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Supply Chain Customer Focus – New Year Recommendation – Part Three

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Supply Chain Customer Focus“Do what you do so well that your friends will want to see it again and bring their friends.”  -Walt Disney

This is the last in a three-part series on supply chain recommendations for the new year. To recap, I started this series by reviewing the ‘best of the best’ trend predictions from the last 5 years, and then making recommendations for supply chain modifications to match those trends. I looked at output from 4 different groups: Gartner Analysts, IDC, Ferrari Group, and SupplyChainBrain. I saw prediction patterns emerging that led to my own recommendations for the year ahead.

The first two blogs in the series presented profitable proximity and risk management, both trending supply chain topic predictions for the coming year. As promised in the last blog, though, I feel that this third and final topic for the supply chain is the ‘best’, or what I feel offers the most promise for your investment: customer focus.

Prediction #3: Supply chain customer focus will continue as a strategic priority.

Supply Chain Customer Focus

Customers have been in the forefront of supply chain predictions for the last 4 or more years:

  • 2009 IDC Prediction #6: Customer Relationship Management (CRM) and consumer-centricity efforts continue to grow across the modern supply chain as manufacturers attempt to improve innovation efforts. The sale is just the start as services become an increasingly important part of the ‘product experience’.
  • 2013 IDC Prediction #3 – On the demand side of the supply chain, recognizing the need for better service levels and mass customization, manufacturers look again to postponement techniques and data analytics to drive more effective customer insights and ‘smarter’ fulfillment.
  • 2013 IDC Prediction #5 – Service excellence becomes a strategic priority.

Leading consultants like Forrester have defined the “Age of the Customer” as a 20-year cycle wherein CIOs and CMOs will reinvent themselves to win in this age. Forrester points to a transition from focus on manufacturing, to distribution, to information management, to lead up to today’s more towering power of the customer. They say that the leaders in use of technology within this customer obsession hold the key to winning that customer race.

This seems obvious, doesn’t it? But the technology push to deliver a smarter, more innovative product, at a quicker pace, for less cost, and with more satisfaction, is accelerating. Customers expect it, and pay back with their loyalty, and the company stock prices reflect it time and time again. Think about companies like Starbucks, Amazon, and Apple: all at the top of their game, with soaring customer ratings. Amazon has mastered the customer relationship model with customized suggestions based on your purchases. Starbucks is well-loved because of the customer experience as much as the product. Apple, with innovations and scheduled announcements of new products to meet continual customer demand for a product more powerful than the last, came in at the top of the PC ratings for the 10th year running, and in 2012 took over as the world’s most valuable company, with a 4% piece of the S&P 500 pie.

Supply Chain Customer Focus

So with those companies on the pinnacle, they stay ahead if they prioritize supply chain customer focus.  Mostly, it’s about competition: besides being more cost-effective, those companies know that they simply have to have the best customer satisfaction.

  • Customers increasingly want their orders faster. This allows the companies who offer rapid delivery to force out those who don’t keep finished goods inventories. In this environment, good demand forecasting is a must for companies to level out production quantities, build the most competitive transportation and warehousing structures, compete the best supplier contracts, and maintain the most efficient operations.
  • Internal organization can improve customer experience. Collaboration is being encouraged within companies to give the customer the experience from purchase through customer service. Our best relationship with one of our most recent vendors underwent seamless transitions from sales to implementation to customer advocates: we’re hooked!
  • External factors give breadth beyond historical and seasonal forecasts.  Traditional forecasting methods were based on historical and seasonal data, and do not reflect the impact of the economic market’s volatility and resulting customer shifts. For example, consumer attitude, even after financial situations are taken into account, is a leading  indicator to durable goods spending every year. Tracking of indices like fuel costs, unemployment rates, and weather patterns are more examples of leading indicators to consumer demand. One of our customers, a manufacturer of snow-clearing products, faced a winter drought that severely decreased demand for their product. That year they admitted that this volatility wreaked havoc on their profits!  Their reliance on external indicators of weather patterns, as fed into our forecasting platform, is now allowing them to predict and adjust their manufacturing and inventory levels to those conditions in real-time, drastically reducing required inventory, and leveling out production and logistics costs.
  • Providing the latest and greatest products can draw customer loyalty. Customers depend on innovation, and will offer their loyalty to those with the newest, biggest ideas. But studies show that more R&D spending does not equate to more revenue. Only a small percentage of product ideas make it to launch. Less money is lost on a ‘kill’ of a product release pre-launch than a ‘fail’ post-launch! Demand forecasting plays a large part in segmenting what products are worthy of adding to the supply chain. Also, even improvements to old products can alter demand, so demand needs to be analyzed BEFORE any resulting disruptions in production, finance, and logistics are made.
  • The closer you are to the customer, the better your service. Sales and marketing research keeps a hand on the customer behavior dynamics through reward-based questionnaires, online forums, blogs, and interviews, and retargeting. Direct feed of information through technology by way of Point-of-Sale or Point-of-Use gives priceless real-time feedback. Evolving from this is the cycle of sensing consumer behavior, measuring marketing effectiveness, adjusting the marketing for optimal impact, all leading to demand-driven forecasting.
  • Design your supply chain to meet customer predictability. A key to supply chain optimization is to know your customer and your products in terms of predictability, and adjust accordingly. Employ more lean supply chain tactics in more predictable markets, and more agile supply chain tactics in less predictable markets. Toyota, for example, evolved its lean philosophies under periods of predictably high demand. Agility, though born out of necessity to disruptors to the supply chain such as demand volatility and new product introductions, leads to high customer satisfaction: items always on the shelf, no back-orders, no waiting for special orders.
  • Given the above, find the best and broadest talent possible to optimize your supply chain for the Age of the Customer.

