Exceptional Customer Experience: The New Supply Chain Management Focus

Transcription

1 White Paper Exceptional Customer Experience: The New Supply Chain Management Focus Jonathan Gross Contents A Fresh Look at Supply Chain Management....2 Factors Driving the Integration of Supply Chain Management and Customer Experience....2 Measuring Customer Experience Delivery with the Supply Chain Maturity Model....3 Big Data: Securing the Supply Chain....6 Conclusion: A Three-Staged Approach to Achieving Supply Chain Maturity....7 About Ziff Davis B2B Ziff Davis B2B is a leading provider of research to technology buyers and high-quality leads to IT vendors. As part of the Ziff Davis family, Ziff Davis B2B has access to over 50 million in-market technology buyers every month and supports the company s core mission of enabling technology buyers to make more informed business decisions. Contact Ziff Davis B2B 100 California Street, 4th Fl., San Francisco, CA Tel: Fax: b2bsales@ziffdavis.com Copyright 2012 Ziff Davis B2B. All rights reserved.

2 A Fresh Look at Supply Chain Management The delivery of an exceptional customer experience is critical to an organization s long-term success. Strong customer relationships drive revenues, future bookings, and new business. Unfortunately, mere order fulfillment no longer qualifies as providing an exceptional experience. To be successful, companies need to develop integrated, transparent, responsive, and robust supply chains that enable them to deliver goods and value-added services to their customers. The sections that follow provide companies with an opportunity to assess their own customer experience delivery capabilities using a Supply Chain Maturity Model. The concluding section provides companies with a three-stage roadmap they can follow to transform their supply chain into one that enables the delivery of exceptional customer experiences in an operationally efficient and cost effective manner. Factors Driving the Integration of Supply Chain Management and Customer Experience Without a doubt, logistics efficiency and international development have changed the competitive landscape. No longer is competition restricted to local and national companies. Companies now compete against international players who are no longer significantly disadvantaged by geographic distance. From a distribution perspective, the world is getting smaller. If adding value in a more competitive market weren t tricky enough, businesses have to manage risk relating to events that lie outside of their sphere of direct control. Natural catastrophes, supply disruptions, and labor strife are a few extreme examples. More common examples include customer change orders and unexpected defective supply. ziffdavis.com 2 of 8

3 Measuring Customer Experience Delivery with the Supply Chain Maturity Model In effect, our Supply Chain Maturity Model shows how the structure of a company s supply chain and decision-making models affect its capability to deliver a lasting customer experience. Specifically, enhancements to supply chain integration, transparency, and robustness lead to corresponding improvements in customer service capabilities. Supply chain enhancements and corresponding customer experience capabilities - are, in part, defined by the collection of people, processes, and technologies that support the organization. In our definition of supply chain, we include inbound and outbound logistics of physical goods, as well as the informational and financial processes related to the procurement, manufacture and distribution of those goods. From a company s perspective, this definitional distinction is an important one. Its ability to deliver an enhanced customer experience is ultimately determined by the extent to which it can effectively improve the use of information, goods, and cash both within and beyond its four walls. The Functional Supply Chain: Providing Basic Customer Experiences A functional supply chain is little more than the price of admission into a competitive market. Companies in this category are largely focused on supply chain functions that are within the context of their operational control. These companies have limited influence beyond the four walls of their operations. Generally, the organizational structure is comprised of a collection of disparate, unintegrated departments, each with its own set of business processes and information systems. Flowing transactions across the enterprise from departmental silo to departmental silo is cumbersome and inefficient. Informational maturity: These companies generally rely on standalone, custom developed, or ziffdavis.com 3 of 8

