Building a Customer-centric Supply Chain

Stephen DeAngelis

December 15, 2015

You would think that one of the highest priorities a company would have is getting to know who their best customers are. If you think that’s true, supply chain analyst Lora Cecere (@lcecere), founder of Supply Chain Insights, says you’re in for a big disappointment.[1] She notes that customer segmentation and building a customer-centric supply chain are popular topics at conferences; but, she also observes that many companies aren’t really sure what being “customer-centric” really means. She recalls volunteering to speak at a workshop being conducted by a major consumer packaged goods company back in 2008 that was focusing on the topic “Customer First”. She knew things weren’t going to go well when she found no sales or marketing representation in the room and members of the group were not even clear about who their customers were. It became evident, Cecere writes, that the company’s executives had no idea what the difference was between developing a sales-driven and customer-driven supply chain. As a result, she notes, they failed to address some serious customer-centric supply chain shortfalls. “Their customer service (on-time delivery and case fill) was unreliable,” she writes, “and the supply chain systems were not designed to manage one-off customer requests.” Another supply chain analyst, Jim Tompkins (@jimtompkins), CEO of Tompkins International, defines Customer Centricity this way: “Customer Centricity is the quality of an organization that places the customer at its core.”[2] He points to Amazon as a good example of a company that has a customer-centric supply chain. He explains, “Amazon starts with the customer and thinks backwards when creating its supply chain.” Tompkins believes there are four components required to become Customer Centric. An Organization must:

 

1. Provide a wide selection of products to the customer.
2. Have good pricing options for the customer.
3. Create a convenient process for the customer.
4. Provide good experience for the customer.

 

Cecere asserts that a good customer experience begins with reliability. “I am firmly convinced that the first step in the delivery of a customer-centric supply chain is reliability,” she writes. “A supply chain that cannot fulfill promises will never get high marks for customer service.” The second step, she believes, is understanding the customer. If your company has never bothered to develop customer personas, then understanding the customer is an unreachable goal. To learn more about why developing customer personas is important, read my article entitled “Targeted Marketing Requires Persona Granularity.” Boston Consulting Group analysts, Michael J. Silverstein (@MJSilverstein), Dylan Bolden, and Dan Wald, agree that understanding your customer is essential for creating a customer-centric supply chain.[3] “Consumers use products in different ways, depending on when they use them and whether they are on their own, with their friends, or with their family. So you need to ask: When do customers use the product? Whom are they with at the time? How do they want to feel? Which needs are current suppliers failing to fully fulfill? Do this, and you will start to understand what really drives consumer choice.” Once you know who your targeted customers are, Cecere recommends doing what Amazon does — map the supply chain from the customer/channel back. She offers seven steps to help you do that mapping.

 

1. Improve Supply Chain Visibility — “Channel visibility is an issue for most supply chain leaders,” Cecere notes. Without channel visibility you are filling orders blindly. “An order is not an order,” Cecere insists. “A customer is not a customer. However the differences are not clear in today’s normal technology implementation. An order has many types: a rush order, a turn order, new product launch fulfillment, a special order, or a sales order to stuff the channel to fulfill a sales bonus target. Each should have a different priority; but, it is hard to have an operational discussion without visibility. Improving order visibility to enable action is one of the first steps to improving reliability.”

 

2. Define What Matters to the Customer — Knowing what matters to customers and then aligning your organization to meet those expectations is essential. Cecere notes there is a natural tension between sales teams and supply chain teams; with the former motivated by volume and the latter driven by costs. Unless the two teams are aligned, customer centricity will only be a topic of discussion rather than a reality. If you think you know what matters to customers today, stand by. According to a PwC survey, “Changes in customer behavior are set to disrupt businesses in all industries over the next five years. Yet, most company operations are not designed to deliver what customers value — now or three years from now.”[4] “Knowing what customers value is a real and persistent challenge for operations executives. Without this understanding, we often see operations stretched too thin,” says Mark Strom, Principal and Global Operations Leader, PwC. “When one team tries to innovate, they come in direct conflict with an operational assignment to cut costs — or they create some new complexity that’s harder to manage. Negotiating trade-offs can slow everyone down.”

