Chapter 11: Customer Valueand Supply ChainManagement11-1
11-1 Chapter 11: Customer Value and Supply Chain Management
11.1IntroductionEvolution of quality definition from internal measures tocustomer valuePromotes a broader look ata company's offerings anditscustomersQuestions/lssues:Whycustomerspurchase?Whycustomerscontinuetopurchase?Whycustomersdefectfroma company?Whataretheirpreferences andneeds andhowcantheybesatisfied?Whichcustomersareprofitable?Doesthecustomervaluelowpricesmorethansuperiorcustomersupportservices?Doesthe customerprefer next day deliveryor lowerprices?Doesthe customerprefertopurchasethe item ina storethatspecializes inthis typeof itemorfroma largemega-storethatprovidesone-stopshoppingopportunities?11-2
11-2 11.1Introduction ⚫ Evolution of quality definition from internal measures to customer value ⚫ Promotes a broader look at a company’s offerings and its customers. ⚫ Questions/Issues: ⚫ Why customers purchase? ⚫ Why customers continue to purchase? ⚫ Why customers defect from a company? ⚫ What are their preferences and needs and how can they be satisfied? ⚫ Which customers are profitable? ⚫ Does the customer value low prices more than superior customer support services? ⚫ Does the customer prefer next day delivery or lower prices? ⚫ Does the customer prefer to purchase the item in a store that specializes in this type of item or from a large mega-store that provides one-stop shopping opportunities?
Roleof SCMAbilitytorespondto customerrequirementsoneofthebasicpremisesforSCMRelatestocustomerspecificaspectssuchasdelivery statusorproductionstatusSCMalsoimpactpricesbyreducingcostsDell,Wal-MartEDLPstrategies11-3
11-3 Role of SCM ⚫ Ability to respond to customer requirements one of the basic premises for SCM ⚫ Relates to customer specific aspects such as delivery status or production status ⚫ SCM also impact prices by reducing costs ⚫ Dell, Wal-Mart ⚫ EDLP strategies
CustomerValue DefinestheSCMSCM strategy determined by:type ofproducts orservicesitoffersvalue of various elements of this offering tothecustomerExamples:If customers value one-stop shopping=>carryalargenumberofproducts andoptionsPersonal customization ofproducts=>flexible supplychainSupply chain needs to be considered in anyproduct and sales strategySCM strategy could provide competitive advantagesleadingtoincreasedcustomervalue11-4
11-4 Customer Value Defines the SCM ⚫ SCM strategy determined by: ⚫ type of products or services it offers ⚫ value of various elements of this offering to the customer. ⚫ Examples: ⚫ If customers value one-stop shopping => carry a large number of products and options ⚫ Personal customization of products => flexible supply chain ⚫ Supply chain needs to be considered in any product and sales strategy ⚫ SCM strategy could provide competitive advantages leading to increased customer value
11.2 The Dimensions of CustomerValueConformancetorequirementsProductselectionPriceand brandValue-addedservicesRelationshipsandexperiences11-5
11-5 11.2 The Dimensions of Customer Value ⚫ Conformance to requirements. ⚫ Product selection. ⚫ Price and brand. ⚫ Value-added services. ⚫ Relationships and experiences
Conformance to RequirementsMarket Mediation:Ability to offer what the customer wants and needs福Costs associated withthe market mediation occurwhenthereare differences between supply anddemandSupply>demand =>inventory coststhroughout thesupplychain.Demand>Supply=>lostsalesandpossiblymarketshare.FunctionalItemsProduct demandis predictableMarket mediation not a majorissueFashion items or other high-variability itemsNature of demand can create large costs due to lostsalesorexcessinventoryRequiresresponsive supplychains11-6
11-6 Conformance to Requirements ⚫ Market Mediation: ⚫ Ability to offer what the customer wants and needs ⚫ Costs associated with the market mediation occur when there are differences between supply and demand. ⚫ Supply>demand => inventory costs throughout the supply chain ⚫ Demand>Supply=> lost sales and possibly market share. ⚫ Functional Items ⚫ Product demand is predictable ⚫ Market mediation not a major issue. ⚫ Fashion items or other high-variability items ⚫ Nature of demand can create large costs due to lost sales or excess inventory. ⚫ Requires responsive supply chains
