Supply Chain’s Secret to Success: The Customer
By: John Geraci, Stephanie Schott, Greg Brody, Hanny Hindi, and Suzy Coman
When you think about supply chain, understanding customers and their needs is not the first thing that comes to mind. The role of a supply chain generally speaking is to source and deliver a product on time, with the greatest efficiency, reliability, and at the lowest possible cost. The actual specifications of the product are not up for debate.
But taking a customer-centric approach to your supply chain as you do with other parts of your business can have unexpected benefits. The supply chain, far from being a pure cost center, can be an amazing opportunity to grow your bottom line by better understanding and meeting the needs of your customers.
Begin with a customer and a need
In R&D, sales, and marketing functions, you start by identifying who your customer is and what their needs actually are. This allows you to better understand how to design for and meet those customers’ needs. Taking this step before you design any solutions will save you the trouble — and the expense — of building solutions nobody actually wants. Hypothetically this principle ought to hold in supply chain as well. But who is the actual customer in a supply chain? Sourcing, production, inventory — all of these exist far from end-users.
In the context of supply chain, the customer can be seen as anyone who issues the order for the product, and whose needs the product is meeting. That could be the final consumer of the product; it could also be an intermediary, e.g. the retailer who will sell the product to the end-user. It could even potentially be an internal customer, such as sales.
By deeply understanding the needs of the “customer” — the person or entity ordering the product to solve their problem — you can design solutions to better meet those needs.
Rethink your supply chain focusing on the customer and their problem to identify new solutions
“If I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask… for once I know the proper question, I could solve the problem in less than five minutes.”
— Albert Einstein
Often, perceived opportunities for improvement in supply chain are ‘inside-out’ — meaning, they are opportunities that solve the organization’s problems, not the customer’s. They answer the question “how can we be better?” By re-framing this question to “how can we better help the customer?” you move from inside-out to outside-in. Your point of reference becomes the customer and their success — and from that vantage point, you’re more likely to uncover non-obvious solutions to your problems.
Recently, one of our partners approached us with a challenge. A customer had come to them with a request for half-pallets of their product. Because of their manufacturing process, they had only ever created whole pallets. Their solution to their customer’s request was to create a pallet, divide it manually, and then ship the half-pallet to the retailer — yet this added cost and complexity to the process. Seeking to reduce this extra cost and complexity, the team looked for ways to streamline the receiving and dividing process.
We instead offered a reframe: what problem are we solving for the customer? Why do they need the half-pallet as opposed to a full pallet? The team hypothesized that the request was a result of space constraints. Yet when we interviewed the customers, we discovered that it wasn’t an issue of space at all, but one of consumer demand: the customer wasn’t able to sell a whole pallet’s worth of product in a reasonable amount of time. In other words, the problem had nothing to do with pallets. This opened up the challenge to a wider range of solutions. Armed with that insight, the team devised a payment term solution to the problem, in which the organization continued to deliver full pallets to their customers while shifting the terms of payment. This reduced the cost of the solution to the organization, while also aligning the solution to the consumer’s true needs.
Overcome internal fears and biases to find new solutions
For a function that places a high premium on efficiency and consistency, a mindset of experimentation and innovation might, in the best case, feel out of place. In the worst case, it might elicit a downright fearful response from leaders.
One partner of ours had identified a costly process in the packaging of a shelf-stable food item. Due to packaging protocols, in order to deliver variety packs to the customer, the organization had to manually unpack single flavor packages and then repackage them into variety packs. This costs the organization millions of dollars annually. We worked with them to reframe the problem from an inside-out perspective — repackaging variety packs adds millions in cost — to understanding the problem from the outside, in: what is the problem the consumer is facing? By doing this, we could determine if there was an opportunity to meet their needs while reducing the extra cost.
While this organization had a robust consumer research function, it was exclusively focused on understanding how consumers responded to product changes and innovations. We worked with the team to challenge this cultural norm and apply consumer-centric experiments to test for opportunities in efficiency gains as well. In doing so we discovered that while consumers say they need variety packs to satisfy their family preferences, they don’t in fact like purchasing variety packs. Instead, they prefer to purchase their favorite single flavors in bulk then mix and match themselves. They were, in effect, creating their own variety packs.
When the challenge was reframed to, “how might we offer the variety customers want while reducing packaging?” the team hit upon new, non-obvious solutions. We then tested those hypotheses in a series of experiments at a local grocery store to better understand the retailer’s perspective and the consumers’ behavior and preferences, ultimately informing the final solution.
Use a customer-centric approach to align stakeholders
A customer-centric approach is not only useful for uncovering better solutions to supply chain challenges. One of the bigger issues we see in our partners’ organizations is a lack of alignment of internal metrics from one function to the next. For example, in supply chain the focus may be on cost-to-serve and efficiency metrics, while in sales the focus may be on total revenue, ignoring metrics of efficiency and margin altogether. The result is an ongoing struggle between functions as different parts of the organization work to achieve their own unit’s objectives. By adopting a customer-centric approach across all functions, you bring different functions into greater alignment. This enables the business to have an organization-wide conversation on any issue and be speaking the same language — the language of customer needs. By putting the customer at the center of your focus, you effectively create a north star for not just your function, but other functions as well.
A new era of supply chain
The days of viewing supply chain as an internal function, entirely separate from customers and buyers are coming to an end. In today’s responsive world, all parts of the product ecosystem are interconnected, combining to deliver both the best possible solution for customers and the most efficient and effective process for doing so. Adopting an outside-in, customer-centric perspective on your supply chain is a necessary step in enabling this transition. Once that transition occurs, a more truly customer-centric organization can emerge.
