To get there. Together. Creating and Embedding a Customer Driven Supply Chain Point of view
Contents Creating and Embedding a Customer Driven Supply Chain 3 How to Embed a Customer Driven Supply Chain 3 Barriers to creating a Customer Driven Supply Chain 6 Benefits of a Customer Driven Supply Chain 7 Further Information 8
Creating and Embedding a Customer Driven Supply Chain A key characteristic of many, if not all, of the very successful organisations is a supply chain that is truly connected to their customers. A customer driven supply chain starts with understanding the customer requirements, senses and responds rapidly to demand signals from all partners, the challenge is to successfully put in place the organisation structure, systems and processes which tackle the root causes of supply chain inefficiency. In this whitepaper, BearingPoint seeks to share the experience gained from our supply chain and customer management expertise. It examines the common roadblocks to creating and embedding a responsive supply chain and provides guidance on how to drive the changes required to make it truly customer driven. One of the key foundations of being customer driven is to have a robust and dynamic supply chain, where risks are understood and addressed. Specifically, by putting customer driven mechanisms in place to manage supply chain efficiency and effectiveness, organisations can consistently execute plans and service levels; collaborate across functions and geographies; and possess the decision support and governance needed for an ongoing strategy and decision-making process that derives competitive advantage from the supply chain. By effectively responding to real-time or near real-time demand signals, based on understanding customers initial needs, an organisation can guard against costly disruptions, dramatically improve the speedto-market of products, enhance customer service and reduce inventory. These achievements will not only help organisations leverage their supply chains to competitive advantage, but will move them toward becoming totally customer driven. How to Embed a Customer Driven Supply Chain Integrated Strategies and Responsiveness are Key There are a number of ways that organisations can begin to formulate a customer driven supply chain. At BearingPoint, our experience tells us that supply chain responsiveness is at the heart of being customer driven but it is a business wide focus on the customer which is required to be successful across the business, the brand and the customer key strategies which then drives the overall execution through the demand, supply and product cycle. The customer experience should be considered across the whole supply chain covering: suppliers, customers and consumers as well as internally within the business. To be effective a strong organisation structure, metrics and technology enablers are all required. BearingPoint suggests a number of effective strategies to ensure consistent customer experience across the three key areas. Point of view 3
Figure 1. The BearingPoint Customer Driven Supply Chain Framework The three key strategies drive the overall execution through the Demand, Supply and Product Cycle: Demand Cycle Product Cycle Supply Cycle XXBusiness Strategy including competitive landscape and positioning XXCustomer Strategy Customer Insight, Customer Offering/Proposition and Customer Segmentation XXBrand Strategy building the brand into the execution of delivery as well as the product itself Supplier Strategic Sourcing Supplier Integration & Collaboration PLM & Portfolio Mgt Competitor Collaboration Outsourcing Customer / Consumer Understand the customer needs through VOC Order & Delivery Channels Customer Collaboration - VMI, CPFR Customisation & Price Marketing Campaigns Category Mgt Internal Executive Leadership Finance Sales & Marketing Purchasing Manufacturing Logistics IT Service Delivery The customer experience needs to be viewed across the whole supply chain covering Suppliers, internally within the business as well as Customers and Consumers and is supported by Technology Enablers and a strong organisation structures and metrics. Technology Enablers - data visibility through the whole supply chain Effective Organisation Structures & Metrics Collaborate with your Customer or Consumer By directly speaking to a range of customers it enables a differentiated service to be offered to customers based on their overall needs and value. This can be implemented through extending the customer segments through the supply chain to minimise costs without impacting the quality of service. X XAfter speaking with key customers around the globe we developed and implemented a global customer segmentation model in the TelCo industry which identified three customer segments aligned to needs, value and behaviours. We defined service offerings for each of the three segments and led the implementation across all areas, working with customers to adopt collaborative planning, forecasting and replenishment (CPFR) and VMI tools and processes to utilise online portals to capture orders and forecasts. Customer Collaboration is an effective strategy to support forecasting. This is done by having frequent and regular conversations with customers instead of reviewing the previous year s sales and increasing or decreasing estimates based on what the expected market trends are. Through collaboration, the risk of short term demand fluctuations can be mitigated and new product introductions optimised. X XWorking closely with an organisation and their customers in Hi Tech sector we collated the initial POS data and create a category management function to enable the whole replenishment cycle. This resulted in the most up-to-date information for both their own and their competitors products and more regular communication with customers. This led to an increase in on-shelf availability and reduced stock throughout the supply chain and improved cash flow for customers and suppliers. 4 Point of view
