Are Reducing Cost and Enhancing Customer Value Mutually Exclusive in the Supply Chain?

Posted by Martin Verwijmeren on Sep 14, 2017 2:27:57 PM

Find me on:

Over the past decade, supply chain leaders have increasingly been asked to reduce the cost associated with fulfilling of customer orders on-time and in-full. However, in most cases, they have been asked to do so with less funding while the quantity of orders has increased. Let’s face it; that is tough position to be in.

costsavings (1)

However, what’s interesting is that we are seeing that many are seeing experience beginning to trump product and cost in how we compete for customer mindshare from a sales and marketing standpoint. That is putting increased pressure on departments that traditionally have been seen as cost centers including supply chain and customer success to be at the forefront of customer growth and retention and in turn, company success.

The benchmarks for an engaging customer experience have been consistently rising with companies such as Amazon, Apple and Walmart moving the goal posts for which all B2C and B2B businesses must begin to emulate. These heightened customer expectations in terms of faster lead times, increased service levels and our own goals of penetrating new markets have all led to monumental supply chain complexity that lands directly in the laps of supply chain leaders to “figure it out”.

In this digital age where pace of change is increasingly rapidly, how do we as supply chain leaders continue to reduce costs associated with fulfilling customer orders while being a consistent driver of customer growth and retention?

Reducing Cost is about Eliminating Inefficiencies and Redundancies

As companies look to reduce cost in their supply chain, it’s about removing inefficiencies and redundancies in the process. Now that doesn’t mean setting up static and rigid processes designed solely to drive down costs but to better understand the costs that are associated with fulfilling orders throughout the end-to-end supply chain and how we can build flexibility to manage them. This is not just transportation costs but can include activity costs (warehouse, manufacturing, etc.) and inventory costs as well.

It not about reducing costs and maintaining the same processes but how we can leverage our resources better to improve and optimize our processes through collaboration. We’re seeing organizations evolve in how they think about the following areas:

Supplier / Partner Evaluation: One of the biggest areas for cost reduction is performance evaluation of third parties in your supply chain. By leveraging multi-enterprise business software, we see that organizations are increasingly able to evaluate their best suppliers and partners and leverage this data to create and invest in more profitable relationships with third parties. They also have the flexibility to use these supply chain partners ad hoc when the need arises for more profitably or to supplement capacity to accept more orders.

Expediting Costs: While delivering on-time and in-full (OTIF) orders should be a core measure of success, how you do it can make a huge difference in the bottom line especially if you are consistently rushing shipment in order to fulfill your agreed upon service levels with customers. For most organizations, improving in this area is contingent upon gaining end-to-end supply chain visibility and control in their supply chain usually in the form of a supply chain control tower. With this in place, they are able to address delays in real-time and take action on exceptions that provide more lead-time for transportation and other activities, thus less cost on expediting shipments.

Inventory Reduction: Holding inventory is one of the largest costs for most organizations and for many, their static sourcing processes often lead to higher inventory levels across their supply chain network in order to have appropriate safety stock. To reduce inventory levels, organizations are increasingly building agility into how they dynamically source inventory across all of their parties. By understanding and being able to source from any party including any warehouse, suppliers, 3rd parties, retail locations, etc, they are able to have more flexibility in serving current customer orders while requiring less safety stock in all their locations. It’s also ensures quicker inventory turns helping to reduce obsolescence as customer tastes and demand changes.

 

With increased efficiency in how we use our internal and external resources, we see that organizations are able to optimize the effort and cost associated with satisfying customer orders.

Creating Value is about Leveraging Assets and Relationships to Deliver Optimal Experience

Supply chain transformation is not all about reducing costs but it’s about how we grow our business and better serve our existing customers consistently with every order in the most efficient way possible. As we know, customer experience is becoming a much larger factor in why customers decide to buy from an organization and our ability to provide a great experience relies on our ability to build supply chains that are flexible and agile with each new customer demand.

Here are some trends we see organizations investing in to improve the overall customer experience:

A True Omni-channel Experience: As you build agility into your supply chain, you will be able to offer more options for customers to enrich their experience. One of the biggest trends is providing flexibility in how a customer orders and how we deliver on that order. Whether it’s purchasing online, in-store or through other methods, our ability to dynamically source inventory from the multiple locations in our supply chain network (i.e. drop ship from suppliers, choose between warehouses, deliver from store, etc.) enables us to give customers the options they need to fit delivery into their lives as they see fit. Gone are the days where buying online and shopping in store or on location are mutually exclusive. The lines are blurring and we’re seeing organizations offer all the iterations for customers.

Expanded Delivery Windows and Services: Convenience is becoming increasingly important in how we choose the companies we buy from both for B2C and B2B and with flexibility in your supply chain it enables you to meet the level of expectations customers have to fit delivery and service options into their day to day. Gone are the days of deliveries happening just from 9 AM – 5 PM during the day for consumers or 24 hour windows when supplying businesses. The present day is about fitting into tighter delivery windows both in supplying our B2B and B2C customers. We are also seeing the need to bundle our deliveries with expanded services whether that’s white glove installations for good or service technicians to calibrate to ensure working products and parts. The delivery and service coordinated as a seamless experience goes a long way to customer satisfaction.

Real-time Exceptions Management: The worst result in supply chain is a late order for a customer. The problem is that with increased customer expectations, delivery options, product lines and other factors adding supply chain complexity, delivering on-time in-full (OTIF) orders is becoming much more difficult. This is why real-time alerts on exceptions in the end-to-end supply chain are critical. With control tower technologies and more granular supply chain visibility into milestone steps before transportation (i.e. manufacturing, suppliers, distribution, etc.) we’re seeing organizations able to proactively manage exceptions earlier in the process helping to deliver more OTIF orders at a reduced cost.

 

The value delivered above is becoming more the norm than the exception and will continue to be the case as customers continue to own control over the buying process.

Supply Chain Orchestration to Optimize the Perfect Order

The Perfect Order balances both priorities of reducing costs associated with serving customers and delivering value based on service levels agreed to with the customer. To do this and do it consistently, organizations can’t just rely on the status quo. There is too much complexity and considerations to take into account to ensure consistency in decision making for each order with existing processes and systems.

We’ve already invested in the foundations from a technology and partner perspective in our supply chains and they have helped us optimize in the siloed functions of the supply chain (i.e. pick & pack efficiency in our warehouses) but when it comes the customer order and extending and tying together our systems and multi-enterprise supply chains, many organizations are left wanting.

Supply chain orchestration is about taking in all the data, details and timelines around a customer order as well as the capabilities and capacity of your supply chain network to best plan and optimize each and every order in your supply chain. Its goal is around how we create the perfect supply chain experience for a customer while ensuring profitability in the cost to serve the order to the customer.

As supply chains continue to become more complex and order volumes increase, intelligence in how we automate and make real-time decisions on order flows will become critical for organizations looking to make supply chain a competitive advantage. This will force companies to undergo supply chain transformation to support and enhance the customer experience and that all starts with evaluating and building agility into your technology foundation.

 

Check out our on-demand webinar below on supply chain orchestration control towers and their impact on the digital supply chain!

Supply Chain Control Tower

 

Topics: Supply Chain Orchestration, Supply Chain Visibility, Supply Chain Complexity, Control Tower, Omnichannel, Inventory Management, Supply Chain Transformation, Multi-Enterprise Business Networks

 

Recent Posts

RSS

Subscribe to Email Updates