Creating a Customer Centric Supply Chain
What is a “customer centric” supply chain?
Over the past couple of years, global markets have experienced dramatic shifts on two dimensions: geographically and demographically.
In the first part of this century we witnessed a near doubling of the middle class, with much of the growth taking place in emerging markets. In fact, it’s estimated that by 2030, 4.9 billion people will call themselves “middle class” and most of the growth will be coming from emerging markets. It is also estimated that 525 million people in Asia already count themselves part of the middle class. This rapidly growing middle class is creating new market opportunities for domestic and international companies. For example, China is already the world’s largest market for automobiles and mobile phones. This, of course, increases the demand for products, as well as stretches the logistics networks that must satisfy this demand.
Then we have the demographic changes. The 21st century consumer is always on, always connected, and doesn’t make a move without consulting the internet. The “always on” millennial generation is emerging as a major demand driver, with access to huge amounts of information about products and trends on “what’s hot and what’s not,” via social media. And this is not to mention the Generation Z, who are being defined as “mobile first and mobile only”.
These dynamics are changing the way that companies are conducting business. Manufactures are constantly looking for new ways to grab a customer’s attention.
Customer Expectations have been raised several notches
One thing is certain about today’s customer – whether they are a business or a consumer – you cannot control their behavior or how they will choose to do business with you in our omni-channel world.
As a consumer, I can buy through numerous channels at any time on any device. I can buy from the comfort of my own home via a PC or mobile device. I can even get messages from a store I’m walking past it in the mall via my mobile phone with new offers and deals, just for me.
I can check out a product on-line and buy it in the store – this is called webrooming. Or I can check something out in the store and then search for a better deal online – showrooming.
This new customer experience is changing the way that businesses sense and shape demand; design and make products; and deliver based on omni-channel execution. We need to drive business processes centered around the customer and their expectations.
The need for Customer Centricity
Customer Centricity has been talked about in the context of supply chain for several years in the form of “Demand Driven.” But it is no longer enough to just be “demand driven;” we also need to be “market driven.”
This means we can’t simply plan off historical forecasts and execute based on customer orders. We not only have to consider sales forecasts, but also weather forecasts. We not only have customer orders, but also customer sentiment to consider. We need the correlation of data from POS, orders, forecasts, weather forecasts, traffic reports, market share reports and customer sentiment. All of these sources describe the market and where the market is going at the most granular level and are vital for the successful management of the supply chain.
Why is this important? Because the customer, or consumer is more demanding than ever. If I order something online I expect the delivery the next day, if not the same day. This creates the need to think about demand differently. It is not possible to compete with aggregated demand for a product family in a region. To respond with speed, we need the information at the detailed level, so that it can be aggregated and analyzed to service a channel, market sector, customer and specific order.
With the digital economy, comes digital demand signals, both structured and unstructured, from customers placing orders to making comments via social media. The ability to capture and analyze this new, unstructured “sentiment” data is a key capability of getting closer to the customer and gaining a clear picture of real-time demand.
Demand planning in today’s fast-paced, expanding, and rapidly changing economy is no easy task. Supply chain leaders are expected to quickly react to changes to improve efficiency, productivity, and customer satisfaction levels.
Customers can now buy through numerous channels at any time, on any device.
There is no doubt that the exploding amount of consumer demand data, both structured and unstructured, needs to be captured and harnessed to develop and monetize innovative business models, yet it’s reported that only 42 percent of companies say they know how to extract meaningful insight from the data available to them.
When a customer has the ability to place orders through any channel in real-time, they also expect the order to be fulfilled in (near) real-time. We are seeing this so called “Uber-effect” across logistics processes.
Companies such as Amazon are offering same day (or even same hour) delivery. Walmart is enabling consumers to buy online and pick up at the nearest store. And Google and Uber Rush are offering inner city pick up and delivery to your doorstep. We are seeing retailers, such as Burberry, bringing the online experience to the store and the store experience to online sales, changing their logistics processes to be able to ship orders from anywhere, with the store, warehouse and DC all being fulfillment hubs to minimize inventory and maximize customer service.
As same day delivery scenarios become the norm, we need to re-think our distribution networks. Amazon and other companies are already levering telematics and IoT signals from trucks to optimize and speed up the transportation process. This is only possible by combining transportation and warehouse processes and by building smart yard management processes that make sure that all loading and unloading runs smoothly and without delays. There is no point in bringing a truck to the loading dock if the products are not ready to be loaded, and transversely, if a bay is not available there is no point in directing a truck to unload.
Power of Prediction and Simulation
We need to leverage this big demand data to sense and predict using pattern recognition algorithms in combination with statistical forecasting algorithms to produce a more accurate picture of short-term demand, allowing us to make better decisions about where to place inventory. Predicting the right products and offers to make and the right amount of inventory and keeping it at the right place at the right time will increase customer service. Accurately predicting demand will reduce capital investment in inventory and increase customer satisfaction and revenue by avoiding stock outs.
When changes occur in supply or demand we need to be able to sense them and respond in real-time. If we look at Amazon again, the retail giant has announced a one-hour delivery offering in the New York City area, while component lead times are typically two to three months or more. How does a networked, global company keep up with such high customer demands — and how does it properly forecast in an environment where variability and customization are such integral parts of the buying process? As part of this move to a demand network, companies need to enable agile, responsive supply orchestration.
Response agility — the ability to ensure a highly differentiated customer service — is essential for allowing businesses to compete and grow through customer loyalty, as well as capture new demand. Aligning planning data, processes, and execution across short- and mid-term orchestration time horizons and tightly integrating customer demand into the supply network in real time, enables intelligent allocation of resources to prioritize demand, customer, and channel needs.
Given the emergence and simultaneous convergence of buying channels, companies are seeking a comprehensive view into the full demand network. Enterprises must adjust to this new way of thinking. Companies need to focus on being demand-driven and responsive, thereby transforming their previously linear supply chain into a customer-centric demand network. This network should leverage customer, company, and supplier data to optimally produce products, efficiently stock goods, and deliver those products to customers reliably and quickly.
To attain this, companies must not only understand the demand from their customers, but also the demand from their customers’ customers, harnessing and compiling a vast amount of data from the demand network to facilitate decision making across the supply chain, sales, and marketing. Only then can supply chain leaders operate with a single source of real-time, high-fidelity, granular demand signals so that they can anticipate and address potential out-of-stock situations. For example, companies in the food industry need to harmonize customer point-of-sale, Nielsen, shipment, and other internal data.
Putting your customer in the center of your business processes
Customer-centric processes are created by harnessing order, forecast, point-of-sale, channel and social data to sense both short-term and long-term demand. Driving this actual demand data through the extended supply chain and connecting this data with R&D, manufacturing and supply processes will enable the design, production and delivery of the most profitable solutions and services for the customer maximizing satisfaction.
Richard Howells is VP of SAP Extended Supply Chain Management