In today’s competitive climate, the most successful organizations will be those that have a better structure, coordination, management and commitment to their partners, as well as a stronger understanding of their end clients. The key to the future is working together, rather than battling between vendor and client for a few margin points, to build network of alliances in which vendors pursue common goals.
In short, it’s about together winning the battle for the consumer. It’s time to adopt a different model of operation, leaving behind the traditional modes of competition and beginning to focus on collaboration.
The time when manufacturers and retail channels fought over a few margin points is past: today, they must work together to retain and conquer the final customer.
Today’s buyer does more research into the products and promotions of competitors through the mass communications media. Although price remains key, it is no longer the only decisive factor in the purchase.
The transformation is based on a new architecture for adapting to, satisfying and exceeding the expectations of the new consumer.
The “new normality” is that neither of the two segments-neither the modern channel nor the traditional channel-have come back to their pre crisis levels, explained Sergio Naylor, managing partner of the Products area at Accenture.
The new way of competing is to become more versatile in the way we work, swifter in making decisions and more focused on the interests of our customers.
The development of collaborative systems can improve operating margins by between 0.5 and 1 .5 percentage points.
Today’s business environment presents tremendous challenges. Throughout the world, there are economic pressures and changes in markets that companies must face in unorthodox ways. The European economic crisis and stagnation of traditionally strong economies have altered global patterns of consumption and created an opportunity for trade and development of profitable businesses in emerging countries.
In Mexico, economic prospects are encouraging. In recent years, the market has consolidated and grown alongside the emergence of a new consumer, with new needs, more purchasing power and access to more choices. This means that in the future, the flow of goods and services will be more intense, with the major players consolidating their strengths and others seeking out new ways of reaching the client, in an increasingly competitive and aggressive market. The individual capacities of any one company will not be enough; today, manufacturers and distribution channels must join forces to together pursue the client, and this means the development of collaborative systems.
The time when manufacturers and retail channels battled to win a few margin points is past: today, they must work together to retain and conquer the final customer, for their mutual benefit. With this in mind, Accenture prepared a study entitled Analysis of collaboration in Mexico, which is intended to serve as a tool for designing the actions necessary to develop this state-of-the-art system, whose end goal is stronger performance for all industry participants. The study, based on surveys of companies in this market (266 surveys of 107 companies, with a 95% confidence level), focus groups and personal interviews with company managers, was designed to answer the following questions:
What is the level of adoption and maturity of collaborative practices between manufacturers and retailers?
What are the benefits, both present and potential, of these practices?
What are the main areas of opportunities offered by the Mexican market under a collaborative approach between players?
What are the lessons learned on the way to successful collaboration?
Although Mexico’s current economic climate is promising (stable indicators like inflation and interest rates, prospects of sustained growth in coming years and reforms making their way through Congress), competition has grown stronger and with it, consumers are changing. From a business perspective, these changes create the need for new tools in order to compete efficiently.
Strong prospects for the country and the retail industry, which is currently the 12th largest in the world and is expected to reach USD428 billion by 2016 (total modern, traditional and electronic [SBQ] channels-source: Planet Retail) have sparked a explosion of the retail industry in terms of both formats and companies, and has led to fierce competition. As an example, we can look at sales of retailers associated with the Mexican National Association of Supermarkets and Department Stores (ANTAD), which are now growing even slower than they were before the 2009 crisis broke out. This trend affects not only the retailers themselves, but their vendors as well.
This competition is not limited to the modern channel, as it can also be seen in the traditional channel (what are called mom-and-pop stores). According to Accenture’s analysis, the value of the average ticket in these establishments has not come back to its pre-crisis levels. “The number of tickets or daily visits rose strongly between 2008 and 2009 for both these segments, although the increase in frequency in lower -income neighborhoods was more than double what was seen in upper-income areas,” explains Sergio Nailer, managing partner of the Products area at Accenture. “But perhaps the most emblematic feature of the ‘new normality’ is that neither of these two segments has been able to return to its pre-crisis pace of growth.”
We have also seen the transformation of Mexican consumers, fueled by various factors that have made them better informed, more demanding and with greater purchasing power:
Demographic change: there are more working age individuals per household, women are more active in the job market, and there are fewer people on average per household, meaning higher average income per household.
Increasing consumer credit: Personal credit is growing at a rate of 23% (while business loans are rising by only 12% year), meaning they have more resources available to purchase goods and services.
Access to new communication media, which means a better informed consumer.
Consumers now consider a number of attributes, not just price, and respond with varying behavior depending on the product category.
This climate forces companies to develop new forms of interaction with the consumer, to become more versatile in the way they work, swifter in making decisions and more focused on the interests of our customers. They urgently need to adopt a different model of operation and leave behind the old ways and begin assuming a focus on collaboration.
