Most companies in the high-tech industry have historically focused on enterprise markets and are in the process of reinventing themselves with an enlarged focus to include consumer-oriented businesses. Companies such as HP, Motorola, Apple, Cisco and others are also addressing markets that are much more global in nature, i.e. customer constituencies that are significantly differentiated by virtue of their regional or cultural context.
While the conquest for global markets is truly under way, the customers within those markets are also changing in a profound manner. Wave after wave of product launches has led to consumerization, and along with it customer choice (fickleness), lowered demand predictability and swift migrations of entire customer bases from one product to another, as well as intense cross-category competition.
In addition, within traditional customer segments, company initiatives in response to the onset of aggressive consumerization are typically focused on "customer responsiveness" and have often had the unintended fallout of creating higher volatility in the demand of high-tech products. In the context of effective demand management, there is a significant opportunity for differentiation through process innovation and systems leverage in customer operations. The Electronics Supply Chain Association and Infosys Technologies Limited conducted primary research (1) with the following objectives:
- Assessing impact of consumerization on major sub-segments within the high-tech industry
- Understanding issues and challenges in key processes within demand management
- Identifying leading industry practices and identifying components of an integrated model for effective demand management
Evidence of Change & Impact of Consumerization on Operations
When questioned, 87 percent of respondents in the primary research (1) stated that consumerization has significantly impacted two key areas within operations:
- Product Proliferation: Increased pressure on design and supply cycles throughout the high-tech demand chain, driven by demand for new products and increased product refresh frequency
- Customer Experience: Heightened customer expectations on product customization and error-free operating performance — on-time delivery; seamlessness across product lines/lines of business and functions (Sales, Service, Support); hardware-software-service-financing options bundling customizations; product configurability; self-service capabilities etc.
Most line managers within the supply chain recognized the impact and articulated their recognition and responses accordingly, as shown in Figure 1:
Figure 1: Business metrics impacted by consumerization. Source: Infosys-ESCA Research (1)
In customer-facing operations, the impact has been strongly manifested through customers' expectations around reduction in lead-time-to-deliver and close-to-perfect order fill rates. On the other hand, the shift in perception around such high-tech products as short-lived fashion and trend-oriented products emphasizes revenue growth for companies through rapid new product introductions (e.g. Logitech, which launched over 70 new products last year alone) rather than relying on a loyal customer base for stable products. This has induced a steep increase in design turns and significant shrinkage in the concept to market launch time window.
To help focus the identification of the current state in operations as well as leading practices, one of the focus areas of the research was on a specific process of demand management: forecasting.
Forecasting: widely prevalent but still not trusted
Despite enormous efforts to induce predictability within the customer order cycle, firm orders comprise only 30 to 50 percent of anticipated sales (1). Meanwhile there is also an inexorable rise in the proportion of change orders. Additionally, on the supply side, there are longer lead times and more points of failure associated with orchestrating fulfillment through a global network of contract manufacturers, component suppliers, assembly operators and third-party service providers. It was no surprise, therefore, that all respondents (1), regardless of their approach to demand management (signal based or predictive), mentioned that they consider forecasting as a critical function and starting point of the operations planning cycle.