EBU6609 Logistics and Supply Chain Management
TOPIC 4: CUSTOMER FULFILMENT STRATEGIES MS. BING HAN
EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT 2
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EBU6609 LOGISTICS AND SUPPLY CHAIN MANAGEMENT 3
Introduction to Logistics and Supply Chain Management
Supply Chain Organisation – Process thinking
Technology in Logistics and Supply Chain
Customer Fulfilment
Order Fulfilment Cycle – Purchasing, Production and Logistics
Supply Chain Mapping
Core Competencies and Outsourcing
Environmental Scanning and Global Supply Chain
Cost Management in SCM
Inventory Management
Managing Uncertainty in the Supply Chain
Operational issues in the Supply Chain
Performance Measurement in the Supply Chain
People Management
Law and Ethics in SCM
Relationship Management
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Learning Objectives
1. Discuss how information has empowered customers, raising the competitive bar for today’s companies.
2. 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.
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Learning Objectives
3. Explain the nature of customer service and satisfaction and how they differ from customer success.
4. Explain why the end customer should be the focal point for the entire supply chain.
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Learning Objectives
5. Segment customers based on strategic importance.
Describe the relationships, systems, and processes needed to deliver desired levels of service to different customers.
6. Discuss the role of operational excellence in assuring profitable customer relationships.
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IF WE AREN’T CUSTOMER- DRIVEN, OUR CARS WON’T BE, EITHER.
–DONALD E. PETERSEN, FORD
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The Objective of a Supply Chain
net value generated
Supply Chain Surplus = Customer Value − Supply Chain Cost
The Objective of
a Supply Chain
Example: a customer purchases a wireless router from Amazon for £60 (revenue)
Supply chain incurs costs (convey information, produce components, storage, transportation, transfer funds, etc.)
Difference between £60 and the sum of all of these costs is the supply chain
Supply chain profit is total profit to be shared across all stages of the supply chain
Success should be measured by total supply chain surplus, not profits at an individual stage
The Objective of a Supply Chain
三End Customer: the only source of revenue
Sources of cost include flows of information, products, or funds between stages of the supply chain
Effective supply chain management involves the management of supply chain assets and product, information, and fund flows to grow the total supply chain surplus
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.
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Companies seek to develop a distinctive advantage and differentiate themselves in the mind of the consumer.
Customers seek value in terms of: 1. Quality
3. Flexibility 4. Delivery
5. Innovation
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1. 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.
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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
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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 behaviour, thus it may be the most important competitive factor.
Best-in-class companies seek 6σ level quality
3.4 defects per million
opportunities
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2. Competing
on the Cost
Four strategies are widely pursued: 1. Productivity enhancement
{2. Adoption of advanced process technology
3. Locating facilities in countries with low-cost inputs
4. Sourcing from the world’s most efficient suppliers
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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 of economies ◦Improve profitability ◦Invest in future capabilities
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3. Competing
on Flexibility
Flexibility is the capability to adapt to new, different, or changing requirements.
三Flexible organisations 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.
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Requirements for a Flexible Culture
Make cycle time a priority throughout the organisation 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 organisation
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4. 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.
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Competing 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
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5. C~ompeting 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.
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Trade-off vs. Synergy: Traditional Managers believed:
High quality was inherently expensive
Standardisation and customisation are on opposite ends of the cost continuum
Rapid delivery reduces flexibility
Flexibility
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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.
Innovation
Flexibility
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Trade-off vs. Synergy
Innovation
Flexibility
Flexibility
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Satisfaction
Customer satisfaction is based on whether a good or service meets or exceeds the customer’s prior 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.
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Expectations and Satisfaction
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Customer Satisfaction Index
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Importance Complete Satisfaction
Xerox found that customers who rated their service experience as largely satisfied were 6 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.
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Customer Satisfaction and Loyalty
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Customer Service Strategies
Traditional customer service focused on internal service levels and goals:
Percent defective products
Percent on-time delivery
Without feedback it is easy to emphasize activities the customer does not value.
Service Gaps
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Customer Satisfaction Strategies
Customer satisfaction strategies fsarueoqmuirernd.iarect 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?
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Customer Satisfaction Strategies
Customer input allows managers to:
◦align measures to customer expectations
◦allocate resources and re-evaluate priorities
◦adopt new policies or practices
Information typically gathered from surveys, focus groups, in- depth personal interviews, and ethno-graphic studies.
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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.
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Customer Success Strategies
Success strategies consist of:
1. A clearly communicated goal to help customers succeed
2. A clear understanding of downstream requirements
3. Investment in customer-valued capabilities
4. Training provided to customers
5. Resources shared with customers
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Limitations of Some Strategies
Customer Service
三Customer Meet customer Satisfaction driven expectations
Customer Success
Meet internally set expectations
Help customers meet their customers’ needs
Limitations
Fail to understand what customers value
Expend resources and wrong areas
Measure performance inappropriately
Fail to deliver more than mediocre service Operational emphasis leads to service gaps
Ignore operating realities while overlooking operating innovations
Constant competitor benchmarking leads to product/service proliferation and inefficiency
Maintain unprofitable relationship
vulnerable to new products and processes
Focus on historical needs of customers does not help customers meet new market expectations
Limited resources require that “customers of choice” be selected; that is, customer success is inherently a resource- intensive strategy
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The end customer is the only one who puts money into the supply chain and is therefore the focus of all activities.
Successful companies share information that helps the chain focus on the end customer.
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Customer Fulfilment Strategy
Customer fulfilment 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 fulfilment capabilities?
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Customer- 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.
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Matching Strategy to Customer Needs
Three types of analysis are needed to effectively tailor supply- chain service levels to specific customers:
{1. Customer Analysis
2. Supply Chain Analysis
3. Competency Analysis
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Customer- Centric Supply Chain
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Customer Analysis
Customer analysis identifies customer needs, helping management to segment customers.
Customer segmentation – the identification of unique 一
groups of customers who possess similar needs – allowing the development of products and systems necessary to fulfil the needs of different customer groups.
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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.
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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:
1. What are we known for that makes us uniquely good?
2. What do we do better than anyone else?
Almost always cross functional
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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.
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Competency-Success Factor Matrix
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Customers-of-Choice Relationships
A select number of “A” customers whose needs the company is well-positioned to fulfil.
Customer-of-choice relationships are characterized by:
◦ Frequent communication at many levels between the firms, including marketing, engineering, logistics, and senior management.
◦ Inter-organisational 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.
◦ Fulfilment processes are designed for flexibility to accommodate customers’ special requests.
◦ Policies and procedures support extraordinary efforts to meet unexpected needs or unusual requests.
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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.
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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.
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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.
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Barriers to Customer Fulfilment
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.
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Barriers to Customer Fulfilment
Customers identify the following as the cause of dissatisfaction in almost 80% of “horror stories”:
◦Training – employees do not know how their behaviour and performance affects customer perceptions.
◦Measurement – measures do not reinforce appropriate attitudes and behaviour 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.
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Further Reading:
1. Chopra, Ch1, 2;
2. Fawcett, S.E., Ch5
3. Christopher, M. Ch2
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