Collaboration: response to the new climate
We are entering an age dominated by a competitive network in which the most successful organizations will be those that have a better structure, coordination, management and commitment to their partners, as well as a stronger understanding of their end clients. The key to the future is working together, rather than battling between vendor and client for a few margin points, to build network of alliances in which vendors pursue common goals. In short, it’s about together winning the battle for the consumer.
The transformation is based on a new architecture for adapting to, satisfying and exceeding the expectations of the new consumer. The essential characteristics are: delivering the right product, to the right client, at the right time, under the right conditions and at the right price.
The collaborative focus should be considered a mutually beneficial relationship that enables both parties to obtain a greater return on their operations by focusing their efforts on the consumer.
The true integration of the supply chain requires not only an internal realignment of process management. It also requires that these processes be aligned with those of suppliers and associates.
We can understand collaboration as all processes that are shared between commercial partners that affect customer service. The fundamental elements of this collaboration are teamwork, common goals and a win-win focus. All of these support results.
The factors of collaboration are grouped into the following axes:
Collaborative DNA: the culture or willingness of the company to work collaboratively.
Value directives: methods that guide daily activities to generate the expected value from the collaboration.
Facilitators: methodological or technical elements that enable and optimize the value directives.
Tools: Systems elements or applications for collaborative activities.
Analysis: reports or models that enable us to understand the status of activities and make decisions.
Accenture’s collaborative frame of reference
As collaborative initiatives are introduced around the world, Accenture has established a framework of reference for collaboration between suppliers and their clients, as shown in the following diagram:
In this schematic representation of collaboration, we can chart a company’s strategic decisions to introduce collaborative practices and include them in its organizational culture.
We can see that the model is made up of five axes, each of which entails a set of practices and concrete elements of collaboration between companies. The elements of collaboration are ranked on three levels or states of development: Basic, Progressive and Emerging Leader. This dimension tells us about the practices and behavior of the organizations in their collaboration with clients and suppliers: where they have been, where they are and where they are headed.
In Mexico, the process of adopting and implementing collaborative practice is in a phase of consolidation. The following chart shows the results obtained from the study into the general level of adoption of each of the models elements, according to a color code.
This analysis shows that manufacturers are further along in the adoption of collaborative practices than retailers, except for facilitators. In general, the strongest differences are found on the axis of value directives and analysis, as well as some elements of the tools axis (ERP-ERP Integration).
The level of culture or willingness to work collaboratively is similar between the two sectors, but there are differences in the elements that enable this collaboration.
All of the companies surveyed considered collaboration to be important, but the overall level of adoption or use of collaborative practice is 59%.
Las directrices de valor, como las hemos definido, son los métodos y metodologías que determinan las acciones que hay que realizar (es decir, determinan los procesos y la forma en que se opera) y que habilitan a las compañías para alcanzar resultados que repercuten en las variables de negocio. La gráfica anterior muestra que es precisamente este eje el que presenta el menor nivel de adopción. No contar con un método definido limita la capacidad de ejecución, ya que no se han establecido acciones concretas para sustentar el trabajo diario ni, por tanto, los beneficios de negocio.
The study also shows that companies do not fully understand what collaboration means, because only some of those surveyed integrate the essential concepts: teamwork, common goals, and a win-win focus.
Knowledge is another factor that empowers or limits the adoption of collaborative practice. The study revealed a high correlation between knowledge and adoption, and higher in the case of value directives, meaning companies require a deeper knowledge to adopt these directives then to adopt a tool or facilitator.
Challenges and development plan
Charting a collaborative system is more than establishing formal channels for sharing information or joint planning. It requires clear and specific goals about expected results, and pointing out processes focused on teamwork and the resources needed to start up the system, to the benefits of all the business partners.
Additionally, once the collaborative processes and practices are in place, internal conditions in the workplace must encourage personnel who are key to the development of collaboration to devote time to the various practices.
The goals should be the meeting point between the mutual interests of the players, so that companies can deal with the many clients and suppliers that make up the market. For example, in any one channel there are product categories that have various players, both on the manufacturing side and on the retail side. When the parties understand their function in relation to their counterparts, they can then establish collaborative systems and common efforts.
During the study, Accenture found that some companies integrate their clients’ business indicators into the indicators they use to evaluate their employees. The interviews revealed that this practice generates new paradigms that transform behavior, culture, and therefore results.
Collaboration will be one of the key issues in coming years and will spread increasingly throughout companies’ ecosystems. One of the main challenges to this process will be devising fair and balanced systems that can preserve the capacity for competition and the differentiation of the value offerings from each company.
