers of the goods.Recommendation concerning definition of practice of contracting, the management of category andlogistical management are given. The primary goal of maintenance optimum goods moving is creation of mutually advantageous and long-term partner relations of manufacturers (suppliers) with retail trade enterprises on principles of mutually advantageous partnership in view of specificity of their activity and on the basis of use of modern toolkit of marketing and logistics, and also integration of all processes into the general information system.

Key words: manufacturers (suppliers), retail, cooperation, goods moving, contracting, logistics.

 

The analysis of retail sector FMCG of Ukraine shows, that for today there is a rapid development of trading networks of all formats, there is a process of deeper segmentation of the market, and the shops, differing by specificity of organization of service, are guided by various buyers, both on preferences, and on solvency. According to a sort of activity in all objects of trade daily there is a necessity to resupply the goods in a trading hall, and the general tendency is that the modern consumer prefers to get all the necessary goods of different groups in one shop, instead of to choosing them separately in firm shops of manufacturers or specialized objects of trade. Besides the majority of experts mark the decrease of a relative share and popularity of spontaneous forms of trade because of increase of the general culture of consumption in Ukraine in this connection, the Ukrainian consumer prefers supermarkets with various assortment of the commodity offer and a high degree of quality of service – in this aspect Ukraine does not lag behind world tendencies.

Thus, a important aspect of functioning of the modern retail enterprises is formation of assortment of the goods completely satisfying target segments of consumers, and it is provided by the organization of mutually advantageous cooperation with manufacturers and suppliers of the goods. At the same time, process of purchase of the goods and its promotion from a place of manufacture to a trade enterprise – is rather difficult, and there is a set of nuances which should be considered by both parties in relations between the supplier and the buyer. Therefore at the present stage of development of trade revealing of the basic contradictions between the supplier and retail, and also the finding of ways of their sanction is an actual problem.

In a world practice of formation of good managing systems two models of interaction of retail trade enterprises with manufacturers and suppliers are known:

  • the supplier of the goods is the partner on production, in this case, as a rule if the partner is chosen, he is usually the only object of cooperation, and searching for a new supplier can be possible only in  emergency situation;
  • a constant competition between suppliers, in this case trade enterprise has the right of a choice and cooperates only with those who is able to handle hard conditions of this competition.

As to the Ukrainian model of cooperation between manufacturers (suppliers) and retail which is formed at the given stage,  very often trading networks tend to purchases and partnership with those who can offer the required goods under the favorable price and is in addition, provide marketing support.

On the one hand, an amplifying competition between manufacturers (suppliers) and retail shops compels both parties to go on concessions in cooperation, however, on the other hand – during formation good managing systems and interaction of its participants there is a set of conflicts and the disputes connected with mismatch of the purposes and results of activity. For example, the essence of one of such contradictions is that if the purpose of the manufacturer (supplier) is realization of exclusively his own goods in shop and it is an aim of his marketing efforts, so the purpose of activity of the retail enterprise is the general commodity circulation which is provided with a variety of the commodity offer. Thus, it is important to sell as much goods as possible to each object of trade, providing activities of profitability and competitiveness of shop, therefore retail trading networks select some alternative variants of delivery for basic groups of the goods on the general conditions, and all potential suppliers should correspond to the main requirements on assortment, to quality of the goods and conditions of deliveries.

It is necessary to pay attention to that fact, that at present the largest retail operators prefer work on the same group of the goods with several manufacturers (suppliers). The reason consists not in desire to diversify an assortment offer in supermarkets of a network or to provide the insurance on a case of failure of delivery with one of suppliers. Actually, facing the default of conditions and terms of the payment, many manufacturers (suppliers) refuse to deliver the next party of production, and in such situation the retail operator usually orders the similar goods in other supplier at whom the limit of the commodity credit is not settled yet.

Domination of retail trade enterprise in a choice of the partner during delivery is not characteristic only in case of attitudes with suppliers of world brands which absence will negatively affect the image and use of shop. Besides cooperation on conditions of the supplier arises in case of delivery of exclusive goods, demanded by clients who don’t have alternative manufacturers (suppliers). Needless to say, each trading network tries to exclude exclusive deliveries by one supplier and dependence on its conditions.

In opinion of the majority of operators of market FMCG, in conditions of prompt development of trading networks the Ukrainian manufacturers are in rather difficult position when no more manufacturers, but retail dictate rules of accommodation of production on shelves of the shops. The situation develops as follows: first, it is necessary to pay for every assortment position offered by the manufacturer. The sum for input of production in a trading network can be expressed in the guaranteed payment on a trade-marketing actions in this network, usually it comes nearer to 2 % from a circulation of production, however can be expressed and in onetime payment for input of each position – from $40 up to 1 thousand euro. For example, at input of assortment in the Ukrainian trading networks there are following payments: «Billa» – $200 euros a position, «Silpo» – $200. A position besides there is a necessary payment for a trading place and participation in promo-actions.

