Improving Supply Chain Performance through Customer Management and Control

Transcription

1 Improving Supply Chain Performance through Customer Management and Control Recommendations on how to manage the supply chain customer interface at Sony Ericsson Josefine Carlsson Anna Lidström Department of Industrial Management and Logistics, Lund University, Faculty of Engineering SE Lund, Sweden This Master Thesis constitutes the final part of a Master of Science Degree in Industrial Engineering and Management at Lund Institute of Technology. Performed as a case study at Sony Ericsson Mobile Communications, the thesis aims at understanding the importance of control and conscious management of customers in the telecom business. In order to meet the purpose, to recommend strategies on how to handle customers from a supply chain perspective, a toolbox and an action plan has been created. INTRODUCTION The increasingly competitive pressure on companies is forcing them to continuously develop a customer focused and supply chain structure thinking. Many companies in fast paced industries face similar problems short planning horizons, volatile demand, and difficulties in keeping enough control over the complex downstream supply chain. PROBLEM BACKGROUND AND PURPOSE This is the case also in Sony Ericsson, where the focus on achieving an excellent market organisation and a very effective upstream supply chain has left an empty and undiscovered space in the downstream supply chain the customer interface. Employees at the Supply Chain Operations department within the Accessories division (SCO PBU+) experience a lack of control, resulting in spending too much time on reactive work, such as fire fighting and solving urgent problems. This also leaves less time for planning and structuring the supply chain. Information shortage regarding customer demand and forecasts are also identified problem areas within the company, obstructing the possibility to differentiate the customer service. This has resulted in a one size fits all solution that is unnecessarily costly and inefficient. Therefore, the purpose of this master thesis is: To recommend how SCO PBU+ can regain customer management and control of the supply chain. To recommend how to improve the information flow between SCO PBU+ and its customers. To recommend a strategy on how to serve customers efficiently.

2 FOCUS The study concentrates on the SCO department at the PBU+ division, and focuses on the downstream supply chain. Transportation issues will not be considered. The study moreover focuses on the Aftermarket (AM), although some conclusions will be valid also for other areas within PBU+. METHOD The study is mainly based on semistructured interviews both at the case company and externally and system extracted sales statistics. A literature study within the relevant field has been performed as a foundation for identifying opportunities in improving the customer interface management at the case company. FRAME OF REFERENCE The customer orientation is becoming more and more important within the Supply Chain Management (SCM) field, as the SCM development has progressed from simply being functional chain awareness to becoming more focused on interorganisational relations and processes between the participants in the supply chain. 1 It is found that in order to be able to deliver distinctive value to the companies' most attractive customers, it is important to effectively manage customer segmentation. 2 The central challenge of a segmentation strategy is not how to develop one a variety of approaches work but how to make it useful and to integrate it into a company's ongoing planning and performance management efforts, in cross 1 Skjött Larsen, T. et al. (2007), Managing the Global Supply Chain, p Mentzer, J. T. et al. (2007), Handbook of Global Supply Chain Management, p.24. functional areas not only concentrating on traditional sales and marketing. The segmentation must explicitly link corporate financial objectives to the behaviour of players in a segment and to customer experience goals. 3 As most markets consist of market groups that seek different combinations of benefits, segmentation can be a powerful means of creating appropriate service packages for each market segment. Christopher s 4 approach to developing a service based strategy consists of four steps: Identify the service segments and their specific requirements, Identify the most important products and customers using Pareto analysis, Prioritise service targets, Develop the service package. The highest level of customer service might not always be optimal for all customers at all times, and so the question regarding what service level that should be offered to the segments respectively arises. In many cases where a high level service is offered, customers are unable to distinguish small changes in the service offered. This means, that company managers who insist on offering maximum service to all customers, no matter what the profitability and location of those customers, are probably doing their company a disservice. 5 Somewhere between the costs and benefits involved in customer service, a balance has to be found. One way to handle this issue is 3 Collins, S. R. et al. (2006), Managing your business as if customer segments matter. 4 McDonald, M. et al. (2003), Marketing a Complete Guide p Ibid, p.438.