Estimated benefits
According to the level of adoption observed in Mexico, we estimate that the improvement in the use and level of adoption of a solid, comprehensive collaborative practice can generate benefits equivalent to 48 billion pesos (estimated for the modern channel alone), which would represent an improvement of between 0.5 and 1.5 percentage points in the operating margins of retailers and manufacturers.
This opportunity not only benefits companies’ P&L statements, but also increases customer satisfaction, because it gives them more products, more quickly and at a lower price.
In conclusion, the adoption of a comprehensive collaborative model (with all the elements on all the axes) can create significant advantages:
Better conditions for understanding customer needs
Better coordination to satisfy these needs
Impact on key business variables: Sales and profitability
Companies must evaluate their current status, identify opportunities for collaboration, prioritize them and make the necessary adjustments, combining a focus on the short term (execution) and long term (sustainability) in order to optimize their performance.
Finally, collaboration will become a prerequisite but at the same time a competitive advantage. The invitation is out: Let’s collaborate!?
Analysis of Collaboration in Mexico. The Collaborative System: Key to Growth of our Industry
Accenture
In today’s competitive climate, the most successful organizations will be those that have a better structure, coordination, management and commitment to their partners, as well as a stronger understanding of their end clients. The key to the future is working together, rather than battling between vendor and client for a few margin points, to build network of alliances in which vendors pursue common goals.
In short, it’s about together winning the battle for the consumer. It’s time to adopt a different model of operation, leaving behind the traditional modes of competition and beginning to focus on collaboration.
Today’s business environment presents tremendous challenges. Throughout the world, there are economic pressures and changes in markets that companies must face in unorthodox ways. The European economic crisis and stagnation of traditionally strong economies have altered global patterns of consumption and created an opportunity for trade and development of profitable businesses in emerging countries.
In Mexico, economic prospects are encouraging. In recent years, the market has consolidated and grown alongside the emergence of a new consumer, with new needs, more purchasing power and access to more choices. This means that in the future, the flow of goods and services will be more intense, with the major players consolidating their strengths and others seeking out new ways of reaching the client, in an increasingly competitive and aggressive market. The individual capacities of any one company will not be enough; today, manufacturers and distribution channels must join forces to together pursue the client, and this means the development of collaborative systems.
The time when manufacturers and retail channels battled to win a few margin points is past: today, they must work together to retain and conquer the final customer, for their mutual benefit. With this in mind, Accenture prepared a study entitled Analysis of collaboration in Mexico, which is intended to serve as a tool for designing the actions necessary to develop this state-of-the-art system, whose end goal is stronger performance for all industry participants. The study, based on surveys of companies in this market (266 surveys of 107 companies, with a 95% confidence level), focus groups and personal interviews with company managers, was designed to answer the following questions:
Increasing competition requires creative solutions
Although Mexico’s current economic climate is promising (stable indicators like inflation and interest rates, prospects of sustained growth in coming years and reforms making their way through Congress), competition has grown stronger and with it, consumers are changing. From a business perspective, these changes create the need for new tools in order to compete efficiently.
Strong prospects for the country and the retail industry, which is currently the 12th largest in the world and is expected to reach USD428 billion by 2016 (total modern, traditional and electronic [SBQ] channels-source: Planet Retail) have sparked a explosion of the retail industry in terms of both formats and companies, and has led to fierce competition. As an example, we can look at sales of retailers associated with the Mexican National Association of Supermarkets and Department Stores (ANTAD), which are now growing even slower than they were before the 2009 crisis broke out. This trend affects not only the retailers themselves, but their vendors as well.
This competition is not limited to the modern channel, as it can also be seen in the traditional channel (what are called mom-and-pop stores). According to Accenture’s analysis, the value of the average ticket in these establishments has not come back to its pre-crisis levels. “The number of tickets or daily visits rose strongly between 2008 and 2009 for both these segments, although the increase in frequency in lower -income neighborhoods was more than double what was seen in upper-income areas,” explains Sergio Nailer, managing partner of the Products area at Accenture. “But perhaps the most emblematic feature of the ‘new normality’ is that neither of these two segments has been able to return to its pre-crisis pace of growth.”
We have also seen the transformation of Mexican consumers, fueled by various factors that have made them better informed, more demanding and with greater purchasing power:
This climate forces companies to develop new forms of interaction with the consumer, to become more versatile in the way they work, swifter in making decisions and more focused on the interests of our customers. They urgently need to adopt a different model of operation and leave behind the old ways and begin assuming a focus on collaboration.
Collaboration: response to the new climate
We are entering an age dominated by a competitive network in which the most successful organizations will be those that have a better structure, coordination, management and commitment to their partners, as well as a stronger understanding of their end clients. The key to the future is working together, rather than battling between vendor and client for a few margin points, to build network of alliances in which vendors pursue common goals. In short, it’s about together winning the battle for the consumer.