4 Excel-based systems to help them satisfy orders. Systems neither support process automation nor the collection and analysis of real-time data. Companies at this early stage of technological sophistication are incapable of leveraging information technologies to deliver meaningful value-add. For example, a customer service representative does not have supply chain visibility, and is not likely to be in a position to proactively notify customers of impending order delays. Physical distribution maturity: The absence of enabling technologies generally results in significant process inefficiency, characterized by manual and redundant data processing. Flowing goods through distribution and/or production processes requires several instances of manual and error prone data entry, reentry, and reconciliation. Inventory counts are generally a rough approximation (with the exception of the period immediately following a physical count). Planning and scheduling activities involve ongoing, cumbersome data aggregation from disparate business and informational silos. Cash management maturity: The absence of real-time operational visibility limits the ability to implement effective cost controls. Companies in this category generally establish pricing based on gut-feel or high level cost-plus margins. An inability to price based on actual labor costs, actual material costs, and overhead restricts an ability to effectively manage profitability. Further, an absence of effective inventory control generally results in excessive cash tied up in working capital. Although companies with functional supply chains are capable of fulfilling orders (albeit with significant internal struggle) and generating cash to sustain operations, they are exposed to significant business risks. Sooner rather than later, these companies will lose customers to competitors capable of providing a superior customer experience by reason of their more sophisticated sales and operations planning (S&OP) processes. The Connected Internal Supply Chain: Enhanced Customer Experiences The connected internal supply chain is one characterized by end-to-end organizational integration supported by an enterprise resource planning (ERP) software system. Companies in this category are inwardly focused on improving what lies within the four corners of their business, and are less focused on improving processes that lie outside of their direct sphere of control. They typically rely on an ERP system to automate transaction processing, capture real-time data, and manage risk with system-enabled controls. Informational maturity: These companies leverage process automation to improve operational efficiency. For example, a new order can create requirements for all affected departments, including the generation of: material purchase requirements, production capacity and scheduling requirements, and transportation requirements. Further, with robust real-time reporting, management can keep its finger on the pulse of enterprise health by simply monitoring exceptions to normal operating conditions. Companies at this stage of maturity have strong internal data, and may even have strong external transactional data. However, they ziffdavis.com 4 of 8

5 seldom have reliable data about external factors that could materially affect their business, including the following examples: data that could support an analysis of supply chain disruption risks and market trend data that could impact long-term capacity requirements plans. Physical distribution maturity: In addition to an ability to effectively drive lean initiatives, companies in this category have a degree of operational agility. The combination of real-time visibility into internal operations and process automation gives them an opportunity to respond to change. When a customer calls with a change order request, for example, a service representative can immediately advise of any impacts on schedules and prices. However adept they might be at internal operations management, these companies are still heavily reliant on the accuracy of assumptions relating to supply and demand (e.g. lead times and forecasts). Any significant discrepancies between actuals and estimates could lead to issues with order fulfillment or cash flow. Cash management maturity: These companies tightly manage costs and margins on project, line of business, or product bases. They leverage their integrated environment to improve inventory turnover rates by effectively timing material receipts with actual demand requirements (whether production or distribution). The depth of data and the sophistication of analytical capabilities allow them to make measured business decisions based on margin, opportunity cost, and other considerations. Although capable of providing enhanced customer experiences, a company with an internally connected supply chain is exposed to certain weaknesses and risks. Reduced visibility into matters outside of their organization exposes them to supply chain shock risks. For example, an unforeseen disruption that compromises order fulfillment might irreparably jeopardize customer relationships and profitability. The Responsive Supply Chain: Exceptional Customer Experiences Companies with responsive supply chains are best positioned to deliver exceptional customer experiences, and create lasting relationships that drive long-term performance. Companies in this category apply the philosophy of integration throughout the supply chain, and are consistently stretching continuous improvement efforts both upstream and downstream to their suppliers suppliers and to their customers customers. These companies develop business-partnerships in the true sense of the term. Informational maturity: Companies in this category are best-in-class, and turn modern information technologies into a competitive advantage. They share critical analyses with their customers and help them drive performance improvements. For example, they might share critical R&D data with a view to helping a customer improve its own product planning and marketing initiatives. Consider, for example, a value-additive distribution company positioned between a retailer and process manufacturer. By accessing supplier R&D data on product ziffdavis.com 5 of 8

