Supply chain managers need to better understand customer expectations and align their strategy accordingly. This is best done by segmenting both customers and suppliers based on different archetypes.So states John Gattorna at the Supply Chain Excellence Leadership Platform (SCELP).
The Australian author of widely read books on supply chain management gave a webinar to SCELP members in late 2018 in which he argued that an outside-in approach is necessary for an effective supply chain, but also explained how to set it up.
Segmenting
An outside-in approach starts with segmenting the market. A crucial and complex issue where customer expectations are decisive. Gattorna explains, "Methods for determining what customers appreciate are useless for designing supply chains. Customer surveys such as the Net Promoter Score (NPS) only measure the opinion and perception of customers at a certain point in time. In our supply chains, we will have to go deeper to actually understand what those expectations are."
Analysing expectations
Those who want to understand the market will have to force their customers to also make the inevitable trade-offs explicit. "Otherwise, customers naturally want everything. We can support research into these trade-offs with data analysis, e.g. of order and demand patterns. Then it turns out that some customers like to establish a reliable long-term relationship, while others prefer a cost-effective or rather responsive supply chain."
Archetypes
"Over the past decades, we have come to believe that we can make do with one supply chain for all our customers," argues Gattorna, "but 'one size doesn't fit all'." According to Gattorna, there are 16 archetypes based on which customers can be classified. In practice, four of these usually remain, each calling for a different supply chain design:
- collaborative supply chain;
- lean supply chain;
- agile supply chain;
- fully flexible supply chain.
Together, these archetypes provide about eighty per cent coverage of the market, Gattorna said.
Conveyor belts
Once those patterns are mapped, the company can develop different value propositions, formulate different supply chain strategies for them and design supply chains to best meet the needs of different types of customers. Gattorna makes the comparison with conveyor belts running horizontally through companies, from the front to the back. "At the front, we have customers who may want the same product. But some want a version with all options at full price, while others want a stripped-down version. The conveyors run in parallel, but at different speeds."
What makes the issue complex is that, over time, customers may exhibit different behaviour and thus change archetypes. A customer who tends to be very loyal will opt for the lowest-cost solution without all the extras when facing financial problems. Gattorna estimates that about 30 to 40 per cent of business is regular and predictable. The distribution of the market among the different archetypes is therefore not a static figure and will have to be revisited regularly.
Setting up supply chain horizontally
Gattorna's vision is in line with the approach developed within SCELP in recent years: an effective supply chain is a derivative of customer requirements. Based on those customer requirements, you design the supply chain horizontally. What stands in the way of implementing that approach is that many companies are still vertically organised in functions such as purchasing, production and sales, Gattorna also sees: "The vertical functions with the largest budgets are often dominant and that makes it difficult to run horizontal flows cross-functionally." He sees segmentation as an answer to this challenge. "Segmentation allows us to perform the activities needed to make those horizontal flows work while keeping the vertical functions intact."
Segment suppliers too
Gattorna argues that not only customers but also suppliers should be segmented. He also argues that inbound and outbound supply chains can be very different from each other. Combining customer and supplier archetypes gives you a clear starting point for supply chain design. Three combinations are most common:
- lean at the back, lean at the front;
- lean on the back end, agile on the front end;
- lean on the back end, collaborative on the front end.
Attention to leadership and culture
Besides the link between market and strategy, Gattorna also stresses the importance of focusing on leadership and culture. Knowledge and tools on these topics have also been developed within SCELP, which he welcomes. "Strategy implementation requires the right culture and the right type of leadership. You are certainly addressing the right themes with the SCELP platform," the Australian thoughtleader spoke.
Prof Jack van der Veen, professor of supply chain management at Nyenrode Business University and, together with Michel van Buren of BLMC, initiator of SCELP, argues that 90 per cent of Gattorna's argument agrees with the insights the platform of supply chain professionals has come to in recent years. Based on this, SCELP has developed several tools that help companies make the right trade-offs outside-in, both internally, and across the supply chain with customers and suppliers. Such trade-offs determine supply chain strategy and the design of supply chains. "Gattorna's story once again underlines the importance of what we are developing within SCELP," states Van der Veen.
SCELP's next meeting will take place on Tuesday 22 January at Nyenrode Castle in Breukelen. The theme of that day: talent development. For more information, visit www.scelp.nl.
