Supplier Relations

Massmart

Supplier Relations

BY

Fikile Sikhosana

Makghetiwa Mabogoane

Onnica Malatji

Amukelani Mushwana

Katlego Molawa

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Table of Contents

1. Introduction………………………………………………………………………………….pg 3

2. Interaction between stakeholders…………………………………………………pg 3

3. Challenges faced by each of the identified stakeholders………………. pg 6 - 8

4. Recommendations to overcome the identified challenges………….. pg 8

5. Ordering ………………………………………………………………………………………pg 9 - 10

6. Deliveries……………………………………………………………………………………..pg 11-12

7. Store Procedures………………………………………………………………………….pg 12-14

8. Stock Management………………………………………………………………………pg 14-15

9. Negotiation………………………………………………………………………………….pg 15-18

10. Appendix……………………………………………………………………………………pg 19-21

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1. Introduction

The discussion below provides reflects on the specific interactions points between the

supplier and Massmart throughout the entire extended supply chain from the Regional

buyers all the way to store level. The report basically describes the interactions between

Massmart stakeholders and the suppliers. The report also touches on the difficulties that are

faced by the different stakeholders within Massmart in relation to their interactions with

suppliers and possible solutions to improve their relationship with the supplier are

highlighted.

2. Interaction between Stakeholders

The section below identifies the different stakeholders within Massmart that interact with the supplier as well as the different interaction points that exist between the supplier and the Massmart stakeholders.

2.1. Stakeholders

Below is a list of Massmart stakeholders at Head Office, Store, Distribution Centre (DC), and from the supplier side:

Head office level Store level

Merchandise controllers

Planners

Buyers

Merchandise executives

Marketing staff

Accounts staff

Regional managers

Secretarial staff

Wal-Mart

Customer

Receiving clerks

Merchandisers

Sales managers

Sales floor staff

Store manager

Accounts staff

The Customer

Supplier’s sales rep.

Replenishment manager

Buyers

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Distribution Centre Supplier

Receiving manager at DC

Fork-lift drivers and truck drivers

DC pickers and packers

Back door clerk, receiving checkers and back end security.

Supplier’s truck driver or third party truck driver

Fork-lift driver and picker at supplier depot

2.2. Head office (Planner/Buyer and Supplier)

2.2.1. Source of Supplier

The first interaction takes place when Massmart look for potential Suppliers to source

products and or services from. This is determined first by availability then by factors such as

price, quality, uniqueness and other strategic drivers. This interaction is initiated by the

Buyer and the Planner. This interaction is either with the Local or Foreign Suppliers

depending on the type of product and or service in question. After identifying the right

Supplier, both the Buyer and the Supplier negotiate trading terms and conditions.

2.3. Delivery to the DC or Store

The supplier has to organize transportation to deliver goods to Massmart DC or Stores. The

supplier may opt to use his own transport or a third party logistics company to deliver the

goods in question to either the DC or store.

2.3.1. Supplier’s own transport

Here the supplier will incur all the costs of getting the products to Massmart’s

premises. On arrival at either the DC or Store, the supplier’s truck driver will fist

interact with the Security at the entry gate to capture his details on the gate control

register. The driver then moves to the Goods Receiving Administration Clerk that

does Booking-In.

The Clerk must make sure that the Vendor/Supplier delivers on a valid supplier tax

invoice and make sure that the Invoice is an original document. Here the Driver

interacts with the Receiver, who deals with the receipting of stock through using SAP

and adopting the SAP Standards for processing receipts.

2.3.2. Supplier uses a 3PL

The Supplier negotiates a contract with a Third Party Logistics Provider to deliver

goods to Massmart.

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2.4. Rebates team and the Supplier

In procurement rebates are viewed in a number of ways. Some suppliers consider them

hassles and don’t want to invest the time and expense to manage them. Other suppliers will

view them as a mechanism to drive future sales and loyalty. It is the job of a team of

individuals employed by Massmart to negotiate rebates with Suppliers.

Rebates are clearly used by suppliers with the intent of influencing Massmart’s future

sourcing decisions. Many times buyers may drive suppliers to using the route of rebates. For

example, if a Buyer wants the one-thousand unit price for a quantity of one and makes no

firm commitments to purchase more, the supplier can either say no or they can tell the

buyer that they will rebate them the difference once they have met that quantity, which

makes it even more difficult for the Rebates Team to negotiate with Suppliers.

