Supply Chain Operations Impact Brands

April 30, 2008
Reverse supply chain flows can have a significant impact on brand perception and value. The expectations are only increasing for global technology leaders such as Lenovo.

Few companies consider the impact of supply chains on their brand. In some cases, brand loyalty may be lost due to stock-out. In other cases, consistently long lead times equate to poor performance and brand value reduction.

Take for example, product returns. What policies governing the reverse supply chain may impact the customer experience and reputation of the company? For most companies, the two areas are seen as entirely separate. How often do we hear of meetings between the logistics and customer service department? At the core this is a supply chain issue. The following review of the Lenovo Group Ltd. will shed some light on how closely the supply chain and brand are linked.

Considering Lenovo

When Lenovo purchased IBM's PC division in 2004, the company acquired an internationally recognized brand icon. Lenovo also assumed responsibility for a globally connected supply chain network, including suppliers, manufacturers, retail distribution networks, sales channels and service centers. The first task became improvement of operational efficiencies through the integration of IBM's network into Lenovo's existing supply chain. Not an easy mission.

One key difference between the two existing models was the customer service and return product support infrastructure. China's marketplace demands few product returns. The common belief in China is "buyer beware." In the U.S. however, the onus is on the seller. Efficient customer service in the event of product defects is required. It is clear in combining the two models there is an opportunity to increase value.

Fast forward four years. In the U.S., customer service demands are now even greater. Expectations for service times have dropped to a matter of hours. China's service market is developing yet still not well established. Lenovo has created a global warranty program, but is the system entirely integrated?

Reverse Supply Chain and the Brand

Lenovo offers global warranties as their brand and products can be found nearly anywhere in the world. This creates a perception for the customer of connectedness. In current Lenovo advertisements, the company suggests both "highly accessible worldwide support" and "PCs backed by a worldwide support network". This is the brand promise.

But what happens when the company's reverse supply chain fails to fulfill its promise? More specifically, what happens when a laptop manufactured in China and sold in the US returns to China, but can't be repaired or even accepted by the support network? There is a breakdown in the reverse supply chain. The effects directly increase costs with the addition of customer service personnel. Indirect costs negatively impacting brand value are immediate.

Lenovo's pledge to customers for worldwide service marks an important realization for newly globalized companies. Customer requirements are different, but real. The supply chain must support and accentuate the brand perceptions. This seemingly small piece of the equation has a strong influence on the brand image, which without further review can have long-lasting negative effects.

Reverse Supply Chains and Technology Brands

If a customer asks for a Starbucks coffee with soy milk and the barista uses skim milk, where in the production sequence is the replacement order positioned? Next in line, at the end of the line, or somewhere in between? If the baristas wait too long, what will the customer's perception of service be? This is one retail location and fairly simple.

Technology products add layers of complexity. Mobile phones and notebook computers are sought after simply because of the added mobility they provide. If the product is manufactured through a global supplier network, and the customer travels globally, the service expected is, you guessed it, global. Frequently the marketing supports this expectation, but does the supply chain?

If a defect is realized for a product bought in one country, but manufactured in another, a new host of challenges must be included in the reverse supply chain discussion. The perception of service and associated costs must take into account in-transit and rework time. For example, how and where will the product re-enter the global distribution network to minimize logistics costs and maintain high perceived levels of service? If the defect is realized at the point of origin, but the product must be shipped back to the point of purchase, the added time of the logistics framework negatively impacts customer satisfaction. The inefficiencies and environmental impacts of the disconnected reverse supply chain create added costs as well.

With the nature of globally recognized technology leaders, the supply chain infrastructure must be dedicated to servicing products throughout the world. At minimum, the reverse supply chain might connect worldwide to receive manufacturer defect returns, moving the product to locations where service is available. The long-term goal is to build available service locations for all models globally. A service gap however shows the network is not truly connected. This is a challenge not only for Lenovo, but also the growing number of electronics providers gaining worldwide recognition.

To be a global leader, the supply chain must follow the brand perception. Supply chains are not only about the movement of product from point A to point B, they are also the backbone of a companies perceived value. Coca Cola's marketing slogan in 1921 was "Knowing no season, thirst knows no restriction of latitude or longitude." It was a global strategy to bring the product to all corners of the world. It was also a promise that the supply chain had to deliver on.

The Coca-Cola Bottlers Association was established in 1914 to protect this commitment of service. As it states, the original mission of the CCBA was to "protect members' products from sham liability claims." The association also identified that bottles could be reused or recycled. The reverse supply chain infrastructure then began to collect and return the containers to begin the bottling process through resin production. The development minimized direct logistics cost and completed a circle integrating every customer into a global service model that exceeds expectations. It wasn't just a cost reduction strategy, but also a delivery on the brand promise.

Bradley A. Feuling is the CEO of Kong and Allan, LLC, based in Shanghai, China. Kong and Allan is a consulting firm specializing in supply chain operations and corporate expansion.

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