The transformation is based on a new architecture for adapting to, satisfying and exceeding the expectations of the new consumer. The essential characteristics are: delivering the right product, to the right client, at the right time, under the right conditions and at the right price.
The collaborative focus should be considered a mutually beneficial relationship that enables both parties to obtain a greater return on their operations by focusing their efforts on the consumer.
The true integration of the supply chain requires not only an internal realignment of process management. It also requires that these processes be aligned with those of suppliers and associates.
We can understand collaboration as all processes that are shared between commercial partners that affect customer service. The fundamental elements of this collaboration are teamwork, common goals and a win-win focus. All of these support results.
The factors of collaboration are grouped into the following axes:
Accenture’s collaborative frame of reference
As collaborative initiatives are introduced around the world, Accenture has established a framework of reference for collaboration between suppliers and their clients, as shown in the following diagram:
In this schematic representation of collaboration, we can chart a company’s strategic decisions to introduce collaborative practices and include them in its organizational culture.
We can see that the model is made up of five axes, each of which entails a set of practices and concrete elements of collaboration between companies. The elements of collaboration are ranked on three levels or states of development: Basic, Progressive and Emerging Leader. This dimension tells us about the practices and behavior of the organizations in their collaboration with clients and suppliers: where they have been, where they are and where they are headed.
In Mexico, the process of adopting and implementing collaborative practice is in a phase of consolidation. The following chart shows the results obtained from the study into the general level of adoption of each of the models elements, according to a color code.
This analysis shows that manufacturers are further along in the adoption of collaborative practices than retailers, except for facilitators. In general, the strongest differences are found on the axis of value directives and analysis, as well as some elements of the tools axis (ERP-ERP Integration).
The level of culture or willingness to work collaboratively is similar between the two sectors, but there are differences in the elements that enable this collaboration.
All of the companies surveyed considered collaboration to be important, but the overall level of adoption or use of collaborative practice is 59%.
Las directrices de valor, como las hemos definido, son los métodos y metodologías que determinan las acciones que hay que realizar (es decir, determinan los procesos y la forma en que se opera) y que habilitan a las compañías para alcanzar resultados que repercuten en las variables de negocio. La gráfica anterior muestra que es precisamente este eje el que presenta el menor nivel de adopción. No contar con un método definido limita la capacidad de ejecución, ya que no se han establecido acciones concretas para sustentar el trabajo diario ni, por tanto, los beneficios de negocio.
The study also shows that companies do not fully understand what collaboration means, because only some of those surveyed integrate the essential concepts: teamwork, common goals, and a win-win focus.
Knowledge is another factor that empowers or limits the adoption of collaborative practice. The study revealed a high correlation between knowledge and adoption, and higher in the case of value directives, meaning companies require a deeper knowledge to adopt these directives then to adopt a tool or facilitator.
Challenges and development plan
Charting a collaborative system is more than establishing formal channels for sharing information or joint planning. It requires clear and specific goals about expected results, and pointing out processes focused on teamwork and the resources needed to start up the system, to the benefits of all the business partners.
Additionally, once the collaborative processes and practices are in place, internal conditions in the workplace must encourage personnel who are key to the development of collaboration to devote time to the various practices.
The goals should be the meeting point between the mutual interests of the players, so that companies can deal with the many clients and suppliers that make up the market. For example, in any one channel there are product categories that have various players, both on the manufacturing side and on the retail side. When the parties understand their function in relation to their counterparts, they can then establish collaborative systems and common efforts.
During the study, Accenture found that some companies integrate their clients’ business indicators into the indicators they use to evaluate their employees. The interviews revealed that this practice generates new paradigms that transform behavior, culture, and therefore results.
Collaboration will be one of the key issues in coming years and will spread increasingly throughout companies’ ecosystems. One of the main challenges to this process will be devising fair and balanced systems that can preserve the capacity for competition and the differentiation of the value offerings from each company.
Estimated benefits
According to the level of adoption observed in Mexico, we estimate that the improvement in the use and level of adoption of a solid, comprehensive collaborative practice can generate benefits equivalent to 48 billion pesos (estimated for the modern channel alone), which would represent an improvement of between 0.5 and 1.5 percentage points in the operating margins of retailers and manufacturers.
This opportunity not only benefits companies’ P&L statements, but also increases customer satisfaction, because it gives them more products, more quickly and at a lower price.
In conclusion, the adoption of a comprehensive collaborative model (with all the elements on all the axes) can create significant advantages:
Companies must evaluate their current status, identify opportunities for collaboration, prioritize them and make the necessary adjustments, combining a focus on the short term (execution) and long term (sustainability) in order to optimize their performance.
Finally, collaboration will become a prerequisite but at the same time a competitive advantage. The invitation is out: Let’s collaborate!?