Secondly, when the manufacturer enters a network, bonuses to supermarkets which size reaches 25 % from the cost price of production are paid. For example, for one input in retail networks the following prices are stipulated: «Amstor» – the quantity of positions increased on $8, «Pyatyorochka» – $100 for shop, «Metro» – $1920, «Silpo» – up to $2000, «Tavriya» – $1400, «Virtus» – $1200, «PIK»– $5000. Besides it is necessary to buy each shelf in shop of a format cash & carry on which the goods will be presented, and production is paid under the following scheme: the shop accepts the goods, deferring payment on one-two month, or works «from delivery to delivery» (receives production, and makes payment when the following party comes). There are also other forms of payment, for example, the manufacturer gives the discount for the first party or spends large-scale marketing support of production. As a result, manufacturers to accept conditions of supermarkets, lift cost of production at least on 20 % that affects its final price.

The important moment of cooperation of a retail trading network with the manufacturer is its marketing activity. At an initial stage of formation of conditions of delivery the majority of large retail operators require the commercial offer including, besides product samples, price-lists and the prices for the similar goods in other supermarkets, also schedules of carrying out of promo-actions, the offer of discounts, accommodation of promotional materials in mass-media, etc.

After consideration of the offer the retail operator defines conformity of conditions of the manufacturer (supplier) to requirements of trade enterprise and makes a decision on expediency of cooperation. Requirements to suppliers from retail trade enterprises can be divided into the general, characteristic for retail business as a whole, and specific (individual) – requirements of separate operators of the market. The general requirements are formed on the basis of principles of a guarantee of stability of deliveries of the goods providing fast commodity circulation of a retail network, on the minimal procurement prices. Among specific requirements of some networks it is possible to allocate preference to work with manufacturers directly, in other words, refusal of deliveries of the goods by distributors which offer production with own margin, individual requirements to the form of acceptance of applications of trade enterprise, procedure of change of procurement prices of production.

Trading enterprises with significant commodity circulation, tracing inquiries of their own buyers, form assortment of the goods and the price policy on their counters in accordance to their own plans of commodity circulation and profitableness. The goods delivered in hi-tech networks should answer a number of criteria, allowing to reduce technological costs (for example, type of packing, the size of container of delivery, existence of the additional information, etc.). Offering delivery of the goods in own network and considering huge commodity circulation of the supplier through the shops, retail count on delivery of the high-quality goods to conditions put forward by them. A part of these conditions is the commodity credit which is made for the long period. Besides, the main rule of pricing in conditions of the competitive market consists that the goods costs as much as the clients are ready to pay for it.

In a modern practice of the Ukrainian trade enterprises some mechanisms or levels of the admission of suppliers in a retail network operate:

  • thefull admission– the retail operator completely delegates the full admission to the manufacturer (supplier) of function on formation of assortment and definition of a commodity stock in one of the basic categories, and also carries out its recommendations in the field of pricing and merchandising;
  • the limited admission – the retail operator gives the supplier management of minor categories (not grocery) which management for him is burdensome, thus the supplier receives the rights to formation of assortment inside of a category and the organization of the calculation;
  • the admission at a level of consultations (the most widespread variant of cooperation of the supplier and a trading network) – recommendations thus not necessarily are accepted by the retail operator as the guide to action, only procedure of the calculation of the goods is fixed for the supplier;
  • the right of constant presence of own merchandiser near a store shelf, but the retail enterprises, as a rule, do not welcome it, except for technically complex commodity categories where consultations at sale of the goods are necessary; the standard rights of the supplier: the right to the certain area on shelves (is often fixed in the contract), the duly calculation, correction of a commodity stock and carrying out promo-actions in a trading hall.

Besides during the various moments of time the separate retail companies face difficulties with warehouse, transport or in connection with absence of the personnel for the calculation and promotion of the goods. If the supplier can help trade enterprise to solve problems, he gets an opportunity to receive the better conditions for delivery of the goods, and, hence, to achieve mutually advantageous work with the given retail operator.

In large trading companies which form the general assortment a policy at the central office, conditions of deliveries of the goods in a network is the open information. In case when shops are incorporated only by the general trading brand and a marketing policy, each of them independently solves questions with suppliers of a significant part of commodity groups. If such scheme takes place, it is easier for the supplier to agree with the retail operator so that his conditions have been considered, however the given procedure is necessary for each shop.

Before offering any goods or assortment, the manufacturer (supplier) should pay attention to studying of following questions:

  • how does offered assortment of the goods corresponds to positioning of the given format of trade as a whole;
  • it is required to trade enterprise to involve additional material, technical or human resources for realization of the given assortment.

During an estimation of the price of the goods it is necessary to consider all complex of offers, in particular the minimal party, conditions of delivery, return of delayed and defective production, advertising support and actions, observance of terms of payment. For an opportunity to have stable planned selling the supplier is often ready to reduce the price or provide additional services.

Suppliers of various groups of the goods aspire to present the goods on shelves of trading object in the maximal volume. Therefore during the conclusion of the contract between the supplier and the retail operator all assortment, which should be located in shop stipulates. The shop is obliged to expose the specified goods in full, no matter how much it is liquid.

