Co-innovation for sustainable competitive advantage

1
Co-innovation for sustainable competitive
advantage

• Dr Andrew Fearne
• Centre for Supply Chain Research
• Kent Business School
• University of Kent, UK

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Outline

• What is sustainable competitive advantage?
• How do we achieve it?
• Where are we in the food industry?
• Co-innovation in practice
• Conclusions

3
What is sustainable competitive advantage?
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Sustainable Competitive Advantage

• Add more value
• Innovation
• Process effectiveness
• At lower cost
• Lean thinking
• Process efficiency
• Faster than the competition
• Agility
• Responsiveness
• Responsibly
• CSR

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Sustainable Competitive Advantage
Consumers
Value - Seeking benefits at acceptable prices
Innovation Excellence
Service Excellence
Assets
Assets
Utilisation
Utilisation
Cost
Company (region, nation)
Competitors
Differentials
Operational Excellence
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Sustainable Competitive Advantage
Consumers
Value - Seeking benefits at acceptable prices
Service Excellence
Retailer
Retailer
Innovation Excellence
Manufacturer
Manufacturer
Tier 1 Supplier
Tier 1 Supplier
Tier 2 Supplier
Tier 2 Supplier
Cost Differential
Operational Excellence
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Sustainable Competitive Advantage

• Co-Innovation is the key
• Development of new (value added)
  products/services for distinct customers and
  targetted consumer segments
• What we do output
• Process improvement for existing
  products/services beyond organisational
  boundaries
• How we do it input
• Innovation at the interfaces in the value chain
  are much more difficult for others to copy

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Types of Inter-company Business Process Links
Tier 1 Suppliers
Tier 1 Customers
Tier 2 Customers
Tier 3 to Consumers/ End-Customers
Tier 3 to Initial Suppliers
Tier 2 Suppliers
1
1
2
2
n
n
1
1
1
n
1
2
2
Consumer/End-Customers
1
n
2
3
n
Tier 3 to n customers
1
1
3
2
n
n
3
n
1
1
n
n
Focal Company Members of the Focal Companys
Supply Chain Non-Members of the Focal Companys
Supply Chain
Managed Process Links Monitor Process
Links Not-Managed Process Links Non-Member
Process Links
Source Adapted from Douglas M Lambert, Martha C
Cooper and Janus D Pagh, Supply Chain
Management Implementation Issues and Research
Opportunities, The International Journal of
Logistics Management, Vol 9, No 2 (1998) p7
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How do we achieve it?
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Fundamental enablers

• Consumer focus
• Collective responsibility
• Value chain visibility
• Information flow
• Relationships
• Inter-personal and inter-organisational
• Alignment of (scarce) resources with final demand
• Process integration

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Fundamental enablers(1) Information flow
Demand
Demand
Demand
Time
Time
Time
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Fundamental enablers(2) - Relationships

• Communication
• Strategic
• Operational
• Trust
• Integrity
• Capability
• Commitment
• Resource allocation
• Inter-dependence
• Power
• Control

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(No Transcript)
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Where are we in the food industry?
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Food Chain Performance

• Downstream
• Concentration (slowing down)
• Abuse of power
• Lack of strategic vision
• Commoditisation
• Opportunistic trading environment
• Lack of trust

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Food Chain Performance

• Upstream
• Rationalisation (not fast enough)
• Lack of strategic awareness
• poor communications and information flow
• Lack of confidence (investment)
• Lack of integrity (suppliers cut corners to
  survive)
• Resistance to change (independent culture)
• Opportunistic trading environment
• Lack of trust

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Food Chain Performance

• Status quo is unsustainable
• Economics
• Ethics
• Environment
• It does not have to be this way

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Co-innovation in practice
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Supply chain competition
Consumers
Source Duffy Fearne, 2003
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Consumer focus key to Tesco growth
Clubcard launch
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Clubcard data
Tesco Head Office systems

• Clubcard registration data
• Name, Surname, Address
• Telephone and email
• Dietary requirements
• Family composition
• Data protection opt ins and outs

• Reference data
• Store reference details
• Product details
• Store turnover
• Coupon reference data
• Promotions data

• Clubcard transactional data
• EPOS feed item level sales information for all
  transactions
• Coupon and voucher redemption
• Store, date, time

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Clubcard data

• 12m active Clubcard users
• 40 of UK households
• Clubcard database 10
• 1.2 million households
• 265,000 SKUs
• 30,000 food
• 2yrs of data
• 80 of transactions
• updated weekly

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Five approaches to shopper segmentation

• Lifestage
• young adults, younger families, older families,
  older adults, pensioners
• Lifestyle
• finer foods, price sensitive, convenience,
  mainstream, traditional
• TV Region (12)
• Retail Format
• Extra, Super, Metro, Express, .com
• Geo-demographics
• Cameo, Mosaic
• Shopper loyalty
• premium, standard, potential, lapsing,
  uncommitted, gone away

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Shared benefits of consumer insight(www.foodchain
centre.com)

• Long Clawsons Dairy Tesco
• Green Label Foods Sainsburys
• KG Fruits MS
• Potatoes
• Asda Fenmarc
• Waitrose Solanum

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Analysis of Clubcard data revealed significant
opportunity for improvement

• 3 of the 6 promotions resulted in a net reduction
  in the value of sales for the category as a
  whole, in every case as a result of a negative
  impact on Long Clawsons (own label) product
• In the other 3 cases there was overall growth in
  both the promoted product and Long Clawsons blue
  stilton wedge, resulting in increased sales for
  the category as a whole.