2.5. Marketing and the Supplier

Promotional allowances are reductions in the price of products that suppliers offer trade

partners to carry out additional promotional activity in support of suppliers' products. The

Marketing Department is responsible for negotiating promotional allowance with the

Supplier. The Internal Revenue Service includes promotional allowances in the general

category of vendor allowances along with other trade allowances. Vendor allowances are a

normal part of a Massmart’s marketing activities.

Figure 2.1: Supplier and Stakeholder relations

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3. Challenges faced by each of the identified stakeholders

The section below identifies the different challenges that are experienced by all the

Massmart stakeholders in regards to their interactions with the suppliers and visa versa.

3.1. Buyer/ Planner and Supplier

Below is a list of challenges experience within the Buyer/Planner and Supplier Relationship:

Out of stock situations

Deciding what types of suppliers will be considered diverse suppliers. it is actually

very important to think through the options at the very beginning.

Import problems: Suppliers across the boarders report problems with custom and

shipping delays when importing stock.

Chain store buying power getting stronger

Retailers reduce brands they stock

Late deliveries

Cheaper copies kill brands

Sometimes local Suppliers cannot deliver to meet customer demand

Suppliers not delivering on time and in full.

Unreasonable price increase

Not uplifting aged-stock.

Negotiation deals at store levels

Arrogance of supplier

Supplier fixing costs

Supplier acting dishonestly by disclosing contract terms and conditions with retailers

competitors.

Buyer’s unwillingness to understand supplier issues.

Long payment periods

Too many promotions

3.2. Delivery to the DC or Store and Supplier

Below is a list of the challenges experienced within the DC/Store and Supplier Relationship:

Slow custom clearance delays the time goods were supposed to be received both at

the DC and Store

Transport delays cause delivery problem

Truck drivers delivering goods with incorrect documents

Suppliers not delivering as agreed

Goods delivered are not what was ordered

Goods damaged during delivery

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3.3. Rebates team and the Supplier

Below is a list of the challenges experienced within the DC/Store and Supplier Relationship:

Suppliers do not want to pay rebates

Suppliers feel they are losing money

Suppliers want to see results before they pay

Some suppliers consider them hassles and don’t want to invest the time and expense

to manage them

Some buyers view rebates as price reductions that they should have been receiving

from the beginning and an additional cost as the Supplier has the use of the Buyer’s

money until they pay the rebate

3.4. Marketing and the Supplier

Below is a list of the challenges experienced within the Marketing team and Supplier

Relationship:

A large amount of promotional allowance may cause some firms engaged in

interstate commerce to discriminate in price to different purchasers of the same

commodity when the effect would be to lessen competition or to create a monopoly.

The retailer may not comply with the supplier’s conditions. For example, Massmart

may use the wrong colour, the wrong placement in an ad, or the wrong tilt to the

logo, which may lead to the supplier rejecting the claim.

The Supplier pay dearly for burgeoning promotional programs; for example,

managers at Procter & Gamble estimate that 25% of salesperson time and about

30% of brand management time are spent in designing, implementing, and

overseeing promotions. Which simply means this is a cost to the supplier.

Differences in the classification of allowances (including discounts, rebates and

incentives) in the retail industry have resulted in VAT difficulties and risks for

suppliers (e.g. manufacturers) and retailers. When a discount is allowed, suppliers

and retailers often disagree on whether the supplier has to issue a credit note for a

price reduction or whether the retailer must issue a tax invoice for a separate

taxable supply.

4. Recommendations to overcome the identified challenges

Various problems were identified throughout the conversations with the Massmart

stakeholders in terms of their interactions and relationship with various suppliers.

In identifying these challenges, several recommendations were also identified in an attempt

to improve Massmart and Supplier relations. Below is a list of recommendations that were

identified:

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• Communication on a continual basis between all relevant stakeholders.