6 development, the company could help the retailer with its long-term product marketing and space planning requirements. Physical distribution maturity: These companies successfully run continuous improvement (e.g. Lean) and high quality (e.g. Six Sigma) operations. They utilize both enterprise-wide and external data in an effort to optimize all production and distribution decisions over which they have influence. They may, for example, seek to stabilize their own supply sources by driving quality improvements at the supplier level. At the customer level, they may provide advice relating to the efficient storage and distribution of goods. Cash management maturity: These companies understand that cash flow and customer service place conflicting demands on their organization. By leveraging data-driven decisionmaking, they define strategically optimal levels of cash flow by balancing corporate financial objectives with customer service requirements. Any operational decisions must maintain this strategic balance. These constraints propel companies to creatively find cost effective ways to improve customer service requirements. Doing so enables them to drive long-term relationships while maintaining or improving profitability. Companies in this category have reached a level of supply chain maturity that allows them to deliver an exception customer experience while maintaining critical financial objectives. The Big-Three Capabilities for a Responsive Supply Chain Key Drivers of Exceptional Customer Experiences In the preceding section, we outlined three stages of supply chain maturity, with a discussion of key factors that distinguish each from the others. In this section, we define the Big Three capabilities that, if pursued, would enable companies to transform their own supply chain into one that s best-in-class, mature, and responsive. Capability #1: A Segmented Supply Chain When embarking on a quest to improve supply chain performance, it is critical to understand that a company mighwt operate within several, distinct supply chains. For example, high volume demand for common parts will need reliable supply and sufficient minimum stock levels. In this scenario, companies should ensure they have redundant and responsive distribution networks to satisfy demand requirements. In contrast, demand for complex engineer-to-order products might require a collaborative, multi-stakeholder supply chain that includes representatives from suppliers, the customer, the company, and required approval (e.g. regulatory) bodies. Devising an effective supply chain strategy requires an analysis of customer requirements and of how operations should be structured to respond to those requirements. Companies should look to answer the following questions. Who do we serve? What do they require? How can we make their lives better? What should we improve internally, with our supply sources, and with our customers - to drive these objectives? ziffdavis.com 6 of 8

7 Capability #2: An Integrated, Optimized Supply Chain Historically, planning and scheduling involved cumbersome manual activities undertaken at monthly even quarterly intervals. Representatives from each department would sit in a room and piece together data from their respective departmental silos. Ultimately, these plans provided little more than rough guidance because business never proceeded as planned. In contrast, companies with responsive supply chains are planning daily, in real-time. Integrated systems and automated processes remove many of the bottlenecks inherent in manual processing. For example, when non-conforming materials are received, the system automatically issues production and/or distribution requirements. And, to the extent that there are any resultant scheduling changes, an automated message can be proactively pushed out to the customer. An integrated, responsive supply chain provides companies with an opportunity to achieve business agility. Companies should be looking to remove bottlenecks in the following three areas: People: does the company have the right skill sets in each department to drive measurable supply chain improvements? Processes: to what extent are there inefficiencies within departments and in the interfaces between departments? Technology: does the company have IT systems (e.g. ERP) that support enterprise integration and process automation? Capability #3: A Transparent Supply Chain Companies in the business of delivering exceptional customer experiences cannot afford to be blindsided by unanticipated events. They need real-time visibility into their own operations as well as into areas that lie outside of their four walls. For example, a best-in-class company in the business of delivering goods just-in-time cannot afford to assume that a standard 13.3 day in-transit time from the Port of Hong Kong to the Port of Los Angeles will hold true for any particular delivery. A standard time is little more than an average that may or may not reflect actual events. Instead, this company needs to know what causes a deviation from the standard. And, increasingly, companies are leveraging big data analytics to this type of analysis. In this case, the company might aggregate and model the impact of weather forecasts, outbound and inbound port activity, and supply source reliability metrics, among many other factors. It might rely on its analytics to make or support recommendations relating to transportation re-routing or alternate supply sourcing. ziffdavis.com 7 of 8

8 As is the case with any of the above capabilities, companies should assess their informational gaps, and the potential implications that those gaps have on effective business decisionmaking. Projections, recommendations, and analyses are only as strong as the underlying assumptions. Companies should identify their assumptions, assess the robustness of those assumptions, and determine whether additional data would drive more effective business decisions. Conclusion Best-in-class companies are driving a new framework of sales and operations planning. They optimize their supply chains with a focus on segmented customer requirements within the context of defined cash flow parameters. As a result, companies with integrated, transparent, and responsive supply chains are capable of delivering exceptional customer experiences more profitably. About the Expert: Jonathan Gross, LL.B., M.B.A, Vice President and General Counsel, Pemeco Consulting, Pemeco ( is a leading vendor agnostic consulting firm that specializes in business requirements assessments, ERP selection, ERP implementation, and ERP optimization. Jonathan helps manufacturing and distribution clients leverage enterprise software technologies to optimize their business operations. Jonathan is also a part-time MBA professor of systems analysis and design at the Schulich School of Business at York University, Canada s #1 ranked MBA program according to The Economist Magazine. ziffdavis.com 8 of 8