Value Chain Report -- Aligning Your Supply Chain To Support World-Class Customer Service

Dec. 21, 2004
Understanding and incorporating customer requirements into supply-chain processes is an essential element of supply-chain management.

If you have been in the business world for more than 30 days, you probably realize that having high quality products at competitive prices is no longer a differentiator. It's become the price of entry and expected as the norm. Companies are now finding that they must differentiate themselves from the competition based on responsiveness, accuracy, ease of interaction and similar attributes -- collectively referred to as customer service. How you design and manage your supply chain can significantly affect your ability to provide the levels of service your customers demand. Understanding key principles of world-class customer service can provide the framework for aligning supply-chain operations with the demands of the marketplace. Key Principles Of World Class Customer Service MidWest Group believes the model for world-class customer service contains eight key principles:

  1. Economic Segmentation
  2. Customer Experience Management
  3. Collaboration
  4. Institutional Memory
  5. One and Done
  6. Channel Alignment
  7. Customer Focused Metrics
  8. Integrated Processes
Performance around each of these key principles is supported by supply-chain strategies and execution to varying degrees. Therefore, aligning supply-chain strategies with customer service objectives can be a key determinant of how well your firm meets customer service expectations. Following are some perspectives on alignment of supply-chain processes with five of the key principles of world-class customer service that are most relevant. Economic Segmentation The principle of economic segmentation refers to understanding long-term value of individual customers or customer segments, and then using that understanding in making differentiated sales, marketing and service decisions based on the total long-term value of these customers or segments to you. At the world-class level, customized service footprints are established based on the customer's anticipated lifetime economic value. For supply chains, support for world-class performance in economic segmentation results from the ability to prioritize activities and service based on relative importance. For example, your most important customers may receive personal attention from company executives or priority in allocating available inventory, while other customers might receive a periodic telephone solicitation from your sales personnel and lower priority in shipping. Airline frequent flyer programs are highly visible examples of the principle of economic segmentation. Customer Experience Management The principle of customer experience management refers to the ability to consistently deliver a uniform, quality experience that provides value to your customer. Firms that perform at the world-class level in customer experience management have embedded customer service as a core competency throughout their organization. In these firms, customer service is viewed by management as a competitive advantage and as a differentiator by customers. For supply chains, support for world-class performance in customer experience management results from the ability to deliver products and services with a consistently high level of reliability. Your customer should feel certain of the outcome of any particular transaction without incurring excess cost and time to "follow up." Lands' End offers a great example of world-class customer experience management. The company's customer-facing interactions are exceptionally consistent and repeatable. Collaboration The principle of collaboration refers to involvement of internal and external customers in the specification, design and delivery of products and services. Companies performing at a world-class level in collaboration have on-going collaboration with customers in creating offerings that meet their specific needs. Collaboration is formalized and integrated throughout their organizations. For supply chains, collaboration with internal and external customers with regards to demand and supply expectations, concurrent design teams and similar customer integration approaches are means to support world-class performance. For example, Solectron practices world-class collaboration where each of 30 primary clients has specially designated space inside Solectron plants, so that customer engineers and manufacturing personnel can collaborate with Solectron engineers to design products as well as service procedures. Customer Focused Metrics The principle of customer focused metrics refers to implementation of business and employee performance measures that drive customer-centric behaviors. Firms performing at a world-class level in customer focused metrics define performance indicators based on customer input and integrate customer feedback regarding quality, performance and value back into the business to drive continuous improvement. For supply chains, support for world-class customer focused metrics is reasonably straightforward. Performance metrics that are based on customer-defined expectations and measured from the perspective of the internal or external customer should be an integral part of on-going supply-chain operations. At Xerox, results of quarterly customer satisfaction surveys (conducted by a third party) are used to create a customer satisfaction index. The index is used to evaluate performance individuals, and the organization as a whole, and is tied directly to compensation and career advancement. Integrated Processes The principle of integrated processes refers to the ability to put the right information into the right hands at the right time to make the right customer-related decisions. Achieving world-class performance around integrated processes is recognized by the integration of front and back office systems to ensure that information and workflow carry through to their logical conclusion, closing the customer loop and enabling continuous knowledge capture, resulting from effective aggregation, analysis and dissemination of information across the organization. For supply chains, support for integrated processes typically results from the application of technology, allowing accessibility to real-time data and information needed for timely decision-making and responsiveness to changing conditions. One of the leaders in this area is Motorola, which uses an integrated process management tool called M-Gates for product and service decisions, including the design testing and implementation of new products, services and features. This cross-functional system systematically incorporates customer and market requirements, organizational capabilities and ROI analysis into the decision-making process. The message to supply-chain professionals is clear. Understanding customer requirements, incorporating that understanding into supply-chain processes and using customer feedback to continually improve is an essential element of supply-chain management. Regardless of whether your immediate customer is internal or external, the ability of the supply chain to support exceptional customer service is a differentiator and one of the business battlegrounds for the foreseeable future. For a complete copy of MidWest Group's white paper "Key Principles of World Class Customer Service", which includes the customer service maturity model, e-mail [email protected]. Kevin O'Brien is managing principal of MidWest Group, a management consulting firm specializing in supply chain/operations and customer relationship management process improvement and related solutions. He can be reached at [email protected] Mike Schickedanz is MidWest Group's practice leader for customer relationship management consulting. He can be reached at [email protected].

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