A grocery wholesaler proves that effective supply chain partnerships can be built on basic information-sharing and coordination practices.
Articles on supply chain collaboration typically focus on large multinational companies that have leveraged new information and communication technologies. But successful collaborative relationships can be created using relatively simple but effective practices. And they can be found in some unusual places.
Consider the case of Metro Cash & Carry Vietnam, which has developed long-term collaborative relationships both with its local vegetable suppliers and with a major hotel customer in Ho Chi Minh City. These collaborative relationships involve basic information-sharing and coordination practices, which have led to more efficient produce distribution and more satisfied supply chain partners.
Metro Cash & Carry Vietnam is a German-owned business-to-business grocery wholesaler specializing in services to hotels, restaurants, and catering institutions. This special focus accounts for more than half of Metro's revenue in Vietnam, which was more than $100 million in 2003.1 The company's main strategy is to be cheaper than its competitors in the traditional wholesale markets while also focusing on food safety and customer satisfaction.
According to the Metro managers that we interviewed, the company's success is closely linked to its strategy of building long-term supply relationships—especially with local producers of fresh vegetables. These relationships are based on trust. To gain that trust, potential suppliers, for their part, must show that they can deliver high-quality produce regularly and be responsive to fast-changing customer demands. Metro looks for financially stable suppliers with proven experience in vegetable production and a reputation for produce quality. Trust is built mainly on results. Metro will start sourcing from potential suppliers little by little to check the regularity of quality. This reliability is important. Fresh produce buyers at Metro receive many offers from local suppliers, but a supplier that consistently provides good quality and low price in a stable manner throughout the year is difficult to find.
At the same time, Metro also needs to acquire the trust of its suppliers. One way it does this is through establishing secured payment in the supply contract. Although there is a fixed delay in payment, which can go up to 30 days, the company rewards a successful supply relationship by lowering the delay after a period of satisfactory deliveries.
These trust-based relationships rely on the exchange of transparent market information between suppliers and Metro buyers. Metro's individual fresh food buyers are responsible for maintaining good interpersonal relationships with all regular suppliers. This means not only communicating frequently with suppliers by telephone and fax but also physically visiting suppliers several times each month. Metro has even purchased fax machines for those suppliers that did not have one. Although the communications may seem low tech, they have proven to be very effective.
Collaboration Benefits Everyone
According to the stakeholders themselves, the focus on communications and product quality has had a positive impact on supply chain performance. From the viewpoint of the suppliers we interviewed, Metro's focus on higher-quality vegetables brings them greater stability in orders and prices. These suppliers also gain greater risk avoidance through the company's guarantee of payment. Finally, because reliable quality produce is still relatively difficult to find in Vietnam, established Metro suppliers that focus on quality have a certain power in negotiations with the wholesaler. Trusting relationships are time-consuming to build and regular suppliers are difficult to find in Vietnam. So once a supply relationship is established, it is important for Metro to keep it because of the investment made. Therefore, best-performing Metro suppliers can be assured of a long-term commitment by the distributor—a commitment that is manifest in the supply contract.
For Metro, the investment in building strong supply relationships for its fresh vegetables assures the company a constant supply of quality goods for its demanding customers. By building supply relationships directly with farmers—and not trading intermediaries—Metro can reduce costs and stay relatively competitive on price.
Collaborating with Customers
Collaboration doesn't end with Metro's suppliers; it extends to customers as well. The company's relationship with the New World Hotel, a five-star property in Ho Chi Minh City, offers an excellent example.
The general managers of Metro Cash & Carry Vietnam and the New World Hotel agreed in 2002 to experiment with a strategic alliance whereby Metro supplies most of the hotel's needs. Basically, the hotel buys everything that Metro can offer. As a result, more than 97 percent of the hotel's purchases come from Metro—or approximately $130,000/month.
The partnership is based on strong collaboration and information sharing in order planning and replenishment. Both companies have assigned a dedicated staff member to manage this strategic alliance: a key-account manager at Metro and a procurement manager at the hotel. The hotel purchasing manager can call the Metro key-account manager at any time during working hours for an emergency delivery, and Metro will deliver immediately—even during weekends. Furthermore, Metro always sends a member of its sales staff to the New World Hotel to supervise each delivery and assess its quality with the hotel's staff.
The New World Hotel orders three times a week on Monday, Wednesday, and Friday for delivery on the following ordering day. This order cycle enables Metro to take its time in preparing the goods and saves time for the hotel's procurement staff. Transportation costs are minimized because it is cheaper to have one big truck transport a large order than to have several trucks deliver daily. Metro also extends credit to its privileged partner as the hotel's payments are made twice a month by bank transfer.
The relationship depends on frequent communication between the Metro key-account sales manager and the hotel procurement manager. The hotel procurement manager will call the Metro key-account manager four times every week to assess the quality of each delivery. Additionally, when market conditions lead to shortages, Metro staff provides the hotel's staff with advanced warning of changing supply factors. This enables the hotel to implement alternative supply arrangements. As with the supplier communication, the interaction between Metro and its customer is personalized, simple, and highly effective.
Benefits of Simplicity
Overall, the stakeholders we interviewed in the vegetable supply chains of Metro Cash & Carry Vietnam successfully engage in collaboration, joint planning, and information sharing to optimize their forecasting and product replenishment. Moreover, our research shows that they are doing so with a disarming degree of simplicity: daily phone calls between dedicated staff in the partner firms and joint planning of supply and demand are enough to lead to the satisfactory delivery of such perishable articles as fresh vegetables. Sophisticated technology certainly has a place in the modern supply chain. But the Metro Cash & Carry story proves the enduring effectiveness of simple, straightforward communication.
Jean-Joseph Cadilhon is an agricultural economist formerly at Imperial College London (Wye Campus) and CIRAD-Malica. Andrew P. Fearne is Director of the Centre for Supply Chain Research at the Kent Business School, University of Kent.
1"Supermarkets on a roll," Saigon Times Weekly, March 6, 2004.
AcknowledgementsWe would like to thank Paule Moustier at CIRAD-Malica, Phan Thi Giac Tam at Nong Lam University of HCM City and Nigel D. Poole at Imperial College London (Wye Campus) for their collaboration in this Malica-funded research.