The great value for the supplier is on what shelves its goods (a shelf at a level of eyes, the top or bottom shelf) will be located. In the contract can be fixed, how many units of this or that production should be exposed on the certain shelf in the certain place. For recommendations concerning the effective calculation and maintenance of assortment, the supplier should have data on sales of all commodity categories that is on production of competitors, and trading networks are obliged to give this information to the partners.

For the supplier to keep production on the best shelves in a shop it is necessary:

  • first, precisely to satisfy the condition of contracts of delivery, completely and in time (the retail companies conduct statistics of faults of the goods in shops and in own interests support those suppliers who completely carry out treaty obligations), in this case the supplier receives the best place in a trading hall and offers on expansion of assortment on exclusive conditions;
  • second, to optimize business-processes on maintenance of sufficient commodity stocks in a warehouse, rigidly supervising quality of the goods; trouble-free work of a transport department – also a necessary condition;
  • third, the organization of selection and motivation of the qualified, competent and polite staff that is competitive advantage as all efforts of the company-supplier can sometimes be negatively affected by roughness of the employee.
  • fourth, to conduct scheduled work with employees in shops as in 90 % of cases volumes and quality of orders on production of this or that supplier depend on workers of shops.

The analysis of various variants of entering a retail trading network allows the manufacturer (supplier) to estimate own opportunities and expediency of deliveries of production on the offered conditions at a planned sales volume. Often, having chosen the most demanded and profitable positions in the offer, the supplier wins in comparison with more scaled presence on shelves of shops. Besides, the manufacturer (supplier) should aspire to accelerate and simplify a circulation, to reduce stocks (to enter the rigid account of speed of realization) and to create the scheme подвоза, unloading and calculations of the goods directly in a hall, i.e. operating conditions should be defined by the precise account of sales within day and the advanced logistics.

The reason of refusal of the manufacturer from work with a retail trading network can be an excessive payment for the given company for input of production in a network, the greater delay of payment, absence of opportunities to pay marketing actions or in case of unwillingness of the manufacturer delivering fresh-production (fresh meat and fish, vegetables, fruit) to work with the small retail operator. Manufacturers can not enter into a network cause of the absence of finances for this purpose, and also refuse the further work if the given trade channel is not necessary to them or there is no necessary quantity of production. Among the problems rising during cooperation, it is also possible to name non-observance of treaty obligations on payment of production by retail operators and poor-quality and untimely document circulation.

Thus, not each manufacturer is ready to accept conditions which dictate trading networks, and the main reason of refusal of cooperation is non-recoupment of the prices for provision of production. In the givensituation some companies-manufacturers do not consider expedient to sell the goods in networks of supermarkets, and prefer independent shops and market dealers or go on a way of development of own firm shops. Besides many industrial companies consider cooperation with networks of supermarkets only as brand sales, accentuating on adjustment of partner relations with wholesale bases, small shops and the retail markets.

At the same time, it is also necessary to note, that in practice of formation good managing systems with distributions part, also arise problems as manufacturers start to buy up distributors, investing the development of their companies to provide maximal promotions of production. However at the certain stage the distributor becomes a monopolist and available to dictate conditions to the manufacturer, which it is not always possible to execute.

Thus, summing up, it is possible to allocate the basic moments of disagreements in mutual relations of the manufacturer (supplier) and retail trade enterprise:

  • assortment of the goods– the manufacturer (supplier) is interested, that retail worked with all package of the goods and in the maximal volume; to the retail operator such policy is not always favorable, as his interest are on the part of assortment positions using stable, great demand of the customer; besides part of the offered goods can already duplicate assortment of other supplier presented on sale with which had earlier contact with trade enterprise;
  • the price of production– retail forms the price policy in view of own plans of commodity circulation and profitableness, and from this point of view trade enterprises can dictate to the manufacturer the prices for the goods, offering manufacturers severe constraints of cooperation, by introduction of the overestimated quotations on an input into the network and accommodation of their production, the requirement of the low margin by delivery of the goods in a network and maintenance high cost marketing budgets;
  • terms of payment– the manufacturer (supplier) is interested in preliminary full payment of all goods put in a shop, in his turn, the retail operator prefers a delay of payment for some term;
  • delivery of the goods – for the manufacturer (supplier) important is presence of a convenient entrance to a shop, optimum conditions for discharging, reduction of an idle time of a vehicle during the organization of acceptance of the goods while the retail operator not always has an opportunity, to provide all these conditions, for example, shops in residential buildings are characterized by absence of the sufficient area for the organization of discharging;
  • the calculation of the goods– the manufacturer (supplier) is interested in accommodation of production on favorable shelves of shop, the retail operator, in his turn, will organize the calculation according to his own interests;
  • performance of treaty obligations– one of the serious and proved reasons of breaking of mutual cooperation from the part of retail operator can  be an occurrence of scandalous situations around of the manufacturer (supplier), for example, the facts of delivery of poor-quality production, infringement of terms of delivery, refusal of obligations in the context of marketing programs, etc.  
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