| In most industrialised nations the the supply chain | | | | The produceris now in the position where he |
| of goods from source toend user has changed | | | | must be given volume orders in order |
| little for many years. Firstly there are the | | | | toammortise his costs. The retailer says: I can |
| producers. Then the wholesaler, then the retailer | | | | give you volume, but you must giveus more |
| and then the customer and consumer. | | | | margin. For some producers the moment of truth |
| In the U.S. the supply chain has always been pulled | | | | comes when they need totake a leap into a big |
| by downstream consumers. | | | | new production facility in order to keep up with |
| Europe had a different history where a mixture | | | | thesedemands. So, they take on a loan and |
| of world wars and interventionistgovernments led | | | | expand the business. Now they need aconstant |
| to supply chains that were pushed from the | | | | fix of volume business, not only to keep the |
| upstream end. | | | | factory going, but inorder for their business to |
| Certainly, the rationing of the 1940's and beyond | | | | avoid bankruptcy. Some producers who have |
| led to a culture of consumerswho got what they | | | | convertedto this high volume business have gone |
| were given and were thankful for small mercies. | | | | so far with it, and have partnered soclosely with |
| As Europe has become more affluent, consumers | | | | their master retailer that they simply see |
| have flexed their muscles anddemanded an ever | | | | themselves as anextension to the retailer and will |
| wider array of goods at a range of prices and | | | | not contemplate change. |
| standards. It hasnow joined the U.S. and most | | | | Others may feel differently. They may be run by |
| other industrialised nations with | | | | more indpendently-mindedbosses, or may have |
| consumer-ledsupply chains. | | | | kept up sales to other outlets in order to keep |
| A feature of this has been the trend towards | | | | some tradegoing that is outside the sphere of the |
| large retail chains. Many ofthese chains have | | | | retail chain. I am sure that someproducers want |
| become so large that they have virtually | | | | to see that pendulum start to make its way |
| dispensed withwholesalers, preferring instead to | | | | back, even if it isjust a little way. But what can |
| purchase goods directly from producers. | | | | they do? Well, things are changing out there, |
| Theyhave also established the so called "own | | | | soopportunities may arise sooner than expected. |
| brand". This is where theyhave dictated the | | | | Firstly, there is safety in numbers. Just ask the |
| product specification to the producer and told | | | | unions, or a herd ofwilderbeest. I can see alliances |
| them to brandit as their own product. And there | | | | taking shape over the next few years |
| is more: some of the largest chains | | | | betweennon-competing producers who, between |
| haveincreasingly got themselves involved with all | | | | them, can offer a full range of products |
| aspects of the supply chain fromraw material | | | | toconsumers. Why can't they open their own |
| sourcing, packaging procurement and design, all | | | | retail outlets? Remember, the billionsmade by |
| aspects ofdistribution and even their suppliers' | | | | today's retail chains will no longer need to be |
| recruitment policies. | | | | serviced, so prices willbe very competitive and |
| This has resulted in a shift in the balance of | | | | margin healthy. |
| power from upstream todownstream. Now that | | | | Secondly, there is pressure on fuel supply and |
| every aspect of the producer's business, including | | | | prices. There has been arecent blip that might fall |
| theirall important costs, have been tied down by | | | | off again, but most experts agree that the long |
| the ever inquisitive retail chain,has the pendulum | | | | termtrend is that prices will rise. As fuel costs |
| swung as far as it could? We all know what | | | | begin to impact margins and evenproduct prices |
| happens to pendulumswhen they have gone as | | | | there will be pressure to retail goods as close to |
| far as they can in one direction. Now, I cannot | | | | their sourceas possible. It may even make sense |
| surely bethe only person who has thought about | | | | to sell goods directly from a producer's ownshop. |
| this. I am sure that directors of some ofthe large | | | | In the UK, local farmer's markets have taken a |
| producers out there must have thought to | | | | significant slice ofbusiness away from |
| themselves "how did welet this happen?". Perhaps | | | | supermarkets. I am suggesting here that this |
| some of the smaller producers whose | | | | principle couldbe extended to more local selling |
| managementcan't even visit the washroom | | | | opportunities from producers and notjust farmers. |
| without permission from the retailer (it seems)are | | | | Thirdly, there is an increasing trend - mainly driven |
| also thinking "enough is enough". | | | | by legislation - tore-use parts in products that are |
| Just think of this: who has put the capital and risk | | | | at the end of their life and to re-usepackaging. |
| into the very expensiveplant that is needed in a | | | | This reverse distribution will benefit once again |
| production environment? Not the retailers. Who | | | | from havingproducers as close to consumers as |
| has theskilled staff including engineers and | | | | possible and it may benefit further bycutting out |
| designers? Certainly not the retailers. | | | | the retailer altogether for the return of goods. |
| Who has detailed product knowledge within their | | | | Finally of course, there is the internet - shopping |
| own spheres? Retail chains, bytheir very nature | | | | on line. Not a cashier ora shopping trolley in sight. |
| specialise in putting largely unskilled staff in | | | | Yes, distribution infrastructure is still required,but |
| largebuildings with rows of shelving and a line of | | | | remember that many bricks and mortar retailers |
| checkouts. They can only ever havea superficial | | | | have still not fully got togrips with the structures |
| knowledge stretching accross the vast product | | | | that are required to distribute internet sales. |
| ranges they sell. | | | | Theinternet gives producers a wonderful |
| I know I have painted a picture of poor | | | | opportunity to change the order of thingsto their |
| downtrodden producers that have beenconquered | | | | advantage and sell directly to end users. |
| by those nasty retailers. Firstly the retailers are | | | | What many large retail chains have done has |
| not nasty at all -they are just doing their job - so | | | | been breathtaking and can only beadmired. They |
| let's not blame them. And there will be | | | | took control of their supply chains and used their |
| manyproducers out there who rather like the | | | | new influenceand power to their advantage and |
| status quo and don't want to rock theboat. OK, | | | | therefore to the advantage of theirshareholders. |
| so they don't get the kinds of profit margins they | | | | Just remember though, that retail chains consist |
| would like, butthey do get volume. Though in my | | | | of unremarkablebuildings, staffed with unskilled |
| opinion, the reason why many producerswant to | | | | labour and with low-tech plant. They do |
| leave things as they are is that they are slaves, | | | | notproduce goods (usually) and they do not own |
| even if they don'trealise it. | | | | any brands apart from their own. |
| It's a kind of drug dependancy, but with the drug | | | | Their main asset is customer goodwill with the |
| being high volume sales andthe drug pusher being | | | | large throughputs of customersvisiting their sites. |
| the retail chain. It's a familiar pattern. The | | | | If this throughput is threatened by high fuel prices |
| producer isforced to reduce costs by a retailer | | | | orbecause of alternative attractions, then these |
| promising higher volume in return for agreater | | | | large buildings will become whiteelephants. If this |
| share of the margin, so the producer invests in | | | | ever happens, the decline could be swift and |
| larger productionfacilities, faster machinery and | | | | decisive, forthose retailers are just as addicted to |
| takes on more staff. This is fine until theproducer | | | | their customers as producers are tothem. |
| realises that he is now dependent on the retailer. | | | | |