Zara's SCM StrategyItkeeps half of its production inhouse instead ofoutsourcingasis commonIt intentionally leavesextra capacity inits warehousesItmanufacturesand produces insmall batches ratherthantrytoachieveeconomies of scaleIt manages all design, warehousing,distribution andlogistics itself instead of usingthirdpartiesIt holds its retail stores to a rigid timetable forplacingordersandreceivingstock.Itputspricetagsonitemsbeforetheyareshipped ratherthanat each store.It leaves large empty areas in the stores and tolerateseven encourages stock-outs11-7
11-7 Zara’s SCM Strategy ⚫ It keeps half of its production in house instead of outsourcing as is common ⚫ It intentionally leaves extra capacity in its warehouses ⚫ It manufactures and produces in small batches rather than try to achieve economies of scale ⚫ It manages all design, warehousing, distribution and logistics itself instead of using third parties ⚫ It holds its retail stores to a rigid timetable for placing orders and receiving stock. ⚫ It puts price tags on items before they are shipped rather than at each store. ⚫ It leaves large empty areas in the stores and tolerates, even encourages stock-outs
Conformance to ReguirementsBuilt on Three PrinciplesClosingthecommunicationloopSupply chain isorganized so it can track material andproduct inreal timebutalso closetheinformationloopbothforharddataand anecdotalSticking toa rhythm acrossthesupply chainCompany is willingto spendmoney on anything thatwill make itssupply chainfastand responsiveLeveraging capitalassets toincreasesupplychainflexibilityCompany usestheinvestment inproductionanddistribution facilities tomake the supply chainresponsive to newandchanging demand patterns11-8
11-8 Conformance to Requirements Built on Three Principles ⚫ Closing the communication loop ⚫ Supply chain is organized so it can track material and product in real time but also close the information loop both for hard data and anecdotal. ⚫ Sticking to a rhythm across the supply chain ⚫ Company is willing to spend money on anything that will make its supply chain fast and responsive. ⚫ Leveraging capital assets to increase supply chain flexibility ⚫ Company uses the investment in production and distribution facilities to make the supply chain responsive to new and changing demand patterns
Product SelectionProliferation of productoptionsLargervariety means greaterproblemswith:Managing suppliesPredictingdemandThree successful trends:Specializing in offering one type of product(Starbucks/Subway)Mega-stores that allow one-stop shopping for a largevarietyofproducts(Wal-Mart/Target)Mega-stores that specialize in one product area(HomeDepot/OfficeMax/Staples)11-9
11-9 Product Selection ⚫ Proliferation of product options ⚫ Larger variety means greater problems with: ⚫ Managing supplies ⚫ Predicting demand ⚫ Three successful trends: ⚫ Specializing in offering one type of product (Starbucks/Subway) ⚫ Mega-stores that allow one-stop shopping for a large variety of products (Wal-Mart/Target) ⚫ Mega-stores that specialize in one product area (Home Depot/Office Max/Staples)
Similar Trends on the InternetSome sites offer a variety of productsOthersspecializeonlyinaspecific lineofproductsCombinevirtual withphysicalstores.Dellwithitsphysicalstorestocompete withAppleLong-TailPhenomenonLackof physical orlocal restrictionsallows retailers tofocusand makerevenue on theless popular items intheircataloguesOnline sites offertitles/items not carried by traditionalretailers11-10
11-10 Similar Trends on the Internet ⚫ Some sites offer a variety of products ⚫ Others specialize only in a specific line of products ⚫ Combine virtual with physical stores ⚫ Dell with its physical stores to compete with Apple ⚫ Long-Tail Phenomenon ⚫ Lack of physical or local restrictions allows retailers to focus and make revenue on the less popular items in their catalogues ⚫ Online sites offer titles/items not carried by traditional retailers