The importance of partnerships – Lessons learned from Big Lots
Reading Big Lot’s recent Q4 earnings transcript reminded me of the importance of partnerships. Big Lots experienced a shortage of Broyhill furniture and upholstery during the most critical period of any retailer’s calendar – the holiday season. “Our furniture sales were adversely impacted by product shortages related to the closure of our largest vendor, United Furniture Industries,” Big Lots’ President and CEO, Bruce Thorn, told analysts on March 2.
Note that Thorn uses the word ‘vendor’ instead of ‘partner’ when speaking with analysts.
“In late November, they [United Furniture Industries] unexpectedly and without advanced notice ceased operations and subsequently did not complete shipments which created product shortages for us in Q4 and to date in Q1. We have made great strides in mitigating our sales and inventory exposure by sourcing through other vendors, which will fill the majority of the gap by the end of Q2,” Thorn said.
A partner would have given advanced notice. Within a true partnership, Big Lots would not have been caught off guard and likely would have been aware of any dire financial issues facing its largest vendor.
But instead, it faced shortages during its important Q4 holiday season and even into Q1 as it scrambled to locate other suppliers. The shortages also impacted its e-commerce services – furniture makes up half of its online sales.
While a vendor only offers a product or service, a partner becomes an extension of one’s business. That’s not to say that each side needs to know every single thing about the other, but rather, understand the goals and strategies of each, communicate, and collaborate for both sides to succeed.
In 2020, consulting firm McKinsey noted that closer relationships between buyers and suppliers could create significant value and help supply chains become more resilient.
In one survey, McKinsey found that companies that regularly collaborated with suppliers demonstrated higher growth, lower operating costs, and greater profitability than their industry peers.
Recommendations for ways to form closer bonds include:
Collaborate on new products that generate revenue for both parties.
An integrated approach to supply-chain optimization, such as redesigning processes together to reduce waste and redundant effort or jointly purchasing raw materials.
Collaborate in forecasting, planning, and capacity management—thereby improving service levels, mitigating risks, and strengthening the combined supply chain.
Star the third bullet point for Big Lots and United Furniture Industries – That could have been a win-win for both. <sigh>
The last bullet point is a particular pain point for many shippers, logistics, and transportation providers and is one of the many lessons learned from the pandemic.
According to a C3 Solutions retail outlook white paper, retailers will use this year to optimize their supply chains and embrace collaboration between partners, whether they are suppliers, transportation providers, or supply chain providers. “The elite among those [retailers] will leverage technology that enables their company to quickly reconfigure business structures and capabilities to meet future customer and employee needs with adaptivity, creativity, and resilience, ” wrote Brendan Witcher, Vice President, Principal Analyst for Forrester in his 2023 outlook.
Indeed, one other lesson I hope Big Lots learned is not to put all of its supplier eggs into one basket. Retailers were forced to diversify suppliers, particularly those based in China, during the pandemic because of China’s zero-tolerance stand on COVID, significantly contributing to inventory delays and port backups. Now that many retailers have added additional suppliers, though, successfully managing the relationships of each supplier will be important moving forward via a supplier management portal. While not all suppliers are good partnership material for shippers, it is advisable to identify those suppliers and nurture and develop the relationship to ensure success for both parties.
- Cathy
While I aim for a weekly story, sometimes life gets in the way, so think about subscribing (free) so you don’t miss anything.
For daily thoughts and shares, be sure to follow me on Twitter and LinkedIn.
I wear a number of hats these days. Catch my twice-a-week column on air cargo, freight forwarding, and the express markets, and the occasional podcast on Air Cargo Next. I’m also helping out the Reverse Logistics Association as a research manager, and at JOC, I help out as a research analyst and write a weekly LinkedIn newsletter, Freight Forward, summarizing JOC articles and providing an outlook for the week ahead.
Upcoming events:
SMC3’s LTL Education - March 23 - Returns & the Last Mile: The Impact on LTL