At a conference I recently spoke at, I repeatedly heard amazement, concern, and frustration from attendees that, while they and their companies were engaged in constant continuous improvement efforts, their customers did not see any of it and were actually complaining to those very same companies that they needed to start doing continuous improvement.
What was going wrong?
The customers did not see the continuous improvement because it was focused on things the customer did not value. There was a misalignment between customer requirements and the service the company was providing.
Looking at meeting customer requirements from a SCOR perspective (Supply Chain Operations Reference model), company performance and customer requirements can be measured in five main ways: 1) Reliability, 2) Responsiveness, 3) Agility, 4) Cost, and 5) Asset Management.
For established companies, performance is often focused on being efficient with cash and resources (Asset Management) while keeping costs as low as possible (Cost). These are internally focused performance measures that the customers do not care about. Really. Their concern is not your cost structure or internal inefficiencies; it’s whether or not you can provide what they value. The trick is to figure this out.
To do this for your supply chain (or customer segment, product group – however you align your performance at this time), rank the following list of items in terms of each one’s importance to the end customer. Place the highest ranking item first on the list.
Does this supply chain/customer segment value:
- Having the right product, right price, right specification, right location, right everything according to the terms and conditions of the contract? (Reliability)
- Ever faster delivery, even if multiple deliveries are required to completely deliver the order? (Responsiveness)
- The ability to order varying amounts of product/services without warning while still being serviced as required? (Agility)
- Paying the lowest possible price for the product/service (Cost/Asset Management)
If you don’t know the answer, ask.
If you find you have been ranking one item high and then, while looking through the customer’s lens, prioritize another, you are misaligned.
Go through this list for every supply chain you have. If you are a 3PL, you have shippers who demand specific types of service to meet their customer requirements. Instead of asking the end customers what they value, start the exercise by asking the shippers. This simple exercise may provide valuable insights for the both of you.
With today’s fast paced economy, it is often assumed our customers value speed above all else. But that is not always the case. Here are a few reasons why speed may not be the first and foremost requirement:
- When the customer/segment uses a pull or JIT (Just-in-Time) methodology. No extra inventory is allowed in the process, so early delivery because you were fast just means you need to figure out what to do with the goods until the customer can handle the delivery.
- When faster speeds elevate the total cost of the product outside the competitive price range or squeeze margins unacceptably.
- When your business goes broke trying to meet arbitrary speed requirements that you are not collecting enough money to cover. Ex: excessive use of air freight as opposed to cost covered truck or rail transportation. The customer may say thank you, but won’t stop buying if you deliver more slowly.
As noted before, concern over internal costs often drives how we service our customers. By concentrating on increasing efficiencies and squeezing suppliers, we are able to offer low priced items. When is this not of interest to our customers?
- In a customer’s Lean or Just-in-Time environment. Extra will be paid to credible suppliers who meet quantity and quality requirements as per the time agreements. This may mean that you are moving less than truckload amounts, but the extra cost for doing so is captured in the pricing you give and the customer knows it. It is more important for the customer to run an effective Lean/JIT environment than to get lowest price on critical items.
- When there is high emotional interest/attachment to a product or a service, pricing is not the primary factor in the purchasing decision (even though it may be stated that pricing rules). Even worse, in some cases pricing that is too low in comparison to the norm may send the message that your quality is lacking, which negatively affects the emotional appeal of your offering and the potential for a sale.
- When speed is important for competitive or emergency reasons. Competitive reasons could be a market place that expects ever shorter cycle times. Emergency reasons could be related to natural disaster relief.
While the list of reasons why a specific type of performance may not be the highest priority for a customer segment/supply chain, what is important from this exercise is that you first accurately pin point what exactly that segment/supply chain values. Second, it is important to identify where your gaps are located (Ex: We were focused on speed but agility is most important to the customer. Now we have to rethink our capacity and how we use it). Third, close the gap.
And about those complaints over lack of continuous improvement activity; now you are able to focus your efforts exactly where the customer will see relief from your improvement work. They’ll thank you for it in monetary terms.
Guest Blogger – Dr. Cynthia Kalina-Kaminsky
Dr. Cynthia Kalina-Kaminsky is the President of Process & Strategy Solutions and a SCOR master. She is presenting “The Power of Supply Chain Segmentation” on Sunday, September 25 at 2:30 pm at the APICS International Conference in Washington DC. She is also teaching SCOR in Dallas October 24 – 26, www.SCORtraining.com
Cynthia consults with middle market and larger businesses eager to increase revenue through innovative supply chain design and management. She works mainly with product companies in high tech, complex products, and pharmaceuticals that manufacture, procure, and/or deliver in commercial and/or government settings as well as with technology based service companies. She can be reached at info@ProcessStrategySolutions.com or through LinkedIn.
