Supply Chain Management: From Vision to Implementation

1. Supply Chain Management: From Vision to Implementation Chapter 2: Customer Fulfillment Strategies

2. Chapter 2: Learning Objectives • Discuss how information has empowered customers, raising the competitive bar for today’s companies. • Explain how customers define value and what a company must do to deliver value. Describe the competitive contributions of cost, quality, flexibility, delivery, and innovation capabilities.

3. Chapter 2: Learning Objectives • Explain the nature of customer service and satisfaction and how they differ from customer success. • Explain why the end customer should be the focal point for the entire supply chain.

4. Chapter 2: Learning Objectives • Segment customers based on strategic importance. Describe the relationships, systems, and processes needed to deliver desired levels of service to different customers. • Discuss the role of operational excellence in assuring profitable customer relationships.

5. If we aren’t customer-driven, our cars won’t be, either. –Donald E. Petersen, Ford

6. Information-Empowered Customer • Customers are empowered with a broad range of product and pricing information • Channel power is shifting down the supply chain toward the end consumer • Combined these phenomena have created customers that use market leverage to demand higher levels of service at lower cost: • “High-Service Sponge” Customers • Toyota, Intel, Wal-Mart, etc.

7. Creating Value • Companies seek to develop a distinctive advantage and differentiate themselves in the mind of consumer. • Customers seek value in terms of: • Quality • Cost • Flexibility • Delivery • Innovation

8. Competing on Quality • Quality includes both design and manufacturing elements. • The product must be designed to live up to or exceed customer expectations. • Manufacturing must then conform to the design specifications during production. • Quality must be designed and built into the company’s products and processes.

9. Eight Dimensions of Quality • Performance - the primary operating characteristics of the product. • Features - the “bells and whistles” or extras that distinguish a product from competitors’ offerings. • Reliability - the notion that a product can be counted on not to fail. • Conformance - measures how well a product matches established specifications. • Durability - refers to the product’s mean time between failures and its overall life expectancy. • Serviceability - the speed of repair when quality problems arise. • Aesthetics - perception of fit and finish or artistic value. • Perceived quality - overall perceptions of a product or brand’s quality reputation

10. Quality Management • Management controls over 80% of quality problems. • Up to 25% of the cost of goods sold can be traced to finding and fixing quality problems. • Quality drives consumer behavior, thus it may be the most important competitive factor. • Best-in-class companies seek 6σ level quality • 3.4 defects per million opportunities

11. Competing the Cost Four strategies are widely pursued: • Productivity enhancement • Adoption of advanced process technology • Locating facilities in countries with low-cost inputs • Sourcing from the world’s most efficient suppliers

12. Cost Issues • Performance measured by total landed cost • Cost drives strategic decisions such as: • Global manufacturing rationalization • Outsourcing • Downsizing • When cost performance improves, companies: • Increase market share • Increase scale economies • Improve profitability • Invest in future capabilities

13. Competing on Flexibility • Flexibility is the capability to adapt to new, different, or changing requirements. • Flexible organizations operate with short lead times, are responsive to special customer requests, and can adapt rapidly to unexpected events. • Flexibility requires investment in information and automated production and logistics technologies.

14. Requirements for a Flexible Culture • Make cycle time a priority throughout the organization • Map processes to make them visible • Identify key time-related activities/decisions • Benchmark against customer requirements and competitors’ capabilities • Cross-train workers and organize work in multifunctional teams • Design performance measures to value fast-cycle capabilities • Develop information systems to track activities and share information • Build learning loops into every process throughout the organization

15. Competing on Delivery • Competing on delivery means consistently delivering on-time and in the correct quantity. • Fast, reliable delivery requires the reduction of order cycle time and the elimination of variability.

16. Computing on Delivery • Delivery capability is cross functional by nature, requiring coordinated efforts by: • Sourcing • Operations • Logistics • Operations and logistics often represent 90% of total order cycle time

17. Competing on Innovation • Innovation creates new markets and changes industry standards. • Early Supplier Involvement (ESI) is a key element of innovation strategies. • Products introduced on-time but 50% over budget, realized only a 4% reduction in profit. • Products introduced on budget but six months late experienced a 33% decrease in profits.

18. Trade-off vs Synergy: Traditional Managers believed: • High quality was inherently expensive • Standardization and customization are on opposite ends of the cost continuum • Rapid delivery reduces flexibility

19. Trade-off vs Synergy: Contemporary • Managers now seek synergy along all dimensions of customer value. • Systematically addressing each results in a stronger more sustainable competitive position.

20. Trade-off vs Synergy

21. Customer Satisfaction • Customer satisfaction is based on whether a good or service meets or exceeds the customer’s a priori expectations. • The key to satisfying customers is to understand their needs so that unique products and services can be developed. • Creating satisfaction should be the goal of the company’s culture and structure.

22. Expectations and Satisfaction

23. Customer Satisfaction Index

24. Importance Complete Satisfaction • Xerox found that customers who rated their service experience as largely satisfied were six times more likely to defect to a competitor than those who were completely satisfied. • Repeat business occurs when service experience is comparable to competitors. • Loyalty is achieved when customers perceive truly distinctive service.

25. Customer Satisfaction and Loyalty

26. Customer Service Strategies • Traditional customer service focused on internal service levels and goals: • Percent defective products • Percent on-time delivery • Fill rate • Without feedback it is easy to emphasize activities the customer does not value. • Service Gaps

27. Customer Satisfaction Strategies Customer satisfaction strategies require direct input from a customer. Questions to be addressed should include: • How do important customers define quality, on-time delivery, responsiveness and other key value areas? • Are our internal measures consistent with customers’ measures? • Does our current performance meet our customers’ requirements? • Would an improvement in our performance be valued by our customers?