 

3. Use Scorecards Cross-Functionally — “Scorecards are a valuable piece of customer information,” Cecere writes. “It is a mistake to hold the scorecard within the sales or commercial organizations. … In consumer products, despite two decades of retail scorecard sharing, we have only improved on-time delivery and shipment conformance. Companies still have a long way to go in resolving billing/deductions, providing excitement in assortment, and reducing costs. Like retail, in most industries the scorecards are a great starting point for a discussion and yield great input, but do not give teams a complete answer. While scorecards are useful, they are not sufficient. A more complete answer to manage/implement a customer-centric supply chain is mapping the processes outside-in, and gaining/using customer insight to drive supply chain design and policy development.”

 

4. Implement Cost-to-Serve Analysis to Drive Actionable Results — “An effective way to align commercial and operational teams is the implementation of cost-to-serve analysis,” Cecere observes. “What is cost-to-serve analysis? It is the analysis of supply chain cost drivers by customer. … Elements of supply chain costs vary widely by customer. In the evaluation and alignment of these cost differences teams can align and start to build the framework for a customer-centric supply chain. The implementation of a cost-to-serve analysis in conjunction with a Sales and Operations planning effort improves sales and operational alignment and helps to balance one-off programs with customer needs.”

 

5. Get Good at Available-To-Promise (ATP) — Cecere explains, “ATP is an important element in ensuring reliability in customer shipments. It sets the expectation on product arrival with the customer. As the organization grows, and covers more geographies, a good ATP signal becomes more critical.” According to Susanna Bell, “Real-time analytics can come to your aid before any supplies have started their way through the chain.”[5] Magnus Cohen, Global Director S&OP at Electrolux Global Operations, told Bell, “If we can utilize the data in actually understanding our trends and customer requirements, or consumer requirements, I think we’ll be able to, as a company, react in a much more agile way to ensure that we optimize and, so to say, prepare ourselves for that coming month.” He added, “Through that total transparency you get in your process you are able to react on the requirements coming up from the other side. So in other words, a company, by being able to analyze and utilize the data in a different way, becomes a totally different player.”

 

6. Establish Listening Posts — Cecere notes, “Social data, rating and review data, warranty data, customer comment data, and distributor data comes to the organization but is not used by most supply chain leaders.” Mike O’Brien reports, “Just about every business uses social media these days, but are they using it in the right way? Many aren’t, according to a … report from Sprinklr, a company specializing in social media analytics and management. In fact, while 80 percent of companies believe they deliver superior customer service, only 8 percent of customers agree, according to management consulting firm Bain & Company. And a lot of that comes down to social media engagement, which is increasingly important to consumers.”[6]

 

7. Recognize the Differences in Supply Chains and Design Buffers — “Within a company there are usually 5-7 supply chains with distinctly different rhythms and cycles,” Cecere observes. “In the mapping of these differences use supply chain design technologies. This analysis will use the cost-to-serve data as an input and will evolve over time into customer-centric supply chain policies. In this process use customer data; but in this process, trust, but verify. What do I mean? Don’t use customer data blindly. For example, use customer forecasts only when you understand the error and bias. As companies mature, network design activities using customer data becomes a monthly process.”

 

Conclusions

 

Tompkins concludes, “Customer Centricity may be the ultimate game changer for how to retain and how to acquire new customers. Customer approval, happiness, trust, and interaction will strengthen the sales, margins, and bottom lines of big companies.” Cecere adds, “Building a customer-centric supply chain happens through hard work, understanding what matters by customer segment, and building customer-centric policies.” Articles are being published every day asserting that customers are becoming more empowered. As this empowerment grows, implementing a customer-centric supply chain will also grow in importance.

 

Footnotes
[1] Lora Cecere, “Seven Thoughts to Build a Customer-Centric Supply Chain Organization,” Supply Chain Shaman, 22 November 2015.
[2] Jim Tompkins, “The Titans: Alibaba, Amazon, and Walmart — What is Customer Centricity?The Network Effect, 16 October 2015.
[3] Michael J. Silverstein, Dylan Bolden, and Dan Wald, “Demand-Centric Growth: How to Grow by Finding Out What Really Drives Consumer Choice,” bcg.perspectives, 1 September 2015.
[4] Patrick Burnson, “PwC Research Reveals ‘Customer Value’ Void in Supply Chains,” Supply Chain Management Review, 9 November 2015.
[5] Susanna Bell, “Why Real Time Analytics Is Crucial for Supply Chain and Production,” Management Events, 2 October 2015.
[6] Mike O’Brien, “A Social Media Presence Isn’t Enough – Brands Need Engagement [Report],” ClickZ, 30 July 2014.