Page 275 - Performance Leadership

264 • Part IV Implementing the Performance Leadership Framework

process successfully in the first pass? How well do the possibilities for
special packaging fit in with the brand experience of the supermarket?
How extensive (and correct) is the information about the products? And
in general, how fast is the supplier at responding to required changes
to packaging, processes, and information supply?
In transactional relationships from a financial point of view, margin
is key. In added-value relationships there should also be a focus on real-
ized cost savings through value-chain integration. The more a supplier
is capable of doing that, the more valuable the supplier becomes, and
the easier it is to do business with that supplier. This should be a trade-
off in contract negotiations. Metrics in added-value relationships
should be reciprocal; the supermarket should also consider the require-
ments of the supplier. As in added-value relationships, the switching
costs tend to be higher, and a good relationship is also in the best inter-
est of the supermarket. If a supplier makes a fair profit, it can invest
more in product innovation, value-chain integration, customer service,
and other areas that improve the quality of the supplier, leading to cost
savings potentially much higher than a slightly better margin through
tougher contract negotiations.
It is the objective of the supplier to grow its revenue, and the super-
market should monitor this growth. It is helpful to support the growth
of the supplier because both parties benefit if this is based on mutual
growth of the product category. However, if growth is based on the sub-
stitution of other suppliers within that product category, this could be
a problem. If this is happening marketwide, the supermarket is simply
following market trends in its portfolio. If substitution is a targeted
action, the supermarket should be careful as it impacts the supermar-
ket’s formula. The supplier is also interested in the supermarket’s opin-
ion, and it is in the best interest of both for the supermarket to build
such an opinion in a more strategic way. It is not enough to air opin-
ions only if there are operational problems. The themes in the rela-
tionship with the supplier (fast, right, cheap, easy) impact the
transaction cost of working with that supplier, impacting overall mar-
gin. Proactively sharing opinion on satisfaction, and guiding the sup-
plier on how to do a better job, improves the relationship.
It is not only important for a supermarket to build contractual and
competence trust in the supplier, the supermarket should also focus on