The first part of this article presents an analysis of the economic scenario, which determines the behavior of agents in the consumer goods supply chain. Next, the implications of changes in the competitive environment in terms of the needs of supermarket operators, as well as the performance and quality of the distribution service practiced by the industry, will be discussed. The analyzes that follow are based on the results of the Benchmark – Customer Service survey, conducted annually since 1994 by the Center for Studies in Logistics – CEL/Coppead/UFRJ.
the economic environment
Despite the 2,3% growth of the economy in 2005 not being the forecast, it was a positive year for the worker's pocket, which had its purchasing power reinforced by 2,0%, accumulating a discreet increase of 2,2% since 2003 – the last year of a series that showed a drop of 23,7% in earnings since 1998 (see Table 1).
However, Table 1 demonstrates that this recovery in purchasing power did not result in higher supermarket sales. It seems that the climate of institutional crisis that permeated the second half of 2005 caused consumers to reduce their propensity to spend on consumer goods. In fact, Table 2 reveals that retail sales in 2005 had already been losing steam since April, with a sharp deceleration in the last quarter, when compared to the previous year.
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| Table 1 – Evolution of Brazilian GDP growth rates, exchange rate, average income of employed persons, INPC and real sales of supermarkets |
| Source: Economic Conjuncture and Abras |
Another interesting point is the evidence that inflation dropped during a wage recovery period. In other words, it is not configured as demand inflation, which is a promising sign for sustainable economic growth in the near future.
In this sense, if the fundamentals of the economy remain healthy, one can expect, despite 2006 being an election year, a positive evolution, both for consumer income and for supermarket sales, which in turn should spread along the production chain.
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| Table 2 - Evolution of monthly supermarket sales |
| Source: Abras |
The commercial purchasing decision process
This section will address the impacts of changes in the economic environment on commercial relationships between participants in the consumer goods supply chain, as illustrated in Figure 1.
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| Figure 1 – The consumer goods supply chain |
Figure 1 presents the logic of the physical flow of goods between the industry and the consumer, which can be done directly, through a wholesaler or through a retail network. This last case is the focus of the research carried out.
Figure 2 shows how the relative importance of the retailer's purchasing decision variables1 changed over the period considered by the survey.
It is interesting to mention that, when comparing the forecasts obtained in the 2004 edition of the survey with the current ones, there were changes in the expectations of the trade with regard to its purchase decision process with the consumer goods industry. The 2005 surveys indicate that commerce will be giving greater weight to the physical distribution service variable for the coming years than was predicted in the previous edition of the survey.
What can be seen in 2005 is a strong change in the requirements that guide commercial relations between the retail trade and the consumer goods industry, notably in the variables physical distribution service and promotion and advertising.
In short, the supermarket trade is proposing that the industry invest more in improving its logistical process in order to reduce costs, to the detriment of advantages arising from promotion and advertising campaigns. This finding is consistent with the slowdown in retailers' sales in the last three quarters of 2005 (see Table 2).
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| Figure 2 - Evolution of the Purchasing Decision Process from Trade to Industry |
It is interesting to note that trade signals that this direction should be even more emphasized for the coming years, when the distribution service of industries should reach 24,4% in importance in the trade decision. Therefore, the industry that intends to develop a winning marketing strategy must review its physical distribution processes, aiming at greater efficiency along the supply chain.
The level of trade satisfaction with the industry's distribution service
This analysis concerns the level of satisfaction of the retail trade with the performance of the industries that have the best practices, as well as those with typical performance2, considering the three main dimensions of the physical distribution service, namely: product availability3; consistency of lead time4 and order cycle time5.
Figures 3 and 4 indicate, as a rule, that from 2003 onwards, the supermarket trade has been more satisfied with the physical distribution service of its suppliers who hold the best practices, contrary to what happens with the typical industry.
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| Figure 3 – Evolution of the Percentage of Retailers Dissatisfied with the Industry's Best Practices |
In the evaluation made by the commerce, the distribution service of the
best practices shows a clear trend of improvement, after several years of growing dissatisfaction with its performance. Since 2003, the number of retailers dissatisfied with best-industry distribution services has nearly halved.
In the opposite direction of best practices, the typical industry has shown a strong increase in dissatisfaction, notably from 2001 onwards, after an improvement trend in the previous period.
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| Figure 4 – Evolution of the Percentage of Retailers Dissatisfied with Industry Practices |
It is clear, therefore, that the best practices have been receiving greater attention in the assessment of retailers. This is happening in a period of recovery in the economic environment (see Table 1), implying that the industries with the best practices have taken advantage of their greater investment capacity, thus being able to respond more effectively to the growing appreciation of the distribution service by part of retail (see Figure 2).
In the following sections, the components that determine the level of retail satisfaction with regard to the industry's physical distribution service6, the level of retail demand and the industry's performance will be analyzed.
The requirement level7 of retail and the performance of the industry
The performance analysis of the industry's physical distribution service makes more sense if considered in conjunction with the retailer's level of demand. After all, a central issue to be understood in order to design a winning service strategy would be: How to achieve the level of customer satisfaction? In this sense, this section will address the evolution of these components that determine the level of satisfaction, considering each of the three main dimensions of the physical distribution service.
Product Availability
The trade's minimum expectation regarding the delivered percentage of the total order reached its highest level in the entire historical series, as illustrated in Figure 5. Currently, trade is not satisfied with deliveries that do not comprise at least 99,0% of what was originally ordered.
