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

2. 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:
Toyota, Intel, Wal-Mart, etc.

3. 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

4. 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.

5. 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

6. 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

7. 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

8. 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

9. 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.

10. 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

11. 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.

12. 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

13. 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.

14. 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

15. 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.

16. Trade-off vs Synergy

17. 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.

18. 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.

19. Customer Satisfaction and Loyalty

20. 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

21. 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?

22. 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.

23. 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.

24. 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?

25. 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.

26. 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

27. Customer-Centric Supply Chain

28. 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.

29. 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.

30. 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

31. 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.

32. 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.

33. 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.

34. 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.