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Long Clawsons Dairy Tesco

• Small farmer co-operative (30m), producing
  award-winning blue cheese for the UK
  supermarkets, of which Tesco is the largest
  customer
• We have a dominant position in the blue cheese
  category but we have little influence on the way
  promotions are used throughout the year. If we
  had a better understanding of which promotions
  work on which products we might be able to drive
  category value more effectively and demonstrate
  the benefits of some promotional activity for our
  own label products as well as the branded
  competition
• (Janice Breedon, Marketing Manager)

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Data analysis revealed differential promotional
impacts

• Roquefort
• 28 price cut
• Volume up by 380
• Repeat rate up by 140
• Pulls in older adults at expense of younger
  families
• St Augur
• 23 price cut
• Volume up by 203
• Repeat rate up by 4
• No impact on lifestage profiles

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Data analysis revealed significant opportunity
for improvement

• Understanding of promotional impacts enabled Long
  Clawson to make a case for
• In-store tastings
• Re-vamped packaging and POS aimed at younger
  shoppers
• Help them break out of the commodity trap
• Benefit to Long Clawson and Tesco

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Green Label Foods Sainsburys

• Small family-owned supplier (20m) of fresh
  Gressingham duckling in Taste the difference
  range
• Category review revealed poor performance of
  wings and stir fry
• Co-funded consumer research revealed preferences
  for new lines and confirmed the importance of the
  breed for quality difference
• From our point of view and their point of view,
  a lot of money goes into developing new products
  and its a matter of trying to get it right. At
  that focus group we discussed flavour of sauce,
  price points, breasts and legs, cooked or raw
  The idea is to be completely focussed on what is
  going to sell. Throughout the whole business we
  are tying to get out of products that arent
  selling That makes sense for Green Label Foods
  as much as is does for Sainsburys William
  Buchanan, Marketing Director

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KG Fruits and MS

• KG Fruits is the UKs largest soft fruit
  co-operative (120m), supplying all the UK
  supermarkets and key supplier to MS
• Strategic approach to RD and NPD keeps KG and
  MS ahead of the game
• Joint venture with Driscoll gives KG exclusive EU
  marketing rights for new US varieties
• Consumer research with MS shopper panel provides
  evidence of consumer preferences and willingness
  to pay
• MS get exclusivity for first 1-2 seasons
• KG get confidence to invest and access to premium
  shelf space

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Fresh potatoes Asda Fenmarc, Waitrose Solanum

• Opposite ends of the spectrum but common approach
  to supply chain management
• Rationalisation
• Waitrose focus on quality and differentiation
• Asda focus on quality and efficiency
• Relationship development
• High level of dependency
• High degree of visibility (costs, margins)
• Clear understanding of business strategy and
  alignment of business processes

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Fresh potatoes Asda Fenmarc, Waitrose Solanum

• Everyone has to come willingly to the table to
  make it work. It is still a buyer-seller
  relationship but an adult one. Arm-twisting means
  someone is going out of businesses when what we
  need are sustainable businesses investing in
  their futures We will tackle pricing once per
  month when most other suppliers will gear up for
  their weekly bash on prices the guidelines are
  very tight from Asda so we do the job of the
  buyer we have a range of products and 52wks of
  the year to balance the budget, so we take a
  longer term view we have the systems ready for
  Vendor Managed Inventory, we generate the
  forecasts that are usually spot on, we pick to
  stores and can review store-level data every
  15minutes. We are not a big team and there is no
  great hierarchy. We can move very fast because
  the chain of command is very short. Out of
  courtesy we run what we propose to do past them,
  but they expect us to know our business - we
  are the experts - so if we can come up with a
  strategy and execute it according to plan why
  wouldnt they support us? Mark Harrod, Managing
  Director, Fenmarc

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Fresh potatoes Asda Fenmarc, Waitrose Solanum

• Waitrose trust us and they only inspect once per
  month, so it important to warn them when we can
  see problems down the line. Volatility is always
  a problem in the potato business, you have to do
  what you can to face problems early on. We
  benchmark weekly against other retailers, scoring
  our potatoes blind. Results are sent to Waitrose
  and usually we are top. If we are not we react
  immediately. Eating quality and cooking quality
  can be varietal but it is also influenced by cold
  storage management, which is not easy to do. For
  example, this year was very dry so bruising was a
  problem, but our benchmarking showed that we were
  doing better than the other retailers so Waitrose
  helped us by easing the specifications to reduce
  rejections. Paul Tracey, Logistics Purchasing
  Manager, Solanum

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Conclusions

• Improving the competitiveness (efficiency and
  effectiveness) of food supply chains requires
  fundamental changes to industry structure and
  business capability (strategic and operational)
• Co-Innovation is the key
• Development of new (value added)
  products/services (what we do output)
• Process improvement for existing
  products/services (how we do it input)
• Within and between organisations

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Conclusions

• Sustainable competitive advantage is achievable
  but requires
• Efficient and effective flow of information to
  all stakeholders who have the capacity to exploit
  it
• Business leaders with strategic vision who
  understand the drivers for change and embrace the
  principles of co-innovation
• Integration of key business processes with key
  customers and key suppliers
• Alignment of resources within distinct value
  chains with the needs and wants of targetted
  consumer segments

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Thank you(a.fearne_at_kent.ac.uk)