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| Figure 5 - Evolution of the Percentage Delivered from the Total Order |
On the other hand, both the best practices and the typical industry also showed the best historical performances in terms of product availability. However, in the case of the typical industry, this improvement was not enough to meet the higher level of trade demand, resulting in an increase in the number of dissatisfied customers (see Figure 4). The industries that have the best practices, on the other hand, indicate that they are more in tune with the market, offering service levels that are more in line with those required by trade, which has resulted in a strong tendency to reduce dissatisfaction since 2003 (see Figure 3).
It is interesting to observe, in Figure 5, a certain convergence of performance over the entire period surveyed. In this sense, it appears that there has been a significant reduction in the potential for differentiation in this dimension, when considering industries that intend to be recognized as having superior performance by the supermarket sector.
Delivery Time Consistency
Figure 6 also illustrates a significant increase in demand for consistency of delivery time during the survey period, reaching its highest level in 2005. Currently, the retailer cannot tolerate receiving more than 3,1% of late deliveries.
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| Figure 6 - Percentage of Late Deliveries |
In terms of performance, while the typical industry maintained 13,8% of late deliveries, best practices achieved higher service levels than the previous year, delivering 4,5% of orders late. This increase in best practice performance since 2003 has resulted in a significant reduction in dissatisfied retailers (see Figure 3). On the other hand, the performance improvement of the typical industry has not been enough to cool the strong tendency of increase of dissatisfied of the last years (see Figure 4).
In this case, the difference in performance in terms of delivery delays, between typical industrial companies and best practices, has also been reduced throughout the entire historical series. Therefore, it can be seen that there was a slight convergence in the performance of the industry as a whole.
Order cycle time
As with the other dimensions analyzed, the maximum delivery time tolerated by retailers reached its lowest historical level. Figure 7 indicates that the maximum order delivery time cannot exceed 1,9 days.
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| Figure 7 - Order Cycle Time |
In terms of performance, best practices continue to reduce lead times, which in turn has resulted in the downward trend of dissatisfied retailers since 2003 (see Figure 3). In contrast, the typical industry showed a significant increase in delivery time in the same period, a worsening that has caused a significant increase in dissatisfaction (see Figure 4).
This dimension, unlike the others, presents a clear opportunity for differentiation, since, since 2003, the best practices and the typical industry have had strongly divergent performances.
CONCLUSION
The pace of economic recovery has had a strong influence on trade relations between supermarkets and the consumer goods industry. It is up to the industries to take advantage of the opportunities that will arise from these ongoing changes, being more agile than the competition in adapting their marketing strategies to better meet the requirements of their supermarket customers.
Industries should pay attention to the fact that the physical distribution service is being increasingly valued by supermarket operators, who are significantly dissatisfied with it. This means that there is an opportunity to develop a winning marketing strategy by placing more emphasis on the physical distribution service aspects.
The presented results demonstrate that there is a strong trend of increasing demand for better industry performance, considering the three main dimensions of the physical distribution service.
The analysis of the results also demonstrates that there is a trend of performance convergence in two of the main dimensions of the physical distribution service, notably product availability and delivery time consistency.
In this sense, is there a tendency for these dimensions to become more and more qualifying, or minimum requirements for the selection of suppliers that intend to serve a certain retail chain? If so, it is important that companies also start to consider other dimensions of the physical distribution service in order to obtain a competitive differential, at a cost that is probably more attractive. Improvements become more expensive at increasing rates as operational performance levels of excellence are reached.
On the other hand, the expressive trend of increasing demand for better performance in the industry reinforces the need for companies to permanently seek to improve their physical distribution service. Current levels of dissatisfaction indicate that there is room for companies to improve their response capacity in order to meet the performance levels demanded by supermarket operators.
As a final message, it is important to emphasize that the research effort is essential to keep the business in line with the real needs of the market. It is from the continuous monitoring of the competitive environment that opportunities can be identified to better serve the customer, anticipating and surpassing the competition.
BIBLIOGRAPHY
FLEURY, PF, LAVALLE, CR. Evaluation of the physical distribution service: the relationship between the consumer goods industry and the wholesale and retail trade. Management and Production, vol. 4, nº 2, August 1997.
CHRISTOPHER, M.. Logistics and Supply Chain Management: strategies for reducing costs and improving service. Prentice Hall, 1998.
BOWERSOX, DJ, CLOSS, DJ. Business Logistics: the supply chain integration process. Atlas publishing house, 2001.
Notes:
1 – Respondents were asked to distribute one hundred points among the four purchasing decision variables considered (product; price; customer service; promotion and advertising). A higher score indicates greater relevance. The result indicates the relative weight of these variables in the decision-making process for trade purchases with the industry.
In order to maintain data compatibility, the analysis that follows only considers São Paulo and Rio de Janeiro, as these are the only markets that were objects of research during the ten stages of the same, between 1994 and 2004. Recife, Curitiba and Belo Horizonte were added in the second, third and fourth phases of the survey, respectively.
2 – The best market practices reflect the best performance among suppliers and are, therefore, pursued as a benchmark. The performance of a typical company represents the market practice among the main suppliers of the researched company.
3 – Measure: average of the delivered percentage of the total order.
4 – Measure: average of the total percentage of orders that are delivered late.
5 – Measure: average time elapsed from the withdrawal of the order to the delivery of the product.
6 – Named in the survey as customer service.
7 – The level of demand in question refers to the minimum expectation of service performance below which the customer feels dissatisfied.