Increase Supplier Flexibility Inflexible supply processes can be a barrier to becoming customer driven. A number of actions can be taken to increase the flexibility across these supply processes. X XWe worked with customers and suppliers to ensure visibility of information and developed an agile fulfilment model leveraging flexible production where possible and a make-to-stock model only where required and profitable. To do this a weekly order and delivery cycle was created for customers in high growth distributor/ retailer markets to improve the reliability and consistency of our client s service level. The outcome was lower inventory for customers and suppliers due to better information visibility and shorter cycle times. Strategic alliances and close working relationships are key to becoming customer driven. Organisations face significant challenges that range from trying to find the right suppliers to structuring the right partner relation ships that perform up to standards and comply with contracts and service levels whilst managing supply chain risk. X XA client in the Life Sciences sector handles this is in a very mature fashion with a dual sourcing strategy underpinned by a robust above-site supply chain planning process. The lead time for certain pharmaceutical products can run into years from producing the active ingredients to delivering the packaged product. In line with many other industries and organisations, manufacturing has moved to lower cost countries to make products more cost competitive. This however, presents logistical challenges with sudden increases in demand possible, combined with the length of lead time. Lack of product supply in the life sciences sector is clearly a health risk in addition to being a financial risk for the business. This was mitigated through a split sourcing approach with a percentage of supply available in shorter lead time and with greater flexibility. Segmenting the product portfolio to adapt productto-market strategies and demand supply policies to best meet the needs of each product group allows the service needs of different customers to be met. X XWith one of our clients, we reviewed product profile to determine what we offered to which customers, whether to make or buy and sourcing strategies for constrained raw materials. This enabled better stocking, capacity, pricing and material decisions to aid decision-making and resource prioritisation. Improving Internal Processes To ensure the supply chain is able to respond flexibly to customer needs, an organisation should have leadership consensus and involvement to coordinate the customer driven supply chain. Not only should executive leadership define direction but they must effectively help their teams remove barriers and effectively communicate across and outside the organisation and have consistent metrics in place. X XOne of our clients had a typical siloed planning capability with everyone having their own version of the truth. This led to sub-optimal decisions and planning as everyone had a different set of data and assumptions. To resolve this we helped establish a Sales and Operations Planning function which got the teams communicating effectively and working from the same information. Cross functional collaboration, communication and training must exist as there are a number of departments involved in seamless execution of response to demand signals. Effectively aligning operations, sales, marketing, manufacturing and IT is key to doing this. Such alignment requires training and education, as well as cross-collaboration during the normal course of operations. X X An example of where we worked with clients in this area was the establishment of a robust sales process with a mobile manufacturer. Training was Point of view 5
developed for all sales/sales admin personnel to ensure they understood the importance and impact of forecasting. In order to succeed we ensured key members of each team were taking ownership of motivating the wider team to collaborate for more accurate forecasting so it was not always left to the most senior personnel to play this role. Alongside this, metrics were changed so they were measured on sell through/out rather than sell in, promoting collaboration with customers and more accurate forecasts. Finally, advanced planning technologies should be used to support business optimisation, business process monitoring and event management in addition to the basic planning capabilities of forecasting, demandsupply planning, detailed scheduling and allocation. Before using all this functionality straight away, companies should ensure the most optimal processes and organisational structures are in place. Barriers to creating a Customer Driven Supply Chain In order to achieve a customer driven supply chain In our experience some of the major barriers organisations face which need to be addressed include: Understanding the Customer To be customer driven you first need to ensure you have spoken and understood the