Four Reasons Why Customers Get Power over Your Supply Chains

Posted by Martin Verwijmeren on Nov 20, 2014 8:54:28 AM

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As global markets are rapidly opening up, customers increasingly dictate new requirements with respect to supply chain services. Let’s focus on the customer and see the reasons behind this power shift.

power-to-the-customer

There are four reasons why the customer gets power over your supply chains:
  1. New customer expectations
  2. Rapid globalization
  3. Growing risks
  4. Extreme cost pressure

New customer expectations

With increasing technological possibilities, multi-channel sales is becoming a hygiene factor in the eyes of the customer. As a result customers expect more from companies than ever. If you don’t deliver to these expectations your competitor is just one click away.

For instance, speed of delivery with online shopping is becoming a major differentiator. Let’s consider ordering a giant TV flat screen on a Saturday afternoon. Your competitor could well be offering to deliver the product on Sunday before the football match you want to see on your new flat screen. If you want to compete you have to comply with this customer demand, in order to keep up the pace with your competition as they are already doing it. Now, what if something has gone wrong during the delivery of this flat screen? How are you going to deliver the services around it? Communicating that you will arrive for service between 12:00 and 18:00 is not an option anymore if your competition is giving a one-hour's notice. And last but not least they expect a transparent cost overview of the services you provide. Compare this customer service flexibility to an insurance company that allows you to opt for additional coverage before you go on holiday to a foreign country, and easily lets you switch back upon your return home. This enables the client to match the services directly to his needs. Are you able to deal with this kind of competition? Do you truly have a customer driven supply chain?

Rapid globalization

Already in 2005 Thomas Friedman, the writer of the best selling book ‘The world is flat’, analyzed the factors behind rapid globalization. The open Internet economy made it possible for people in India to fill in the tax forms for US citizens on the other side of the world. As a result of the World Wide Web, new emerging economies came up like Brazil, Russia, India and China. Suddenly you could employ a low cost worker in China, enabling your company to develop new business models to better compete in and even outside existing markets. As a consequence, these new playing fields ignited an ongoing rat race in terms of product development and innovation, thus putting a strain on product life cycles and time to market.  As a result competition became more intense forcing companies to become more innovative in order to maintain its customer base. Question is, how do you deal with the constant changes in your product portfolio? One way to tackle this is through new forms of collaboration. The open Internet economy enables new ways to compete and also to collaborate. New business models are now possible. Just dream it and you can do it. All these factors created many possibilities for the customer and now he is used to it and we have to deal with it. 

Growing risks

All these developments mean also more risks for companies that want to compete on a global level. A product recall, customer complaint, legal claim or other bad customer experience can be shared with one tweet all over the world in just seconds. Never in history has the need to do it right the first time been more pressing. This places much pressure on brand and company reputations and the consequent need to minimize these risks effectively

Globalization also stimulates all kinds of new government regulations. New games mean new rules. As a result compliancy becomes ever more important. Contractual liabilities need to be secured, otherwise customers have legal grounds to take measures against your company. Taxes on environmental impact are a good example of increased regulations. This all leads to very complex business systems for risk management in supply chains. Growing risks will force companies to (re)design the right processes and then automate them, minimizing human mistakes along the way. 

Extreme cost pressure

Globalization has resulted in open markets, causing extreme pressures on costs for the companies in competitive supply chains. The Internet economy makes everything very transparent. This enables you to source all things you need at the lowest costs. Think of raw materials, labor cost and energy consumption costs. Finally overhead costs are forced to be reduced through the options of outsourcing and offshoring.

So having said all this, are you able to meet the ever-rising expectations of your customers through an effective customer supply chain? Download our mind map on Supply Chain Orchestration to see how everything ties together.

 Mindmap Supply Chain Orchestration

 

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