3 to charge customers for their behaviour, or the service they would like to have. 6 These are the same principles that are generally accepted regarding the differences between e.g. first class, business class and economy class when travelling with airline. ANALYSIS AND RECOMMENDATIONS Analysis of extracted sales data shows that a small amount of customers accounts for a major part of total sales, and that there are a large number of unprofitable customers that simply cost more than the revenue Sony Ericsson is given through their sales contribution. As SCO PBU+ today is working without any prioritisation strategy, a customer segmentation based on total sales value is recommended. A schematic picture of the segmentation and also the segmentation strategies is shown in Figure 1. Figure 1: Customer segmentation and segmentation strategies. PBU+ should further develop collaborative relationships with the most important customers, focusing a major part of their energy on customers contributing the most to the PBU+ business. To enable implementation feasibility, a customer qualification tool, working as a complement to the total sales thresholds, is created to 6 McDonald, M. et al. (2003), Marketing a Complete Guide p help distinguishing which customers should belong to the collaboration segment. The second segment includes customers that contribute to profit but are too many to work closely with. To stop spending valuable resources on this segment, which is profitable but not constituting a highly important part of sales, they have to be treated in a way that is as efficient as possible, reducing troubles, cost, time and effort. Consequently, cost and efficiency are keywords when crystallising a strategy for the customer efficiency segment. Since the wanted scenario involves very little focus on these customers, all suggested solutions should be fast, easy, cheap, effective and reliable. No troubles, no complications, no complexity and at no cost. The third group of customers has simply been considered unprofitable; they cost more than they give in return. Such customers should immediately be redirected to distributor purchase instead of wasting PBU+ time and resources. In some specific cases, there might be strategic reasons for keeping a segment C customer. For example, for a large and important customer on the handset side of the business, it is logically important to offer an extended service, which obviously also includes the ability to buy accessories even at small volumes. THE TOOLBOX AND THE ACTION PLAN To meet the purpose, a toolbox has been created, aiming to improve the three problem areas: Management & control Information No differentiation strategy The toolbox contains recommendations all tending one or more of the problem areas

4 described. Implementing customer classification and also setting up rules in the ordering system for how to place orders effectively, for example to introduce minimum order values, will lead to increased levels of management and control. Also, to allocate resources unevenly over the customer segments is a way of differentiating the customer service offer. Extending the differentiated customer service offer, a recommendation is given to make customers pay for service to a larger extent. The recommendations will help PBU+ receive more accurate information regarding customer demand and also to stretch their planning horizon. The toolbox also includes a suggestion of implementing Vendor Managed Inventory (VMI) solutions with some selected collaboration partners, in case the first steps of collaboration shows successful results. Since it is neither possible nor desirable to implement all recommendations at once, an action plan has been created to guide SCO PBU+ in how to take action on the suggested strategies. The action plan suggested is divided into three parts to be rolled out within a year. The action plan phases are set up to help structuring the SCO downstream interfaces, by the three logical steps Clean Up, Take Control and Expand & Develop, as shown in Figure 2. constructive customer management within SCO. The recommendations placed in the first phase are all prerequisites for continuing the work with the subsequent phases of action. Therefore, as soon as the implementation of the actions described is finished, it is possible to start up the second phase. As phase 1 is implemented, it will be time to start taking control over the supply chain situation it is time to start implementing recommendations in phase 2. However, phase 2 should not be just rushed into. It is about taking control and manage the supply chain as wanted, and without thoughtful manners on how to do this, the recommendations of phase 2 will not be very successfully implemented. The last phase in the action plan is all about getting even closer to the customers in order to understand them and their business in a better way. The approach suggested is to integrate the customers more in the PBU+ business by extended Supply Chain collaboration through VMI, and to release Market Unit (MU) capacity that could better be invested in developing customer relationships. Before bursting in to phase 3 recommendations, it is very important that phase 1 and 2 are successfully implemented and well working, as phase 3 requires a well structured and managed supply chain. Figure 2: The action plan. Phase 1 should be entered immediately, as it focuses on clearing the field for more GENERALISATIONS Many companies in fast paced industries face similar problems short planning horizons, volatile demand, and difficulties in keeping enough control over the complex downstream chain. If they are also experiencing a poor information exchange within the supply chain, many of the conclusions made in this thesis can be generalised to be valid for other organisations with similar conditions as well.

5 There should be a need also for other consumer electronics or fast moving consumer goods companies to consider a more collaborative approach towards their customers. Especially in those industries where growth is slowing down and the business is maturing, can supply chain collaboration be a valuable tool in maintaining a proactive business management. Most likely, many companies are unable to see the full benefits in increasing information exchange over organisational boundaries, as the winnings seldom are obvious and thereby easy to calculate. Winnings from improved information flows, especially in volatile markets with poor demand forecasts, can be great. It affects more or less all activities in the supply chain, but as the benefits are subtle and dependent on the specific business environment, an exact business case is hard to get down on a paper. This probably has the effect that top management for many companies hesitates and undervalues the gains of sharing information in the supply chain. SOURCES Collins, Sean R.; Dahlström, Peter W.; Singer, Marc (2006): Managing your business as if customer segments matter, The McKinsey Quarterly, August. McDonald, Malcolm; Christopher, Martin (2003): Marketing a complete guide, Palgrave MacMillan, London. Mentzer, J.; Myers, M.; Stank, T. (2007): Handbook of Global Supply Chain Management, Sage Publications, London. Skjøtt Larsen, Tage; Schary, Philip B.; Mikkola, Juliana H.; Kotzab, Herbert (2007): Managing the Global Supply Chain (3rd ed.), Copenhagen Business School Press, Copenhagen. SUGGESTIONS FOR FURTHER READING There are many interesting areas to investigate further, both within Sony Ericsson and in general. One very interesting subject as we move on in the information era, where customers and consumers place higher and higher demands on the providers of products, is how incentives can be designed for companies to improve their communication within the supply chain. As information and control will continue to be important attributes in the future, acknowledging and mastering these will play an important role in determining which company will win in the marketplace.