If you compare the list above to my recommendations in the prior blogs about profitable proximity and risk management, it is clear that the supply chain customer focus goals are more numerous, and more impactful to business survival. Demand forecasting is the common thread above, and the window to the customer’s behavior. Speaking of forecasting, Gartner expects 10.6 percent growth in 2014 investment in these B2B analytics, particularly in the SCM space. (5) Best-of-breed providers know that providing differentiators like personalization, ease-of-use, learning engines are a few of the ways to help their clients stay focused on the customer at all times.

Recommendations for Supply Chain Customer Focus

PadlockThere are many roads to great customer focus. Based on my research and experience with our clients, here are my top recommendations for supply chain customer focus:

  1. Build a talented supply chain team that will innovate for the customer’s needs and collaborate internally to build brand loyalty, and design your supply chain with demand volatility and customer satisfaction in mind. See if supply chain segmentation can turn your customer focus into supply chain success.
  2. Keep your finger on the pulse of the customer, and your competitors, and listen for cues to market demands, delivery competition, and customer satisfaction ratings. Using a demand-driven strategy in your supply chain helps you focus simultaneously on profitability and the customer.
  3. Forecast demand to achieve optimal inventory in existing and new products, with priority toward maintaining and growing customer satisfaction. Use all methods available to increase your forecast accuracy, including external indicators.

I recently read an article on sales with the message that if we could just maintain our current customers, and limit expenses to that revenue, that all new customer revenue would be just ‘gravy’. How easy that would be with great customer focus!  After all my recommendations, I believe that if you can only do one of the recommendations above, choosing one from the Customer Focus category should come first. Both B2B and B2C customers will remember your successes and especially failures.  Years ago, after a full day on Colorado mountain trails, energized but hungry, my group went to a popular eating spot best-known for their chicken dishes. That day, they were out of … chicken. It was a long time until we returned there for a meal!

Next time, I will compile the full list of my supply chain recommendations from all three categories predicted by experts, under the categories of profitable proximity, risk management, and customer focus.

How did customer focus play a part in your supply chain up until now? Did it make a negative, neutral, or positive impact to your business?

 

References

http://www.gartner.com/newsroom/id/2643919
http://www.scdigest.com/assets/newsViews/09-02-12-1.php?cid=2256&ctype=content
http://www.idc.com/getdoc.jsp?containerId=prUS23876412
http://www.theferrarigroup.com/supply-chain-matters/2013/12/17/supply-chain-matters-2014-predictions-for-global-supply-chains-part-seven/
http://solutions.forrester.com/age-of-the-customer-hp/landing-324FC-2795CK.html
Dilbert, United Feature Syndicate, February 2, 2001.
Journal of the American Statistical Association, Volume 58, Issue 304, 1963,pp. 899-917, Ten Years of Consumer Attitude Surveys: Their Forecasting Record
Industrial Marketing Management, Vol 29., No. 1., 2000, “The Agile Supply Chain : Competing in Volatile Markets”, Martin Christopher
http://www.ers.usda.gov/topics/food-markets-prices/processing-marketing/new-products.aspx#.UurtNyqWHU8
http://dspace.mit.edu/bitstream/handle/1721.1/39816/ESD-260JFall2003/NR/rdonlyres/Engineering-Systems-Division/ESD-260JFall2003/08F26A35-E698-4FC6-8AC6-1B7445F1CE04/0/l2_3demfcastpmas.pdf

POS data and beyond: will your forecasting capacity be outstripped by the data gusher?

