Driving Up Lifetime Customer Value in Tough Economic Times
The saying "no one ever cost-reduced their way to market leadership" takes on an entirely new meaning given the current economic uncertainty, which has led many companies to cut back on investments in integrating demand generation and supply chains, production and fulfillment with each other. Arguably, the level of sales a company attains is driven by the continual meeting and exceeding of customers' expectations, and so it is essential that supply chain and demand generation continue to be synchronized for a company to continue growing. As customers' expectations are the future of any company, it's critical to keep demand generation and supply chain, production and fulfillment integrated together.
It's extremely difficult, however, for companies in the middle of tough economic times to look at becoming demand-driven or, once committed to this strategy, to remain on the path to its fulfillment. Measuring the total cost of ownership (TCO) for supply chains that don't invest in becoming demand-driven is like only measuring half the factors that go into calculating perfect order performance. It simply does not make sense and is short-term in result. Cost-reduce any series of systems and processes long enough and there will be a positive ROI and low TCO, yet the far greater and quantifiable gains of exceeding customers' expectations through exceptional performance have a far greater financial impact. When the ability to consistently meet or exceed customers' expectations are taken into account as part of perfect order performance, the ROI and TCO of demand-driven supply chains shift from cost reduction to top-line revenue growth. Instead of worrying about the pennies saved by not connecting one process or system to another, the concern needs to be how to bring in more dollars using demand generation and fueling new business growth.
Taking Steps on the Demand-driven Journey
With so much pressure within companies to reduce costs it's important to get started on a pilot project that quickly shows the positive impact of making supply chain planning and management more demand-driven. Product introductions, product line extensions, the launch of a new service, channel management strategy or on-boarding a new channel partner all are events that companies have used to rationalize investments in becoming demand-driven. For manufacturers of complex products who have build-to-order strategies, being demand-driven is a necessity. Of all selling strategies, build-to-order most influences the POI score of a manufacturer because it directly influences both the percentage of "shipped complete" orders and the percentage shipped damage free. Optimizing order capture systems to make sure a customized order is taken right the first time not only saves time for production planners, it may surpass customers' expectations as well. One globally recognized truck manufacturer known for its customized industrial truck designs takes, on average, seven iterations of an order to get it accurately entered. It's doubtful the customer expects several phone calls to get the order right, yet it's a certainty they expect the truck configured to their requirements, delivered on the date promised on the quote. This example sets the foundation for the steps needed in making the demand-driven journey:
- 1. Get outside your company and see how your supply chain is changing customers' expectations. It's too easy to become complacent not notice how supply chains are out of sync with all aspects of being demand-driven, from the initial expectations of customers to the fulfillment of customized product orders. There are many ways of doing this, but don't outsource it to a research firm. The bottom line of this exercise is to see whether all the expectations that demand-driven strategies create are actually being fulfilled or not through the integration of supply chain, manufacturing and fulfillment. It's a good idea to get a sense of your POI score at this point to see improvements over time as well as to perfect order performance.