28. Customer Satisfaction Strategies • Customer input allows managers to: • align measures to customer expectations • allocate resources and reevaluate priorities • adopt new policies or practices • Information typically gathered from surveys, focus groups, in-depth personal interviews, and ethno-graphic studies.

29. Customer Success Strategies We turn our customers into winners. Their success is cash in our bank. Our customer is our most important partner in cooperation – his customer benefits from this as well. - CEO of Tampella, Ltd. • Customer success strategies use supply chain knowledge to help customers become more competitive.

30. Customer Success Strategies • Success strategies consist of: • A clearly communicated goal to help customers succeed • A clear understanding of downstream requirements • Investment in customer-valued capabilities • Training provided to customers • Resources shared with customers

31. Limitations of Some Strategies

32. The End Customer • The end customer is the only one who puts money into the supply chain and is therefore the focuse of all activities. • Successful companies share information that helps the chain focus on the end customer.

33. Customer Fulfillment Strategy • Customer fulfillment strategies seek to address: • What are the real needs of our immediate customers? • What are the real needs of our customers’ customers? • What are the real needs of our supply chain’s end customers? • What information must be shared up and down the supply chain to meet these customer needs? • What capabilities must be developed up and down the supply chain to meet these customer needs? • How can we help other supply chain members improve the overall chain’s customer fulfillment capabilities?

34. Customer-Centric Fulfillment Strategy Managers should consider two facts when developing processes to match the right kinds and levels of service to specific customers: • Not all customers are equal and they do not all deserve the same high level of service. • Not all customers require the same service.

35. Matching Strategy to Customer Needs Three types of analysis are needed to effectively tailor supply-chain service levels to specific customers: • Customer Analysis • Supply Chain Analysis • Competency Analysis

36. Customer-Centric Supply Chain

37. Customer Analysis • Customer analysis identifies customer needs, helping management to segment customers. • Customer segmentation – the identification of unique groups of customers who possess similar needs – allowing the development of products and systems necessary to fulfill the needs of different customer groups.

38. Supply Chain Analysis • Supply chain analysis identifies the end customer needs and the capabilities that must exist in the chain to meet those needs. • Customer success factors are the capabilities that first-tier customers need to satisfy their downstream customers.

39. Competency Analysis • A core competency is something that the company does so well as to provide it a competitive advantage. • Two questions can help to identify a core competence: • What are we known for that makes us uniquely good? • What do we do better than anyone else? • Almost always cross functional

40. Customer Segmentation with Pareto Relationship intensity can be categorized as follows: • “A” customers are valued and received the highest service. • “B” customers should be managed carefully. • “C” customers should be managed fairly and efficiently.

41. Competency-Success Factor Matrix

42. Customers-of-Choice Relationships • A select number of “A” customers whose needs the company is well-positioned to fulfill. • Customer-of-choice relationships are characterized by: • Frequent communication at many levels between the firms, including marketing, engineering, logistics, and senior management. • Inter-organizational teams are formed to solve problems or to work on SC initiatives such as new product development. • Information systems are linked to enable real-time information exchange on inventory levels, order status, and future demand. • Fulfillment processes are designed for flexibility to accommodate customers' special requests. • Policies and procedures support extraordinary efforts to meet unexpected needs or unusual requests.

43. Highly Valued Relationships • Many “A” and most “B” customers. • Highly valued relationships characteristics: • Customer input is actively sought and utilized to meet expressed expectations. • Dedicated customer account teams. • Information systems are a way to share information. • Policies and procedures acknowledged the importance of these customers. • Members of this group often become tomorrow’s customers-of-choice.

44. Transaction Relationships • Comprised of “C” customers • Receive little personal attention, leading companies strive for high levels of standardized service excellence. • Service recovery is used to regain confidence of customers when service failures occur. • As data-capturing technology becomes better, “C” customers will become candidates for more tailored services.

45. Evaluating Customer Relationships • Activity-Based Costing, which ties specific costs directly to the customers that create them, can be used to identify the profitability of a business relationship. • Customer Relationship Management (CRM) software can be used to create customer profiles that capture buying habits and determine customer profitability.

46. Barriers to Customer Fulfillment • Companies may seek to improve service levels, but direct their efforts toward the wrong activities. • Companies may fail to deliver on their promises to be customer-service oriented. • Access to information has lead some companies to provide low service levels to “less valuable” customers.

47. Barriers to Customer Fulfillment • Customers identify the following as the cause of dissatisfaction in almost 80% of “horror stories”: • Training - employees do not know how their behavior and performance affects customer perceptions. • Measurement - measures do not reinforce appropriate attitudes and behavior toward customers. • Empowerment - employees do not have authority to solve problems and respond to customer needs. • Policies - policies and procedures are inflexible and often run counter to real service and satisfaction.

48. A Return to the Opening Story Based on what you have now read and discussed: • What advice might you give Doug regarding customer segmentation and differentiated customer fulfillment strategies? • What processes and systems are needed to achieve high levels of customer satisfaction across a range of customer relationships and requirements? • What questions would you include on a customer satisfaction checklist to make sure you had a comprehensive, well-thought-out customer fulfillment strategy in place?

49. Supply Chain Management: From Vision to Implementation Supplement B: Productivity and Quality Management

50. Productivity • Productivity is the ratio that measures the ability of the process to efficiently turn input into output. • Labor Productivity considers the amount of output created by a standard measure of labor input. • Multifactor Productivity considers the amount of output created based on all inputs to the transformation process.