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Op-Ed: Is 2016 the Year of Retailers’ Big Squeeze on Suppliers?

Will 2016 be remembered as the year that retailers put the big squeeze on suppliers over margins, delivery deadlines and a host of other issues?

So far this year, the answer is a resounding “yes.”

And it’s putting renewed pressure on brands and manufacturers to gain further control of their supply chains.

As Reuters reported recently, Target is asking some of its suppliers to take on up to an extra 3-5 percent of the cost of promotions and price cuts to account for this year’s slow sales. The move was reportedly done to minimize the hit those markdowns had on profit in an already tough year where consumers were watching their dollars.

This follows on the heels of tougher delivery deadlines and penalties that Target, Walmart and others have imposed on their suppliers, and these moves are a bellwether of what’s happening through the retail industry as other retailers will quickly follow their lead.

Retailers are putting more pressure on their suppliers in response to weak demand and sluggish sales throughout the industry. This year has become one of heavy discounting for retailers, as the promotional frenzy of the 2015 holiday shopping season never really stopped. Sales and profits are down overall, and retailers are forced to resort to discounts and promotions in order to entice consumers to buy.

This isn’t new of course, but the extent to which retailers are forcing suppliers to bear the burden—and even share the cost of price cuts in Target’s case—is unprecedented.

So, what can suppliers do?

The answer is simple: focus on supply chain execution as if your life depended on it. Because in a very real sense, it does.

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Brands, manufacturers and retailers alike have invested heavily in product lifecycle management (PLM) in recent years to make significant strides in product development, but in many cases, it’s come at the expense of supply chain execution.

In today’s unforgiving retail climate, the message to brands is clear: supply chain execution must become your No. 1 priority. Without it, you stand to incur huge penalties—and a possible loss of business from your most important customers.

There’s plenty to be concerned about, too. According to the inaugural Fashion Transparency Index published this year, “A large number of global apparel companies are still operating with little knowledge or control of their supply chains.”

The good news is, a new generation of supply chain management systems is helping enterprises break through their organizational barriers and improve supply chain visibility and transparency. These new Supply Chain Management (SCM) systems connect the data and systems in an organization to drive better decision-making and faster turnaround time, turning SCM into an enterprise platform that helps brands optimize lead times, control costs, improve profitability and meet the new mandates from their most important customers.

Without better supply chain execution, production issues (quality problems, delayed shipments on raw materials, overbooked capacity, test and inspection failures and much more) can’t be shared before problems escalate into full-blown crises.

By the time companies sort through mountains of spreadsheets, emails and faxes, they can be facing delayed shipments, rush charges for overnight shipments and a failure to meet required delivery windows, which results in sizable financial losses.

Companies can also miss key demand signals that tell them when to accelerate production on best-selling, profitable merchandise and when to cut their losses on products that are headed to instant markdowns. However, with a SCM system that connects design, finance, sales and production data in real-time, brands and retailers alike can help ensure on-time deliveries, quickly react to the latest sales information and make the most of every season.

These benefits are among the reasons why supply chain technologies like design and supply chain analytics are among the top five priorities for leading companies today and why there has been a linear evolution of investments in many supply chain organizations, Gartner explained in a post on its site.

In the new realities of retail, supply chain execution isn’t just the key to thriving—it’s one of the keys to survival.

By Mark Burstein, president of sales, marketing and R&D, NGC Software