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I had the pleasure of speaking with supply chain VP Noha Tohamy of Gartner/AMR Research recently. We were discussing exotic new taxonomies of demand forecasting and demand planning — demand sensing in particular, and where it fits within our understanding of the S&OP process. We also talked about the value of a holistic approach to demand planning — something we discussed earlier on this blog. Noha agreed with the Foresight premise that a complete, holistic approach to demand planning and forecasting was best: the ability to look at short, medium and long time frames at multiple levels of detail (store/customer to entire networks and everything in between) all at the same time. However, she highlighted a couple of critical caveats. One was the assumption that a company has a platform to enable such a comprehensive approach. Enough said there.

The other caveat is data. In some instances, forecasting and analytical computing ability exceeds the timeliness and accuracy of the data available; in others, there is more data available than some technologies, processes and personnel are capable of handling. Often both these scenarios can be found at the same company. Which problem do you tackle first? Or can you take them both on at once?

Putting POS data in play: a field example

Let’s get a bit more detailed. In terms of importance for improving supply chain efficiency and building partnerships with your customers, POS (point of sale) data ranks high.  But it also serves as a good example of the conundrum expressed above.

More advanced platforms and better collaboration have given supply chain technology vendors the ability to grab POS data that is made available either directly by the retail stores or through aggregators such as VIP or IRI. This data is often made available on a weekly basis and aggregated at a chain/region level rather than by store. Historically, the reasons for this have been data size, network connections etc., but these reasons are becoming less relevant as technology improves.

For POS data, even the weekly schedule is frequent enough to allow demand planning applications to grab it and leverage it for modeling, inventory management, trend reporting, and more. In fact, these same applications would allow for the same manipulation and value to be derived from more timely POS — say, on a daily basis and at a store level — which would allow suppliers to more actively respond to trends such as overselling in response to a promotion.  Demand Foresight brings its clients this capability, as do others such as Terra Technologies.

Wal-Mart and Home Depot: stunning implications

However, now groups like Wal-Mart and Home Depot are advancing an even more immediate data model.  They are actively prototyping a business model wherein they do not take ownership of the product at their stores until the transaction at the cash register — basically a back-to-back where the retailer collects cash from the customer, only having “owned” the product for a fraction of a second, then paying the supplier of the product 30, 45 or 60 days later.

There are several ramifications for this model, but let’s focus on the potentially stunning impact in data alone. How many of you (and your companies that supply retailers, or supply companies that supply retailers) have platformed themselves to take in huge amounts of POS data once a day? Four times a day? Hourly? Fractions of an hour? Given the model described above and the facts that:

• You have responsibility for the product until it is actually sold
• You are still operating under service level agreements that demand coverage levels for each square foot of shelf space

Are you prepared?  Most are not and this is an example of data overtaking technical capabilities.

Broadening the data question

And remember, this is just one type of data.  What about data associated with capacity and the ability to promise orders?  If a customer calls and requests 10,000 pieces of product X, can customer service respond immediately with all the applicable availability, time and requirement answers? What if your products have a short shelf life?  These are all critical to your forecast.

What about external data such as weather?  Planalytics — a great company run by some outstanding ex-Air Force badasses — provides highly accurate and detailed weather info.  Some are using the data to help with seasonality and impact on big sales days such as 4th of July. Now companies can profitably tackle formerly esoteric questions such as “How much more beer will we sell if the temp is 100 instead of 80?”

But even all this only scratches the surface of the minute and critical indicators available within  Planalytics’ functionality. There’s still demographics, raw material pricing, market capacity…the list is endless, but also critical to answer as these indicators provide huge value for forecast accuracy in the short, medium and long term. Few applications are set up to fully take advantage of everything offered. This is the essence of the data conundrum.

So which side of the problem do you attack first to impact revenue in a positive way? Ideally, both. It will ever be our position that a holistic approach that marries detail with high-level strategy and the very short term with the long term is always going to provide the most value to an enterprise and its bottom line performance.

However, I think professionals are best served by being honest with what they really have to work with and then building from there — so if POS data is available on a weekly basis and it is not being used, then focus on taking advantage of the POS; learn the possibilities and build from there (invest in the correct applications). If however, you and POS are old friends, then tackle the other side, start to invest for the future by following tracks laid by companies like Best Buy and Sony, who are executing complete and real-time data sharing. If you platform yourself correctly, not only can you get ahead of the data curve, but you’ll be armed with a unique competitive weapon: the ability to approach your retail customers and say, “I know how you can optimize the dollars generated from each square foot of your stores and distribution centers.”

Hmmm – helping each partner of your value chain maximize their efficiency and profitability…Now there is something that can positively impact your EBITDA both for the long term and in a way that allows for competitive differentiation- and all of it tied to a focus on improving forecasting and demand planning.