• Sharing forecasts and other important information such as trends and forecasts so

that each party can plan inputs accordingly

• Collaboration in terms of sharing knowledge on trends and sales forecast to create a

“win-win” environment

• Ensure practice of honesty, integrity, trust, transparency, commitment and reliability

with every interaction

• Must have continual dialogue with suppliers - not just when prices go up

• Continuous improvement to reduce total supply chain costs is expected

• Must be willing to look at costs and process for both the buying company as well as

the supplier

• Focus on common vision for the relationship, with agreed strategies and activities

• Open communication and disclosure of business practices

• In terms of performance, continuous improvement towards agreed targets and KPI’s

• Clearly defined roles and responsibilities of all people involved

• Proactively anticipate business needs and providing creative solutions to achieve

efficiency

• Establishing processes to drive successful behaviour for both parties

• Strategic involvement with confidential plans such as forecasts

• Regular interaction with all relevant stakeholders

5. Ordering

Ordering is an important interaction that exists between the buyer and the supplier and

there are important aspects of ordering that affect or impact the relationship between the

buyer and supplier.

5.1. Aspects that the buyer needs to consider when placing orders with suppliers

There are various features of ordering that need to be considered by the buyer before

ordering that will affect the buyer and supplier relationship. Below is a list of such these

aspects that need to be considered:

Supplier order cycle

Current warehouse/Distribution Centre Stock holding of particular products in

question.

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Whether order is direct to store or through the distribution centre/warehouse.

Current stock cover for product within the requirements of the business.

Rate of sale

Delivery schedule for area of store.

Supplier lead time

Production capacity of suppliers

Stockholding at the warehouse

Product specifications and rounding profiles

Product nature, expiry dates and specifications

Weekly sales volume of past week before placing order

Product life cycle

Check stock on hand to check weeks cover

Cost of purchases in terms of sourcing and transportation

Available OTB

Current demand and trends

Supplier and brand reputation

Distribution and procurement channel

Ethical code, reputation and compliance

Suppliers financial position and manufacturing capacity and capabilities

Business practices

Quality standards

Supplier historical performance

Contractual obligations

Cost versus benefit analysis

5.2. Difficulties faced by suppliers in fulfilling an order

Suppliers are often faced with challenges in fulfilling an order from a buyer and can cause

tension within the relationship. Below is a list of difficulties that suppliers face:

Economic factors such as picketing and strikes.

Not being able to meet thee order quantity due to shortages of raw material

Delayed deliveries due to congestion on the road, road blocks truck breakdown, no truck

zones, and accidents.

Theft of merchandise.

Unforeseen circumstances such as floods, fire etc.

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Production capacity to meet demand

Productions issues relating to factory and raw material constraints as well as facility

upgrades which can potentially hinder production fulfilment for example the situation

with Kellogg’s facility upgrades which is affecting their fulfilment of orders

Fluctuation of commodity prices especially for Fast moving consumer goods (FCMG)

suppliers as a result of inflation.

Fuel price hikes

Electricity issues-suppliers who depend heavily on electricity for production are heavily

affected by rolling blackouts and load shedding from Eskom from example which affect

production.

Poor maintenance of trucks leading to trucks breaking down and not reaching their

destination (Most common for suppliers who own their own fleet and don’t use 3rd party

logistics for distribution.

Damages at the suppliers Distribution Centre or Warehouse affects the quantities that

need to be shipped to the customers (Massmart in this instance).

Incorrect forecasting by supplier – Impacts supplier lead time that is promised to retailer

and delivery doesn’t happened as promised. Incorrectly forecasting customer demand

for particular product will lead to loss sales and resulting in supplier not fulfilling orders

as promised which may be cancelled.

Incorrect pricing in systems – Supplier representative may place order on behalf of store

but due to incorrect prices being inputted in system may lead to cancelled orders hence

orders not being fulfilled.

Poor communication between supplier and 3rd party logistics company that handles

supplier logistics

6. Deliveries

Suppliers deliver to Massmart on a daily basis. Deliveries form another important

interaction point between suppliers and Massmart stakeholders such as DC and Store.

6.1. Ways in which suppliers deliver to Massmart

The available options consists of direct supplier delivery to the stores, supplier delivers to a

designated Distribution Centre, the retailer uses its own logistics channel, or through third

party logistics.

