Leading companies around the world are using Six Sigma as a rational and measurable method to improve quality and productivity. But what does one use to address irrational and immeasurable problems?
We would suggest Six Sigmunds -- an alternative approach for truly dysfunctional relationships.
Case History: Every year the Trade Relations segment of Progressive Grocer's "Annual Report on the Grocery Industry" allows retailers to rate CPG manufacturers' performance in key relationship areas. In 2002, from this country's leading grocery store chain execs, CPG manufacturers get the following approval ratings.
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- 48.8 percent on the "number of new item presentations" -- down from 50.7 percent in 1994
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- 48.5 percent on the "usefulness of sales reps services" (read: free shelf stocking) -- down from 54.4 percent in 1994
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- 44.9 percent on "value of deals and allowances offered" -- down from 45.7 percent in '94
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- 44.6 percent on "performance requirements on deals and allowances" -- essentially flat vs. the 43.6 percent approval rating awarded in 1994
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- 50.4 percent on "frequency of salesmen's visits to headquarters" -- down a whopping 14.8 points from the 1994 approval rating of 65.2 percent.
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- 43.1 percent on "usefulness of category management programs" -- despite manufacturers investing hundreds of hours in CatMan analysis and hundreds of thousands in data acquisition and cleaning searching for unique ways to help their accounts build sales and profits.
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- A 57.5 percent "Trust Level" rating -- up almost 3 points from the 54.7 percent awarded in 1994 -- small progress but worth citing because this is the only positive number in the entire report.
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Low scores in the absolute not withstanding, grocery retailers are supposed to be business people. Based on this, one might assume there were some key financial reasons or blatant trigger points that precipitated these drops.
Not so. In fact, it's quite the contrary. To get to the heart of the matter, in 1993 -- the year on which grocery chain execs based their ratings as cited above -- trade promotion spending averaged 49 percent of CPG manufacturer A&P budgets. By 2001, this had jumped to 61 percent. Trade Promotion as a percentage of manufacturer net sales averaged 13 percent in 1993 but by 2001 had inched up to 16 percent.
Irrational? Yes! So let's turn the problem over to the Six Sigmunds.
Sigmund #1: Dependency Resentment -- Grocery retailers dislike manufacturers because they have allowed themselves to become dependent upon them for virtually everything -- product, promotion funding and ideation, analyzing their business and managing their inventories, etc. Only a handful of grocery retailers have developed the internal capacity to provide significant value-added beyond being a conduit to the consumer. This makes it easy for the rest to blame suppliers for everything that goes wrong.
Sigmund #2: P-envy -- meaning "P" as in "Profit." Grocery retailers are always poor-mouthing about how little they make versus manufacturers. Their idea of "partnering" is when both parties make the same profit on the bottom line. And where do grocery retailers intend to go to get this profit? From manufacturers, of course -- those big, bad guys with all the profits and unlimited resources.
The basic mistake most manufacturers make in their relationships with grocery retailers is to try to deal rationally with an irrational mindset.
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Sigmund #3: Sibling Rivalry -- Grocery retailers look at Discounters, Supercenters and Clubs and, now, Drug, Convenience, Dollar Stores and even Vending Machines -- and think everyone's getting a better deal than they are -- apparently unaware of the fact that these other channels are more economical -- and a lot easier and more pleasant to deal with.
Sigmund #4: Attention Deficit Disorder -- The grocery retailers' idea of "strategy" is to read last week's competitive ads at their Monday morning planning meetings to make quick price changes for this week's Thursday ad. The idea of developing and sticking to a consumer-driven vs. a deal-driven strategy is a concept that appears to be light years away for most grocery retailers.
Sigmund #5: Denial -- Meaning failure to take responsibility for one's own actions or even recognizing that it is one's responsibility in the first place. This applies to doing one's own Category Management analysis, paying for the marketing of one's own private label products, doing something to attract and hold consumers other than "build it and they will come," providing suppliers with specific promotion guidelines and placing blame for virtually everything that happens on either manufacturers (first choice) or competition (if all else fails).
Sigmund #6: Paranoia -- The feeling that manufacturers are always out to screw them and/or aren’t truthful and/or are withholding information and/or are giving a better deal to their competitors. The 57.5 percent "Trust Level" rating says it all.
The Six Sigmund Net Analysis: The basic mistake most manufacturers make in their relationships with grocery retailers is to try to deal rationally with an irrational mindset. Based on the massive efforts manufacturers put forth over the last decade to improve relations, the results of the latest Trade Relations poll as summarized above would indicate that there appears to be nothing meaningful you as a CPG manufacturer can do to change this situation.
Clearly, more spending, more analysis, more customized programs and even Top-to-Top visits by manufacturer CEOs have not worked.
Maybe your company could pop for a couch at your key Retailers' Headquarters?
Dr. Christopher W. Hoyt is President of Hoyt & Company LLC, a packaged goods training and consulting organization based in Scottsdale, AZ. He may be reached via his web site at www.hoytnet.com
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