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Filing documents in bankruptcy court is akin to hanging out one's dirty laundry. A list of debts and vulnerabilities ends up flapping in the wind. In Kmart's case, the laundry was especially dirty, as the filing revealed hundreds of millions of dollars in unpaid bills to its vendor partners.

But in the days and weeks following the filing, fears of Kmart's immediate viability have subsided, and the vendor community has rallied around the retailer, particularly as debtor-in-possession financing is allocated across the board.

For the most part, all goods are moving again at Kmart. "In vendor relationships, 90% of vendors are back to normal shipping agreements," said Michele Jasukaitis, a Kmart spokeswoman.

During a Feb. 25 press conference for the rollout of the Disney children's apparel line, chairman Jim Adamson said stores were in an 80% in-stock position. He explained that Kmart has been in constant contact with vendors since the bankruptcy filing and would continue to talk to its suppliers, to reassure those who are currently shipping the company and also to coax back those who have yet to do so.

Most are back, he said, and a few, including Coca-Cola, continued shipping right through the bankruptcy announcement. However, he said, Kmart is challenged to maintain a strong relationship with vendors under strained circumstances. "In this situation, nothing is easy," he said. "When you are in a bankruptcy, it's not business as usual."

That being said, suppliers are anxious for Kmart to get its house in order, faced, as they are, with a consolidating retail marketplace where companies such as Wal-Mart and Target have increasingly gained clout. By cooperating with Kmart to improve its performance, vendors enhance their own position. Thus, they will lend what aid they can to help Kmart emerge from bankruptcy.

"If you think about it, the success of any restructuring is ultimately based upon the ability of the business to generate free cash flow from operations," said William Marquard, Fleming's executive vp and chief knowledge officer, in a recent conference call.

"No matter how much time the lawyers and the investment bankers spend trying to split up the pie, the bottom line is it is in everybody's interest to make the pie as big as possible," Marquard said. "We have focused our talents and expertise--as well as worked closely with the Kmart team--to make sure we're optimizing the value of the enterprise and the value of the business."

Mark Hansen, Fleming's chairman and ceo, added, "We recognize that the bankruptcy process gives Kmart an important opportunity to shed underperforming assets and refocus its business as a leaner, more productive, frankly, growth company."

Fleming, said executives, has continued developing means to improve Kmart's distribution function, including adding technology and hardware. It will continue to do so and look for ways to help Kmart become more efficient and effective as it reorganizes.

Indeed, working with vendors and re-evaluating the supply chain is exactly what Kmart needs to do if it is not only going to survive bankruptcy, but emerge as a genuinely competitive entity, said Paul Griswold, president and ceo of Paxar Corp., and a supply-chain specialist who has worked for such companies as PepsiCo and Tenneco Packaging. Kmart should develop a strategic effort to identify a customer and retail space where it can compete competitively, then retool relationships with suppliers to provide better service to the target market, he said.

"The silver lining I see in this is that Kmart has been put in a position where they will have to look at the value proposition, locations, SKUs, profitability and revisit who they are targeting as clients," he said. "As Kmart looks at the supply chain--once they define their identity more clearly--it should help them in working with suppliers."

Griswold said Kmart needed to determine what consumers it can serve better than its competitors and then adapt to their needs. To hone its service of the targeted customer base, Kmart should begin at store level and look back through the supply chain to decide where it can make improvements.

By doing so, Kmart can tailor its performance to the targeted customer and dispense with what doesn't fit. Further, it can pair down its vendor base, while working more closely with the remaining suppliers on initiatives that promote customer satisfaction. Of course, Kmart has made efforts to hone its approach to the customer, but now it has a particular opportunity to bring a wide array of resources to bear, less encumbered, as it is, by considerations other than restructuring.

"They have to focus on and understand who the customer is," Griswold said. "If you start with the wrong customer, you will wind up competing and falling. Once you know who the customer is, you can build processes. At that point, Kmart can look at supply points and critical paths between suppliers and itself, but it involves more than doing a process map. You have to understand what suppliers can do for you."

A lot of vendors would like to do more with Kmart, and a lot would appreciate a re-evaluation that starts at the store level. Many suppliers say Kmart must finally address the issues of out-of-stocks, store maintenance and customer service.

While technology investments and refinements of the distribution network are designed to help address the out-of-stock issues, Kmart should seize the opportunity that reorganization provides to take definitive steps toward improving the shopping experience for customers. If it does so, its time in bankruptcy won't be wasted.

Like traditional vendors, the companies Kmart works with to develop exclusive brands also look at the retailer's bankruptcy filing as an opportunity to enhance selling environments that impact the goods under their labels. Kathy Ireland, ceo of Kathy Ireland Worldwide, said her conversations with senior Kmart executives, including chairman Jim Adamson, had left her convinced Kmart would address areas of concern, such as the store environment and customer service. "Everyone is committed to moving forward and turning the stores around," she said. "I feel confident something good will come of this."

One vendor, who spoke on condition of anonymity, said Kmart had to transform its culture at store level and even slow down the pace of its initiatives if that is what it takes to ensure changes take hold. "The store-level execution will tank them," the vendor said. "With a culture that has been as staid as Kmart's has been, the changes may be a lot for people at store level to absorb."

The vendor added Kmart could take a dramatic step toward solidifying its relationships with vendors it if made another cultural change at the headquarters level and dealt more equitably with issues such as payments and charge backs. "They need to pick a core group to live and die with--make the best, most satisfying deals they can for both parties and forge a new chapter in their relationships," said the vendor. "Historically, they have been difficult to deal with."

While vendors generally have been supportive of Kmart, they were clearly shaken in the days leading up to the Chapter 11 filing. In its actions during the first few weeks of 2002, Kmart alienated some suppliers, particularly because of what many considered a dearth of information from the retailer. Many stopped shipping and a few have even cut ties to the retailer. And many still are confused about what the Kmart bankruptcy will mean to their business.

Although pre-bankruptcy communication issues were a concern, Kmart vendors already had been rattled by goings on at the company's Troy, Mich., headquarters. Weeks earlier, Kmart launched an initiative designed to get better terms and service from its suppliers that are in line, said some vendors, with what Wal-Mart received. Discomforted suppliers felt Kmart was pushing them for terms that were unwarranted and that, coupled with the discussions of a possible bankruptcy that began late last year, only made them more anxious about the company and its intentions.

Also troubling vendors, several noted, was a revolving door in Kmart's executive suite through which senior managers came and went in periods sometimes measured in weeks. The rapid rise and fall of Brent Willis, the company's head of marketing, was only one example of ongoing executive turmoil.

Emme Kozloff, a Bernstein Research analyst, said Kmart had made a substantive first step toward resolving this concern among vendors and others when it restructured management just before the Chapter 11 filing.

"I think it was necessary to have Adamson be activated in light of the coo, the cfo and the head of marketing all leaving within a year," she said.