6.2. The average rate at which suppliers deliver to Massmart

In this question we’ll look at Makro as an example. Unilever as supplier of washing powders

to Makro delivers only once a week, which amounts to 4 times a month.

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This is how Unilever deliver to Makro on a regular basis but during promotions, spikes in

sales and customer demand, the buyer will place a special order just to meet the situation at

hand and this order will be made with the regular order or separate depending on the

agreement between the Buyer and the Supplier.

6.3. Costs involved for the supplier to deliver stock to Massmart

Normal costs include warehouse picking cost, invoice and delivery costs. These are

calculated as liters run through warehouse, admin center and delivery in relation to

actual costs incurred.

Wages for drivers and personnel involved in the delivery of goods.

Transport costs with regards to petrol/diesel as well as maintenance on vehicles.

Addition costs include:

o Overstocks sent back incurs unnecessary costs as the trucks usually have

second deliveries to attend to, so if the truck needs to load returns, it

causes delays.

o Delayed order placing could cause underutilization as special deliveries

need to be arranged to ensure on shelf stock availability at additional costs.

o E-toll and license and renewal fees.

In the case of importing goods, the supplier would have to take into account,

depending on the trading terms ‘free on board/ cleared, insurance and freight,’ the

costs of shipping, custom duties, local distribution charges, DC handling charges,

local transportation charges, port charges, freight charges, POD forwarding charges.

7. Store Procedures

When visiting a store, the supplier representative does not merely enter the store and go

about their business. Instead, there are specific processes that are followed based on

business procedure requirements.

7.1. Process that should be followed by the supplier representative when entering

a store.

Standard Operating Procedure

Step Action Required Role

1. Supplier Representative arrives at store. Trigger

2. Complete the Supplier Representative Register

(Appendix 1)

Security & Supplier

Representative

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3. Issue the Representative with a Visitors Card. Security

4. State all products and objects which is sold in

respective store.

Supplier Representative

5. Does the Representative have samples?

If yes, go to step 6

If no, go to step 8

Security

6. Complete the Security Check Sample Register

(Appendix 2).

Security & Supplier

Representative

7. Place Sample stickers on all samples and pieces of

equipment.

Security

8. Check with the Representative if he/she has any

other items in their possession which could be

mistaken as belonging to the store.

Security

9. Place a cancelled sticker on the items. Security

10. Does the Representative have a firearm?


If no, go to step 12

Security

11. If Representative possesses one or more firearms,

follow Firearm Control Process.

Security

12. Does the Supplier Representative need an

alternative entrance into the building?


If no, got to step 14

Security

13. Get authorisation for alternative entrance from

Store Manager.

Security

14. Has the Store Manager granted authorisation for

the Representative to use an alternative entrance?



Security

15. Advise the Supplier Representative to use the

normal entrance to the Store.

Store Manager

16. Advice the Supplier Representative:

Of the Right to Search Policy

The same entrance must be used to exit the

store

Security

17. Guide the Supplier Representative to the Process

Control Officer.

Security

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18. Is the Health & Safety Act involved?



Store Manager & Supplier

Representative

19. Complete the Supplier Representative Regulations

Docket.

Supplier Representative &

Process Control Officer

20. File the Supplier Representative Regulation

Docket in the Loss Control File.

Supplier Representative &


21. Guide Supplier Representative around the store to

carry out his work.


22. Return Supplier Representative to the same

Entrance when ready to exit the Store.

Supplier Representative

23. Compare sample stickers on samples/equipment

with the Security Check Sample Register when the

Supplier Representative wants to exit the Store.

Security

24. Check that sample stickers are apparent on all

items.

Security

25. Is there a difference between the Sample Register

and the samples / equipment?



Security

26. Remind Supplier Representative of the Right to

Search Policy and call the Process Control Officer.

Security

27. Investigate and resolve the issue. Process Control Officer

28. Sign out on the Supplier Representative Register. Supplier Representative

29. Hand in the Visitors Card to security Supplier Representative

7.2. Procedure that is followed in reality and whether this helps or hinders the

process and the relationship.

