Counterproductive Behaviors from Suppliers

The latest publication of Bicycle Retailer And Industry News--BRAIN, 1 November 2008, has a letter to the editor in response to a letter to the editor from the 1 October BRAIN.

The first letter was written by Claudia Nix of Liberty Bicycles--a retailer with which Seven Cycles has worked for many years.  They are one of our favorite retailers, without question.  The follow-up letter was from Mark Paggioli of Jenetti Sports.  Seven doesn't work with Jenetti and I don't know Mark.  However, Paggioli mentions Toyota in his letter--so of course, I had to write about it.

Both letters voice frustration with the direction of the industry, specifically some supplier behaviors that are not helping retailers be successful.  There were two key points I took away from both letters:

1.  Focus on the customer--the bike store and the bike rider

Paggioli uses the phrase, "listening to the voice of the customer."  I hear a lot of lip service about this but not so much actual listening.

Claudia Nix brings it up in a slightly different way by asking, "Aren't we losing sight of why we are in business?"  And she closes her letter by reminding us to ask ourselves, "who are we here to serve?"  Great questions that remind us that, of course the business exists to serve the customer.  And, of course, we are human so we sometimes forget why we are in business.  Thanks, Claudia for reminding me.

2.  Supplier production processes are outdated

Nix wrote about:

• Early product introductions--and the havoc the causes the retailer, and the confusion it can cause for the customer.
• Outsourcing--and therefore a lack of efficiency and control of the supply chain.
• Shipping lead-times and, indirectly stock outs--and the stress, wasted time, and confusion this causes.

Paggioli mentions specifically:

• Product shortages
• Long lead-times

Paggioli also mentions Lean Thinking by James Womack.  In one chapter of the book--as I've mentioned before, Womack uses 'a bicycle company' as an example of lean thinking.  Paggioli mentions it in the context of how the bike industry is dysfunctional.

Paggioli sums up the behavioral issues of suppliers by expressing his understanding of the most fundamental meaning of the Toyota Production System:  providing "the right product to sell at the right time."

Interestingly, the first point is customer-centric; the second point is supplier-centric.  Both concerns bookend the retailer--the supplier on one side and the customer on the other.

In addition, the supplier is not only responsible for the supplier-centric problem--of course--but the supplier is also, in large part, responsible for the customer-centric problem:  the retailer cannot best serve the customer if the supplier behaves like a classic supplier.

In order to break out of this ongoing, seasonally reinforced situation, I posit the following:

Suppliers

• Provide what the customer wants, when the customer wants.  Not in some esoteric way; in real, clear, meaningful, direct ways.  It's simple, just not easy.  Seven's approach was to take this to it's logical conclusion:  100% custom bikes, built to order.  Maybe we went a bit too far.
  
• Stop having your retailers act as your warehouse.  Large volume pre-season orders are primarily a way for suppliers to move their inventory into a retailer's warehouse.  This does not serve the customer in any way.  Seven was the first brand of which I'm aware that did not have pre-season order requirements.
• Serve the retailer.  Just provide the services and products the retailer request, in the quantity requested.
• Stop early product introductions.  Release products when it benefits the retailer.  Not just when it benefits the supplier--typically to boost flagging sales.  Instead, introduce products when it makes sense for the customer.  A recent example for Seven is our commuter bike line.  riders and retailers requested, and we introduced, immediately.  We didn't require retailers to take 50 commuter bikes.
• Stop promoting products that are not available.  Suppliers do this to create demand for their brand but this doesn't help the retailer, or the rider.  Instead, promote products that are available and customers want.
• Supply product just-in-time.  This is the opposite of pre-season order requirements.  It also requires a commitment to having no stock outs.  Again, we developed Seven's business model to accommodate just about any just-in-time request from any customer or retailer.

Retailers

• Stop buying into pre-season orders.  Instead, work with suppliers that have no pre-season requirements.  Every year, I hear from some retailers, "Never again.  I'm never going to get suckered into a big pre-season because it cripples my business and puts me under the thumb of the supplier."  Again, the only reason pre-seasons exist is to clog the retailer's store with bikes so that other bike suppliers cannot play in the store.
• Stop chasing initial margin at the sacrifice of sustained margin.  Whatever the margin the retailer sees on the pre-season order form--the initial margin--is essentially meaningless.  By taking pre-season and making in season commitments, nearly any retailer will end up discounting some bikes--often times, a lot of bikes.  This is the sustained margin; and it is a lot lower than the initial margin. 
• Stop taking "one more margin point" in trade for more inventory.  It is not worth it.  No improvement in margin is going to offset the additional inventory burden.  Run some GMROI calculations to prove it.  I'll post on GMROI shortly--oh boy.
• Stop taking inventory.  This is a variant on pre-season ordering.  Inventory, in high end bikes, does not help you unless the supplier is not able to provide you just in time delivery.  So, work with suppliers that hold inventory for you, rather than the other way around.

Oh, yeah, the customer--the rider

• Stop buying on impulse.  I know it's difficult.  Place an order and hang in there for a week; it'll be worth it.
• Don't settle.  Immediate gratification is a form settling.  Get what you want, not what's right in front of you.

In the Toyota view of the world--and as Paggioli reflects, simply supply the exact product and service the customer wants, precisely when the customer wants it.

Let's go do it.

Comments

[Scott]

I agree that many suppliers put too much pressure on the retailer to make large financial commitments by stocking excessive inventory. However, something that needs to be considered before a retailer can stop stocking an inventory of bikes is the need for customers to "kick tires" before buying. The average consumer is going to want/need to see, touch, and experience before making a purchase and if the retailer doesn't have some examples for the customer, it will make the sale much harder.

[Yoshi]

When I went back to Japan to obtain a visa stamp, I read a few books about TOYOTA WAY because I knew Seven's business is based on Toyota way and I wanted to understand more about Seven. So Now Toyota way is not so new idea(That means it is known very well.) but I was surprised that the books were first published in 1978 and the idea has still been infuluencing peapole. I acttually can understand Toyota way is a reasonable way to produce products (Start from needs,just in time,seven waste, five times "WHY", the right product to sell at the right time...). And I also satisfied that the big difference between TOYOTA and FORD was the opposite way and idea.