Recently, the Harvard Business Review ran a special series of articles and posts on “Making Collaboration Work”. Some of these articles were quite insightful and a good read for any Supply Management professional looking to improve the efficiency and effectiveness of her supply chain. In this two part series, we are going to address the insights from three recent HBR posts that capture some key insights.

In “collaborate to grow the pie, not just split it”, the authors tell us that far too many retailers and manufacturers opt for pie-splitting instead of collaborating to come up with pie-growing strategies and, as a result, the majority of money spent each year on trade promotion just shifts share from one retailer to another or one manufacturer to another. This results in short-term, unsustainable results where companies are merely “renting share” and destroying long-term industry profitability for everyone involved.

As support for their argument, they reference a recent Neilsen Company macro study analyzing trade promotion across 30 grocery categories which found that only 13% of trade dollars actually result in category growth while 15% result in brand switching, 17% result in store switching, and a whopping 55% just results in subsidized volume (where no new consumers or incremental units are purchased). In this last case, customers who would have purchased anyway get a discount while corporate profits are gutted. And while a manufacturer or retailer might think that consumers only want lower prices, a recent analysis across dozens of categories by the Cambridge Group found that only 10% to 30% of households are truly price sensitive and the rest (who make up the majority) want new benefits and innovation and are willing to pay for them.

Thus, manufacturers and retailers need to collaborate, upfront, on innovation strategies with the consumer in mind and grow the pie. If they do, they can actually increase market share, either by creating a new market (because the product is the first to sail a blue ocean) or by robbing share from a different market. Jimmy Dean is an example of the latter. By expanding its frame of reference beyond just breakfast sausage into convenient breakfast meals centered around sausages, it grew the overall category 25%, drove 2/3^rds of the growth, and tripled its frozen breakfast sales. Manufacturers and retailers both won by stealing sales that would have likely gone to fast food establishments instead.

In Part II, we will discuss two more HBR posts that address the inherent value of collaboration.

Regular readers of SI will know the importance of good should-cost modeling (which is also great for negotiations) as well as good market intelligence (which has dimensions and is valuable in a down economy) in cost reduction and avoidance. And while both should-cost modelling and market intelligence have a number of critical requirements that must be met for success, they both have one key requirement in common — good data. But where do you get good data? Certainly not from supplier bids! A new supplier is going to bid what it thinks it can get, not what the actual price is. Market indices from governments and professional associations? Better, but they will typically be at least a month or so behind. Trade associations that track and monitor prices on a daily basis or stock markets that trade the commodity? Great — but do you have the IT skills to integrate the feeds? And are you going to do it for the dozens of raw materials and commodities you need to build your should cost models?

The best place to get data en-masse is from a professional data provider that tracks and integrates all of the feeds you need into a centralized database that is updated with fresh data for the categories you need when you need it and that maintains years of historical data for analysis purposes. One such provider is Mintec. Formed back in 1982 by consultants and analysts who realized that real savings required real data, Mintec has been collecting raw material, commodity, and service price data from around the globe for almost 30 years. Used by 16 of the top 25 Global Food & Beverage & Retail companies, Mintec maintains price data for a database of 75,000 “line items” from A to Z across dozens of industries and categories. It then distills this information into custom databases for each client that contain just the line items they need, pre-processed and normalized to their defaults. (Combine this data with a great expressive-bidding optimization platform, such as that provided by BravoSolution or Trade Extensions and you have cost avoidance engine that can’t be beat!)

To help their clients understand the data, Mintec provides a data analysis package, called Datagain, which can be used to import, graph, analyze, and compare different line items (such as the petrol price in the UK and the petrol price in Australia, normalized to US dollars). A user can graph any set of series, against any frequency, using any (currency and unit) converions, for any date range she chooses. She can also normalize or index this data using a custom formula, factor in seasonality, and plot trends. She can also break the series down across two or four graphs and/or plot specific subseries, against different projections, to see how the price might trend over time under different assumptions. The normalization / indexing equations can use all of the standard algebraic operators and be defined over any set of variables, including user defined variables, that the user chooses.

If the user is not sophisticated at trend analysis, or does not want to do it, Mintec also offers Benchmarking and Market (Intelligence) Report services that do a deep dive into a particular raw material, commodity, or service that discuss recent, current, and projected pricing subject to the state of the market and the dominant factors at play. These, by request, reports complement the monthly market reports and commodity fact sheets that track the major commodities and markets and their relative month-over-month changes for buyers who want to look at the bigger picture. If the user wants to learn more about Datagain, analysis, and should-cost modeling, Mintec also provides on-demand out-of-the-box and customized training sessions as well as quarterly newsletters and occasional articles.

It’s a huge amount of data, that comes at a very low price point. Most customers pay less than 100K £s for access to the data they need, when they need it, updated as often as they like. Moreover, medium-sized business can get basic access (to the datafeeds) and access to the desktop Datagain tool for as little as 10K £s a year. Large enterprises will probably want the on-line hosted applet version (at the higher price-point) that runs through the browser on a hosted database that is accessible anywhere, anytime, and always up to date. While it is more expensive, it’s still cheap compared to what the organization will be paying for their ERP solution (and much more valuable from a cost avoidance perspective).