Choice and value chains
The experiences of people going through the pandemic and expectations in developed countries of 10 percent+ unemployment, could change perceptions enough that the future will not be the same as the past.
A report titled The New Customer, downloaded from the Digital Supply Chain Institute, provides their expectations of likely consumer needs in the future and effects on supply chains. The report was written prior to the pandemic and therefore based on a ‘business as usual’ scenario.
The report states that customers/consumers “…have new, higher expectations than traditional businesses support” The first question to ask is whether expectations can or will be satisfied in the future.
Customers with limited power in negotiations and consumers are able to make a choice between competitive options. If all suppliers for an item offer two weeks delivery and charge a delivery fee, the only choice is to accept or reject. Change only comes when a supplier in that market offers, as a competitive manoeuvre, quicker delivery or lower delivery charges. This is currently called the ‘Amazon Effect’.
The offer can only be maintained if the supplier has superior processes and systems and the owners/shareholders are willing to subsidise reduced profits until sales volumes increase. If those conditions prevail, the supply market must address the new competitive situation or lose market share. Note that the only role consumers have is to buy more from the supplier offering ‘better’ terms – this is not ‘consumer led demand’ but taking advantage of an offer.
So, when reviewing your supply chains, by all means identify what your customers and consumers would ideally like. At the same time ask what your competitors could do to take a competitive advantage, while meeting at least some of the customer’s ‘like to have’. Also, could new competitors (‘disrupters’) enter the market, to provide a different offer for customers and what would be the response?
Basis of the ‘new customer’
The report makes statements that “…the individuals and companies that you sell to have a new set of demands, expectations and requirements” and “…the age of the supply chain is over. Companies need Demand Chains”. And, “the change will occur over the next 3-5 years”. Can these statements be challenged and is the timeline even feasible?
The report has based its claim for change on three main factors:
- Increase in the penetration of smartphones. The invention of letter delivery, the telegraph, telephones and fax also changed how products were ordered and delivered, so what is ‘new’ except for consumer self-service to lower supplier costs?
- Changing demographics – …”younger generations can imagine how technology should be used to improve their lives” (or make it worse as with the ‘gig’ economy). Older generations are also using smartphones and tablets, but in previous times generations accepted new technologies, such as modes of travel – steamships, railways, buses and aircraft that changed lives – so what is different?
- B2B buyers are expecting the same level of service delivery they receive as consumers. However, the capability for quicker delivery depends on whether the product is Make to Stock, Assemble to Order, Make to Order or Engineer to Order. Whatever the item, negotiating for quicker delivery has always been part of the commercial buying process, so what is different?
Change in supply chains
The report states “A supply chain that can produce ‘mass customisation’ is what will win in the near future”, but, as with many things in supply chains, it depends. For example, there have been reports of make to stock (i.e. mass produced) items, such as cola drinks produced to order in convenience machines located in high traffic areas such as railway stations (for a higher price). Also, work continues to produce knitted garments within shopping centres, rather than producing in large factories and transporting around the world. While these endeavours have merit, they take time to perfect – trials of knitted garments ‘make to order with quick delivery’ were first done in Australia in the early 1990s!
A statement in the report notes that “Customer Service people means anyone that interacts with your customer must fully understand customers’ needs”. The all ready known customer need is ‘delivery in full, on time, with accuracy’ – DIFOTA. To provide Availability of items for customers is the role of Logistics through the organisation’s supply chains. While this is a simple explanation of customer needs, it has proven to be difficult to implement.
Another statement is that “Buyers want to know why things cost what they do and understand for what exactly they are paying”. Procurement professionals would agree, but this is already standard practice. Consumers who are unable to discuss pricing with the suppliers to retailers, consider the perceived value to them of an item and that approach has not changed. On ethical grounds they may not buy an item produced in a low labour cost (LCC) country, but that decision is a moral, not commercial, approach.
The risk to many businesses of the pandemic is of a catastrophic event; that is, the likelihood of it occurring is low, but the consequences are a substantial loss of business or even bankruptcy. The medical view of the pandemic is that the virus crossed from animals to humans. This has happened before and as natural habitat is lost, so animals will be closer to humans and the risk of future pandemics of unknown effects increased. For business, the term ‘agile and responsive’ takes on a new urgency.
When considering the improvement of supply chains, the report states that “…data used to make decisions about what should be made and what customers really want is often unavailable or unused in decision making”. As noted above, the three objective measures of operational performance in supply chains are:
- Availability of items for customers – implement Sales & Operations Planning (S&OP)
- Delivery performance probability – measure delivery in full, on time, with accuracy (DIFOTA) and
- Uncertainty minimisation (implement risk management for supply chains)
For these measures to be effective requires modelling and analysis of supply chain data and information (both structured and unstructured). To provide a structure for the numbers requires a digital map of your supply network. This enables the modelling and analysis of scenarios that are or could be appearing and the reclassification of risks at nodes and links in your supply network. It certainly provides a more rigorous approach than appeasing the mythical ‘new customer’!