Customer-driven supply chains: a fresh perspective for tough times
Before the current downturn with companies strugglingto juggle cost and service as a result of two trends:globalisation is leading to lengthening supply chains;at the same time customers are becoming far moredemanding. The result is a growing need to fi nd shorterand more responsive routes to market, supported by agileand highly flexible supply chains.
As the economic downturn bites and competitionintensifies, the temptation will be to take a hard-hittingapproach to large cost areas such as supply chains.But how do you ensure you only cut the waste from yoursupply chain, rather than a fundamental element whichmay disable the business temporarily or permanently?
And during these times, when cash becomes king,how do you drive out cash effectively? A few leadingedge firms have developed an approach to answerboth questions: customer-driven supply.
Companies which put this approach at the heart of theirsupply chain strategy have designed and aligned theirprocesses in order to achieve the objective of winning the customer at the point of use or at the point of sale. Theupstream supply chain is then designed backwards todeliver this. This is a significant mindset change turning the supply chain from having only a cost reduction focusinto becoming flexible and responsive. This more serviceoriented approach creates a commercial competitive edge.
Customer-driven supply is made up of six supply chaindimensions that, in combination, put customer focus at thecentre of achieving business performance improvements.
It concentrates on creating a supply chain that meets theneeds of consumers and customers, designed from theshelf back while integrating commercial and supply chainteams to work collaboratively across the internal andexternal supply chain.
It consists of six key dimensions:
External focus requires measures to be aligned withconsumers and customers to ensure needs are met andto enable customers to win
Operational excellence focuses upon getting the basicsin place, on time, in full order fulfilment and joint inventoryreduction with customers
Joint supply chain value creation requires suppliersto work closely with customers to improve serviceand reduce cost for mutual benefit. Key enabler is the integration of commercial and supply chain teams to workcollaboratively across internal and external supply chain
Responsiveness concentrates on delivering valuecreating,differentiated services and products
Loss elimination focuses upon ruthlessly removing nonvalue-adding time, inventory and complexity
Synchronisation looks at achieving as near to real-timeinformation fl ow as possible, such as actual sales datafrom customers and visibility of order status.
Underpinning these six dimensions is the need to drivea mind set and culture that puts the customer first. Instudies on supply chains carried out in 2007 and 2008,
customer-driven supply chains were found to have deliveredsignificant benefits for organisations, including inventoryreductions of 15%; a 17% improvement in "perfect" orders;
36% shorter cash-to-cycle times; and a 60% faster time-to-market. These benefi ts have resulted in 10% higherrevenues; and 5-7% better profit margins than competitors.
This makes customer-driven supply highly relevant intoday’s trading environment. In 2008, PA ran a surveywhich confi rmed that companies taking this approachhave better overall supply chain performance. Our findingsshowed that top-performing companies scored betterthan poor performers in all the six dimensions described.
Setting these benefi ts against the increasingly tougheconomic climate, it is clear that this approach does notjust make sense but may also be essential for survival. Youjust have to look at those companies which have alreadyadopted a consumer driven approach to see that they arealready getting clear business gain fromit.
Procter & Gamble, for instance, adopted this strategy asfar back as 2002. A stronger focus on service coupledwith higher fl exibility and responsiveness led to an improvement in perfect order performance in the firstcouple of years. P&G made a conscious choice to makethe supply chain a commercial competitive edge – they have invested in building supply chain capability to providea better service and to be able to deliver differentiationefficiently. In the UK for example, they built two large distribution centres to house all of their grocery linestogether for the fi rst time. This means that their customerscan have a large range of products delivered on one truck - so delivery quantities can be more in line with demandbut still delivered as effi cient full truck loads.
Similarly Michelin established joint teams fromsalesandmarketing and supply chain to develop integratedstrategies combining demand creation activity withsupply capability. These teams focused on designing andoperating the supply chain from the end customer backand on what was needed to win with themat the point ofsale. These multifunctional teams ensured that sales andchain capabilities and limitations. And, supply chain rapidlycame to understand what consumers really needed.
Michelin achieved phenomenal results in reducing stock inthe supply chain – increasing stock turn by a factor of five.
As PA’s survey fi ndings show, leading-edge supply chaincompanies are right: adopting a customer-driven approachhas an unquestionably positive impact on supply chainperformance. And the key to a customer-driven approachis to take an end-to-end view of your supply chain.
Although the start of this journey can be daunting, theconsequences of not going down this road make the casefor change compelling.
PA Consulting is a member of the ManagementConsultancies Association (MCA). For further information on the MCA visit www.mca.org.uk.
Kevin Clarke is a Managing Consultant inPA’s Supply Chain Services and has 17 yearsof experience in delivering major supply chainimprovement for companies working within theconsumer goods, paper and packaging, automativeand defence sectors. Prior to joining PA, he workedfor 9 years in senior supply chain and operationsroles for Cadbury Schweppes.
Tim Lawrence is the leader of PA ConsultingGroup’s Supply Chain Services and has 20 yearsof experience in improving global supply chainsworking within the chemicals, consumers good andautomative sectors. Tim has been instrumental indeveloping PA’s Insights into global supply chainmanagement and regularly speaks on these topicsat conference platforms across Europe.