@ Supply Chain Management


The Intimate Supply Chain – Part 2

In The Intimate Supply Chain – Part 1, I laid out the background of what is occurring with respect to inventory levels in firms that have gone the route of globalization (either global sourcing or serving global markets or both carried out simultaneously). This commentary is based on an article – The Intimate Supply Chain, published at Logistics Management by David Ross.
I ended the last part by outlining a hypothetical field of competition between US firms (that source globally and manufacture locally) and foreign firms (that source and manufacture domestically in their own countries in the case of firms from developing countries and that source globally and manufacture locally in their own domestic markets in the case of foreign firms from developed countries). I opined that the competitive advantage because of cost clearly belongs to foreign firms situated in the developing world serving foreign markets because of low costs of production.
David Ross’s answer to such a hypothetical scenario could be ascertained from below his article:

We contend that supply chains must move to the next stage if they are to remain competitive: They must evolve into what we call intimate supply chains. The essence of this “intimacy” is to create value for each customer at every touch point in the supply chain. As we describe in detail below, this intimacy is gained through the following integrated actions: 1) developing a portfolio of customer segments, 2) understanding the needs and opportunities of each segment, 3) fashioning customized value propositions that deliver a complete buying solution, and 4) using technology, tools, and metrics to build and maintain a supply network focused on the customer. In combination, these activities lead to a customer-centered supply chain.

David defines intimacy as the “creation of value for each customer at every touch point in the supply chain“. Again, it is difficult to distinguish such a notion from insights drawn from Lean thinking which lays a particular emphasis on getting the customer define those activities for which he/she is willing to pay (also called value added activities). There is an interesting insight that David provides in his analysis of recent business trends specifically relating to the Power of the Customer:

Power of the customer

. Today’s customers are exerting an ever-growing influence over channel management. They are demanding to be treated as unique individuals, and they expect their supply partners to provide configurable, solutions-oriented bundles of products, services, and information. With their expectations set by world-class companies, they are demanding the highest quality for the lowest price. Customers want computerized ordering tools that empower them to design product and service content. They’re looking for speedy fulfillment, robust information content, ease of search and ordering, and self-service follow-up.

A similar but more comprehensive insight is provided in a book that I finished reading recently titled – Why CRM doesn’t work:How to Win by Letting Customers Manage the Relationship

Speaking from personal experience dealing with numerous firms on a near daily basis, I must confess that I find myself overwhelmed on a daily basis. When I’m not incensed at the poor service that I have to contend with that is quite well protected by the fine print which I should have gotten a law degree to parse, I find myself bombarded by numerous choices about uncertain events that are classifed under the genus – caveat emptor. No, there is not one firm that I can think of in my mind that rises up to the notion of simplification in my daily life – in fact on a daily basis, I find my desire to live a simplified life overly complexed (or complexified) by numerous firms that I pay to serve me. So I don’t think that CRM works as it should and perhaps I have even less hope that CMR would work. All of the rant above can be simplified into the notion – Why do I find myself with less and less time when I am acquiring services and products that are intended to simplify my life?. I can say this much at least for myself that those set of firms that find a way to solve that said paradox will have me as a grateful and loyal customer.
David’s view of the power of the customer focuses on customer empowerment i.e. unleashing the power of new communications mediums in eliciting real consumer desires or needs or the like. I’m not so sure that even when customers are demanding to be treated as unique individuals (that is one way to drive up a firm’s costs but are customers willing to pay for that unique experience?) that they simultaneously realize the underlying structure of configurable, solutions oriented bundles of products, services and information.
The other aspect of David’s emphasis is also related to the personal narrative expounded above:

Shift from a service to a self-service economy. As product/service choice and supply channels proliferate, single-source replenishment, rising brand loyalty, and dependable everyday-value pricing become the norm. At the same time, customers are increasingly called upon to search for, install, maintain, upgrade, and recycle personal capital goods like computer hardware and software. In this increasingly self-service environment, supply chains will need to shift their focus from producing and distributing products to making fulfillment a more customer-satisfying, solutions-driven experience. New approaches to marketing, merchandizing, and communication will be necessary to move supply chains away from managing transactions and toward managing customer relationships.

While I am called to do a number of things in the quest to simplify my life, I find the process tedious, time consuming, effort draining and plainly frustrating. Do any firms shaving off the costs of deploying their numerous services or products think that they’re creating a loyal customer in me? Think again!

Continuing with the development of the notion of Initimate Supply Chains, Robert Bowman reviews the impact that the proliferation of these business trends have on supply chains.

To build a truly intimate supply chain, organizations need to progress through three distinct yet cumulative value-creating stages as shown in Exhibit 1. The journey begins with the adoption of lean principles, moves on to adaptive supply chain management, and then culminates in the intimate supply chain.

Let me summarize each of the above steps as succintly as I can:
1. Lean Supply Chain. Simply put Lean is about getting the right stuff to the customer at the right time with as little (or no) waste as possible. In creating value for the customer, lean supply chains are customer responsive, flexible to changes, carry less inventory, primed for execution and most importantly dedicated to continuous improvement of both processes and people throughout the extended supply chain.
2. Adaptive Supply Chain: The implication of Adaptive Supply Chains, according to the author, is that it transcends Lean because Lean is unable to deal with “disruptions” (one such case is product innovation or as Joseph Schumpeter might put it – creative destruction, the real engine of capitalism), regulatory and environmental changes, financial uncertainty, and massive market restructuring. True or False? I think – somewhat here and somewhere there. The truth is that I don’t know. A lean practitioner might be better able to answer that. In Robert’s assessment that it is necessary for Lean supply chains to become Adaptive supply chains, some of the insights captured in this table come into play specifically from the point of view of inventory. In the specific case of globalization – global sourcing, a trade off is being made flexibility vs unit cost. Is it the right tradeoff to make?
3. Intimate Supply Chain:Robert puts its best with his description below:

Today, leading supply networks must excel not only at managing the supply chain flow through lean and adaptive techniques but also at continuously enhancing customer value. Linking the customer and supply management is at the heart of intimate supply chain management.

In closing out this part of peering into the Intimate Supply Chain, I reproduce an important take away highlighted by the author Robert Bowman:

The key point is that it is the solution and not the product/service that constitutes the key value for the customer. This means that supply chains that are “product-centered” can never really provide the encompassing solutions that customers so clearly value today. An intimate supply chain continuously strives to identify just who its customers are—especially the most profitable ones—and what solutions they want.

In the next and final part of this series, I will review Robert’s thoughts on how to understand the customer in order to benefit the supply chain practitioner.

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Category: Lean, Supply Chain Management


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August 2006