- July 15, 2020
How a Customer Centric Supply Chain Leads Business to Outperform Their Competitors
Written by Stephanie Chan, July 14, 2020
What is Customer Centric Supply Chain?
Traditionally supply chains are built to drive efficiencies and scale, but in recent years these two things are not enough to deal with the increased complexity and autonomy in the marketplace. Especially during Covid-19, some of the supply chain problems that were revealed include, poor ecosystem (lacking the right partner), limited flexibility, and an outdated technology architecture that stifles collaboration and co-innovation, as highlighted in a report by Accenture titled “A License for Growth: Customer-centric supply chains”.
With fierce competition within the retail industry one of the only ways to gain competitive advantages hinges around customer satisfaction. It requires businesses to orient their strategies toward matching supply and demand, with the ultimate goal to drive down costs, raise quality and improve customer satisfaction at the same time. And the term “Customer Centric Supply Chain” was coined to reflect this new approach.
Why is it Important?
A higher customer satisfaction rate will lead to increased transactions, reduced price elasticity, reduced transaction costs, willingness to purchase, and ultimately drive a retailer’s success. As the recent Accenture report pointed out, only 10% of companies were on the right path to building customer-centric supply chains that are resilient and enable growth prior to the COVID-19. They further discussed how the revolving role of supply chains now support lasting growth. In a similar manner, a research paper by Dr. Pankaj M. Madhani from ICFAI Business School looked at the perks of such a strategy and its edge over traditional supply chains. In the chart below, four different competitive priorities of a traditional vs a customer centric supply chain are being compared.
Supply chain responsiveness can also be referred to as “agility”, which enables businesses to better match supply and demand, thus effectively reducing inventory and transportation cost. It also means proactively anticipate changes in the system while looking for new opportunities.
Supply chain resiliency is the ability for a business to sustain its competitive advantage in a volatile market place with many uncertainties, unexpected challenges and changes. Supply chains that are resilient can adapt to changes in the external environment while those who are not will lose out in business. From Dr. Pankaj M. Madhani’s paper, he used the example of Gap leveraging three different sourcing networks for its Old Navy, Gap, and Banana Republic stores. While the diversified solution is much more expensive in the short term, it serves as a preventive solution against any isolated problems that may arise in any one of the regions.
Supply chain reliability is the ability to deliver the right product at the right time to the right customers. This is certainly an attribute that was lacking in the global supply chain when Covid-19 swept across the global and many essential products were in short supply. Being reliable not only means able to stay afloat amid disruptions, it also means gaining customers’ loyalty and trust.
Supply chain realignment is the ability to check in with all stakeholders within the network and make sure that everyone has the same interest in mind. It creates the incentive for better performance, and it is powered by data transparency, and free information exchange between different parties. It suggests a supply chain co-creation network where everyone shares the same amount of benefits and risks.
CCSCS – Developing the 4Rs Framework
Dr. Pankaj M. Madhani proposed a strategic framework called the Customer-Centric Supply Chain Strategy with all the competitive priorities in mind and how they connect to enhance customer satisfaction.
Figure1. CCSCS developed by Dr. Pankaj M. Madhani to address the 4R as competitive priorities in a Customer Centric Supply Chain.
Figure2. Diagram showing how CCSCS plays a role in customer value proposition against the other stakeholders.
Customer Centric Supply Chain’s have become the new competitive advantage in which businesses can gain success. The CCSCS is a theoretical framework proposed by Dr. Pankaj M. Madhani to enhance customer satisfaction and support company growth in the long-term. Accenture’s analysis showed that 10% of supply chain leaders who leveraged this strategy have outperformed their competitors in revenue (13% growth compared to 5% decline for all other companies) and their supply chain contribution to total revenue was TRIPLE that of other companies (52% vs 17%). While the 4Rs are important to customer success, there are other things that will help, including developing targeted capabilities for specific segments of products and customers, engaging top leaders who will be driving these supply chain discussions. Ultimately, we should remember that a Customer Centric Supply Chain is not just about fixing one part of the system or adding more technology atop an existing framework, but is the harmonization of all the processes, people, culture, and customers’ needs.