The supplier representative first notify the manager in the store of their visit, upon

arrival

Have a conversation with the manager, explaining the aim of their visit and what

they will be looking for, when they walk around the store

Get information about the performance of their product within that specific store

from the manager and then the sales people

Ask sales people how customers are responding to the product and brand

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Gather opinions from people who have first contact with the customer (sales staff)

and then explain to them the plan that they as a supplier have and explain how it

should be implemented.

8. Stock Management

8.1. Supplier’s policy regarding taking back aged-stock from Massmart.

Suppliers such as Ryobi engage in a “sales on return” with Massmart which allows them to

exchange old stock with a more new range. In Makro there are several ways in which aged

stock is dealt with, however the question asks about the supplier’s policy.

Considering the fact that Makro deals with a number of suppliers, we were able to retrieve

information on how some of the aged stock is dealt with, with certain suppliers. In some

instances a consignment of goods may be received as way to test how well it sells, in this

case whatever goods did not sell, will be sent back to the supplier as per agreement.

Secondly a supplier may uplift the goods as per agreement. Some suppliers may provide us

with a credit note instead of taking back the items. For example, if there is only one unit of

aged stock for a certain supplier or if the cost of taking back the items is greater than just

issuing a credit note, then the supplier will issue the credit note. Some suppliers may offer

margin support with regards to aged stock so no money is lost on the stock. And in some

cases, the supplier refuses to take back aged stock, in this case the supplier is billed and

forced to bear the cost of the aged stock. If we are forced to bear the cost of aged stock

then we have to markdown items to get rid of it and in the process lose profit.

8.2. Supplier’s policy regarding taking back damaged stock from Massmart

Policy is dependent on a number of factors such as negligence and who is liable for it.

Massmart carries a ‘full returns policy’ and accordingly reserves the right to return any

goods delivered to Massmart by the supplier for a credit at the then current price applicable

to the Massmart store in question, including but not limited to the following:

Any goods which Massmart deems to be damaged, broken, faulty or of a quality

inferior to the standard required;

Any goods that are not suitable for the purpose for which they are generally

intended, are defective, or not in good working order within the meaning of section

55 of the CPA, are not useable and durable for a reasonable period of time, not less

than 6 months, which do not comply with any of the standards prescribed under the

Standards Act or any relevant public regulation;

Any goods which are to be replaced in terms of a range replacement by the supplier

or which are part of a range that is discontinued by the supplier;

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All goods in respect of which the supplier is unable to provide the guarantees or

warranties, specified on the order or which are required in terms of the CPA and

All goods in respect of which the supplier is unable to provide after- sales- service in

accordance with the reasonable expectations of Massmart and/or its customers.

For suppliers that pay swell allowance, they allow Massmart dispose of damaged

stock as they wish, which gives the retailer the option to liquidate the product,

keeping all the proceeds; or dispose of the product and charge additional disposal

fees if incurred. If both Massmart and suppliers work together, they both could find

opportunities to reduce handling, transportation and disposal costs.

Supplier to take back stock at the same cost the stock was taken or bought.

Forward share plays a big role in this aspect, as stock is pumped into stores to fill up

the Gondola ends, side stakes, and front pallets or till points

On sales based vendor.

9. Negotiation

9.1. Factors that need to be negotiated with suppliers

Below is a list of factors that are negotiated between the buyer and seller:

Order cycles, lead times

National deliveries

Negotiate “Selly”: Which is the rate supplier pays per unit for promo period. Bill

supplier for difference in promo markdown. (percentage based)

Negotiate rebates

Expectations with regards stock management (aged stock, damaged stock and

uplifting non-selling items)

Promotion billing

Negotiate Prices (everyday prices and deals)

Negotiate deals for identified product range that has been sent through by planners,

and getting a deal to support identified price point based on competitive analysis.

Marketing spend for leaflets and additional advertising spend by supplier.

Negotiate swell allowance for ages stock, damages stock or discontinued lines if

swell supplier.

Negotiate product volumes

Floor space and utilisation, also includes gondola ends

Promotion strategies, discounts and advertising spend and periods

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9.2. Rebate agreements

Rebate agreement is a contractual obligation agreed between a supplier and a retailer

containing information such as the basis for the rebate, targets that need to be met for the

rebate, rebate percentage or amount, advertising rebates, rebate recipient and validity

period for rebate. Each supplier will have a different rebate agreement with a retailer

depending on the volume purchase that have been negotiated between the retail buyer and

supplier representative.