customer requirements and put in place the infrastructure to enable the key elements are fulfilled. It does not mean a separate solution is required for every customer individually but does promote clear communication and expectations on both sides to drive greater collaboration. Forecasting Accuracy In order to reduce costs and risks either an accurate customer forecast or the flexibility supply chain with very short leadtimes is required. Even the most efficient supply chain need a forecast to communicate with their suppliers effectively. Sales and marketing functions need to be enabled to provide robust forecasts and develop the competency needed to cope with that uncertainty. Sales Teams Failing to Reality-Check Forecasts Sales teams need to monitor sales trends. Being closest to the customer they are in the best position to determine why demand is not conforming to expected patterns and they should be measured on this basis. The demand-planning process must be capable of reacting in near real time to changes in actual demand. This can be done by monitoring point-of-sale (POS) data, which is obtained daily from the retailer or wholesaler, and using it to update the forecast. Ignoring How Customers Drive Value from Products and Services To be customer driven, the delivery speed and product choices that customers value should be considered. This in turn can increase revenue through retaining and growing customers by better segmentation and targeting which ensures offerings are better aligned to customer needs, values or behaviours. Providing a differentiated level of service for customer segments can enable a more responsive supply chain, better customer service and satisfaction and the development of advantageous long term strategies with the channel partners. 6 Point of view
Minimal Flexibility In order to respond to demand changes the organisation requires a consistent set of numbers and information which they can all use. However, many organisations are still planning and communicating within functional silos, with sub optimised processes, which limits supply chain flexibility and responsiveness. Moreover, if the entire supply chain function doesn t understand that forecasts and demand plans are just that forecasts and plans and, therefore that they will inevitably change, it needs to be flexible enough to function adequately. All functions need to be on board, and even then the plan will only be as good as its weakest link. Long Lead Times Many companies are taking advantage of the low-cost opportunities for sourcing, manufacturing and warehousing made possible by globalisation. Yet the fact that these operations are increasingly scattered geographically, is causing longer lead times and impeding the ability of companies to react to disruptions or changes within the product life cycle. Due to the lack of responsiveness and growing environmental considerations many are moving supply closer to demand. Miscommunication If upstream demand signals and expectations are not communicated, this not only impacts procurement, production and logistics but also has significant impact on new product development and a host of other functions. Few organisations have created the cross-functional planning teams necessary to effectively run the business. Benefits of a Customer Driven Supply Chain Once the barriers are addressed and the customer focused is embedded across the whole business a Customer Driven Supply Chain offers a number of significant benefits, among them: Higher customer-service levels: By focusing on their key requirements it creates higher customer service levels which can be managed through common structured metrics and a unified demand plan through cross-functional consensus can result in significantly higher perfect-order fill rates Leaner responsiveness: By forging collaborative relationships with customers, leveraging Point of Sale (POS) data and developing sales and operations planning (S&OP), organisations can reduce uncertainty and be more responsive to customer requirements Reduced supply chain costs and complexity: Effective forecasting and inventory improvement and capital asset utilisation together have the potential to lower costs and leaner the supply chain Reduced lead times: Customer Driven Supply Chain focuses on supplying exactly what the customer wants with minimum waste. The aim is to improve the ability to react to disruptions or changes within the product life cycle such as reducing cycle time, reducing inventory and increasing productivity Increased market velocity: An improved internal planning function and more effective collaborative planning with all partners in the value chain enhance both new product launches and pre-launch promotions Organisational transparency: With visibility, communication into the end-to-end supply chain and common metrics, organisations can continuously drive efficiency and process improvements, monitor previously identified risks and also reduce the cost Point of view 7
Further Information If you would like to understand how you could create a customer driven and responsive supply chain and assess where your business is in relation to others contact BearingPoint. You can also learn more about how we have transformed other businesses supply chains and how this could be applied to your business. Contact Stephen Coy Supply Chain & Procurement UK Lead Senior Manager Phone: +44 (0)787 647 5998 Email: stephen.coy@bearingpointconsulting.com 2011 BearingPoint. All rights reserved.