Wednesday, January 09, 2008

How many supply chains do you need?


How many supply chains do you need?


Last week, we wrote about some good New Year Resolutions for you in the supply chain management area. Generally, the theme was being careful with whom you decide to be in business in the first place and then doing a good job of managing the relationship and communications.

This led our thinking back to the Seven Principles of Supply Chain Management, about which we have written several times. The gist of the Seven Principles is, of course, to take a holistic view of the entire supply chain, focusing clearly on your trading partners (those with whom you are in business), first your customers and second your suppliers. This thinking aligned with a few things that we've come across lately in our work and reading.

A major point is that not many businesses have only a single supply chain to manage. For example, companies based in Europe and North America that have outsourced their manufacturing activities to locations in, say, Asia and South America, have very different chains to manage. Conversely, there may be a simple supply scenario that is aimed at very diverse customer markets, both geographically as well as in terms of customer requirements.

Thus, the first of the Seven Principles is to segment customers based on their service needs. This is the logical first step for you to consider this year: look at your market and figure out how to best serve your customers. From there, you could subsequently work back to configure your operations accordingly.

There are three questions that marketers ask: Who are your customers? What do they really want? What are they willing to pay for?

That final question is the key one. What are they willing to pay you to do or to provide? Most companies have customers across the entire spectrum of service requirements, ranging from the high order quantity/high delivery frequency end to the "mom and pops" that only order a little at a time, once in a while. Some clients only need the basic product from you, with no frills service, while others are looking for you to act as a one-stop shop and are willing to pay for the core product or service plus many value-adding services.

Many (maybe even most?) organisations view their supply chain in monotone, offering a product or service that they simply push out to the market. Over time, the basic proposition has been supplemented with extras, again either a product or service, and the assumption is often made that all customers want and value it, that they are willing to pay for it.

So, if the traditional approach of "Treat All Customers the Same" isn't the best, can we go to the other extreme, "Treat All Customers Individually"? That is, set up a dedicated supply chain to service each? Of course not.

How can you satisfactorily, profitably service all of these types of customers with a single approach? By looking at it from a different angle. This approach is very familiar to people in marketing and sales but less so in customer service delivery and supply chain management. You need to determine groups of customers (segments) with common characteristics and then serve them similarly.

The key, with respect to improving your bottom line, is to assess which customers are most valuable to you, with respect to either profit or some other factor. Are you making money on every customer, every order? Do you have the means to measure that and to know the answer?

This approach was taken by one of our clients in Australia and the results were outstanding. They improved customer service; it was easier to define and achieve clear order-winning and customer-satisfying service goals. They lowered the cost to serve, achieving cost reductions equal to roughly 5% of revenue. Management was confident that they increased their top line but, of course, it was difficult to quantify how much of their increased sales were attributable to the new approach.

We also want to make you aware of the upcoming offering from Supply Chain Asia, the community dedicated to bring logistics and supply chain professionals in Asia together. Supply Chain Asia Academy will be conducting the first run, scheduled from Feb 20-22, of a three-day, intensive residential-style programme in Singapore. Targeted at new and young executives aspiring to understand the entire spectrum of supply chain applications across the industry in Asia, the programme will feature a team of working professionals to train executives and provide a highly interactive learning environment. In typical SCA style, it will be practical and current. For more details, see

Weekly Link is co-ordinated by Barry Elliott and Chris Catto-Smith CMC of the Institute of Management Consultants Thailand. It is intended to be an interactive forum for industry professionals; we welcome all input, questions, feedback and news at:,

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