How to adopt customer-centric practices from retailers.
In Part I of my Supply Chain Strategy series, I explained why the five tenets of High-Performing Supply Chains remain a great starting point to build your supply chain strategy. In Part II I explained how seeking inspiration from retailers can help manufacturing companies move beyond supply chain segmentation to embrace customer-centricity. This post will explore the three capabilities essential to supply chain redesign.
Figure 1 – Challenges of manufacturing companies in the digital economy
As shown in Figure 1, the supply chain challenges faced by retailers and manufacturers in the digital economy are very similar:
- A diversity of customer service expectations to meet
- Frequent product portfolio changes
- Increasing demand volatility
- New distribution channels and increased logistics complexity
- Cost reduction pressure
- Rising supply chain risks and supplier reliability issues due to the globalization of supply networks
Figure 2 – Supply chain requirements for manufacturing companies in the digital economy
The business requirements for the future supply chain are also very similar in manufacturing and retail (see Figure 2).
- More prescriptive capabilities to gauge near-term demand changes leveraging big data
- Rapid simulation capabilities to understand sudden demand or supply changes and rapidly respond to them
- More transparent and predefined priorities making service commitments more predictable and enforceable to allocate products to customers
- Deeper insights into cost-drivers to support service-cost trade-off discussions and consciously allocate costs to specific prioritized segments to contribute to the business profitability
Designing this customer-centricity requires a redesign of both planning and execution capabilities across the extended supply chain. This redesign focuses on three capabilities most supply chains either do not have today or have just started to partially deploy.
Demand Sensing and Shaping is the first critical capability. Keeping a real-time pulse on the actual demand at point of consumption is now made possible thanks to accessibility to new technologies such as RFID tags. The cost of reading consumption patterns is getting cheaper by the day, and many different demand sensing devices have become affordable across various industries.
The big question is not only how to sense this demand better, but also how to proactively channel products to customers giving the best margin or profitability to your company. This is the demand shaping component of demand sensing and shaping, the part that requires demand planning functions to share and review their forecasts with business functions such as revenue, pricing and promotions management.
And combining the intelligence of both demand sensors and shapers into the ultimate consensus forecast is demand collaboration in its broadest definition.
Differentiated Service Offerings refers to the capability to offer variants of your order fulfillment model to your customers. Can you consistently be more agile for certain customer segments? Can you consciously differentiate cost of delivery for certain products? Or deliver special extra value-adding services to your customers at a predefined extra tariff? Such capabilities require a supply chain process redesign methodology and tight collaboration with sales and marketing to agree on the segments and the performance trade-offs your supply chain should deliver, and the strategies to enable the segmented supply chain design.
There are many formats and approaches to what is commonly known as supply chain segmentation, but without order fulfillment software to embed these rules, the differentiation cannot be sustained. And companies will keep reverting to first-come-first-serve fulfillment models as priorities and rules change.
De-prioritized Supply is the next critical capability essential to thrive in the digital economy. Without the ability to consistently de-prioritize specific supply during planning, it is difficult to move away from a first-come-first-serve supply chain.
Prioritization in fulfillment needs to be consistently followed further upstream in the planning process because consistent execution of priorities requires consistent prioritization during planning, too. Keeping a planning system that tries to meet all order due dates independent from priorities or margin eventually will lead to availability issues for more premium segments.
The three capabilities of supply chain redesign require very specific planning software capabilities.
The first capability is an open demand environment allowing rapid forecast collaboration and the ability to enrich the numbers with any other required input from a separate analytics data source. Without an open environment to reconcile various demand signals, it is difficult to rapidly integrate new insights at various detail levels and units of measure to the operational planning process. Inputs from predictive or prescriptive analytics must be added to the original demand signal in near real-time fashion to give all involved with demand sensing and shaping a full understanding of all components of the demand signal.
The solution must also connect partners across the extended value chain to the same demand picture.
A second capability is layered planning with allocation management based on a reliable inventory projection with predefined allocation and consumption rules, agreed with and understood by the business. Such logic, better known as ATP/AATP/CTP logic, is a critical enabler of the digital supply chain. It provides the ability to prioritize demand and fulfillment by customer segments or high-priority groups and promise reliable delivery dates based on projected inventory availability.
A third capability is very dynamic what-if capabilities to understand the impact of de-prioritizing demand to meet certain established priorities over a longer horizon. Without near real-time simulation capabilities, the impact of certain priority choices or supply constraints is difficult to understand at more senior executive levels, and decisions cannot be taken at the speed the digital supply chain requires.
All these planning capabilities are foundations for building the supply chain of the future, and software is a key enabler of this supply chain redesign.
For more information, read my previous posts in the supply chain strategy blog series.