9.3. How rebates are applied in practice?

In Massmart there are Rebate agreements that are negotiated for the group as a whole then

at a divisional level there are rebate teams that negotiate further agreements with suppliers

for extra rebate terms and discounts.

There are different rebates that are agreed for different categories from different suppliers

and this is represented by the different rebate suppliers. There are two types of rebate

suppliers: Multi-Rebate Supplier and Single Rebate Supplier.

Multi-Rebate Supplier: This is a supplier who provides multiple categories of products to

Massmart, for example, Unilever who supply multiple categories like perishables,

commodities and groceries.

Single-Rebate Supplier: This represents a supplier who provides a single category of

products to Massmart, for example, Albany who only supply bread to Massmart divisions.

From store level, every week (or month) depending on division of Massmart, there are

transaction files that are imported to the system that is used by the respective division.

These transactions have the barcodes of the products which is linked to a supplier. Each

product line has a rebate amount or percentage that was agreed in the rebate agreement.

The rebate amount is calculated for each product line that has been sold in stores and then

the total rebate amount is calculated.

Practically, a company such as Massmart then negotiates a rebate target in terms of the

volume of sales at a particular point in time e.g. at the beginning of a trading period which

stipulates a percentage to be received with each met target. An example of such an activity

would look like this:

10% sales increase on last year for product A = 1% rebate



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9.4. How supplier performance is measured, controlled and reported on?

Below is a list of performance measurement and management factors that are applied to

supplier in regards to the supplier, their product, service levels and communication:

9.4.1. SUPPLIER

Financial stability

Reputation

Flexibility and adaptability to change

Systems in place

Company profile (who else they conduct business with)

Code of ethics

Carbon footprint involvement

BEE rating

9.4.2. PRODUCT

Quality (occurrences of defective goods, expiry dates)

Accuracy of invoice and delivery (correct quantities, on time delivery)

Responsiveness to returns

Guarantee of function

Competitive pricing/negotiation

Collaboration with lost sales

Sell through and order fill rates

Cost/size margin

Regular promotion sales

9.4.3. SERVICE

Reliability (delivery time)

Organisation of delivery trucks ( minimal contact with goods)

Network supply (logistics)

Lead times

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On time shipment

9.4.4. COMMUNICATION

Involvement (issuance of feedback)

Availability of samples

Data quality

Knowledge of upcoming trends

While Massmart does not make use of a formalised scorecard across the board, the

principles are in place with divisions regularly reviewing supplier performance in terms of

the year to date sales, aged stock, order fill rate, sales and margin per supplier

However general practise is to employ the use of a supplier scorecard. This score card

evaluates the supplier’s efficiency and consists of metrics which measure invoice accuracy,

data quality, EDI and RFID capabilities, on time shipment, service level, product quality,

returns, lost sales, regular/promotion sales, cost size/margin, delivery rates, quality

statistics, sell through, and order fills.

Of course the criteria the scorecard measures will be different depending on the nature of

the organisation as well as that of the supplier. See Score card in Appendix 3.

Appendix 1

Contractors Register

Date

Contractors

Name Reason

CF Contact /

Reference Time In

Contractors

Signature Time Out

Contractors

Signature

PCO

Signature

Management

Checks

Appendix 2

Security Check Sample Register

Date Description QTY

Sticker Number

From

Sticker Number

To

Management

Checks

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Appendix 3

Example of a supplier score card:

Main Category Sub-Criteria Weight Actual

Performance Rating

Weighted

Rating

Cost

25%

Annual Cost Reduction 100% 12% 5.00

5.00 1.25

Quality 25% 35% 3.00 0.75

Delivery 25%

On Time Delivery to

Commit

50% 97% 3.00

Lead Time 50% 5 Days 4.00

3.50 .875

Innovation and Business

Alignment 25%

Innovation 12 pts 12 of 12 points

Responsiveness 12 pts 12 of 12 points

Business Processes 14 pts 11 of 14 points

Quality Systems 12 pts 8 of 12 points

43 / 10 4.30 1.075

Total 3.95

Supplier Relations

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