Comment: The secret to making customers care about supply chain
Imagine a world where customers care about how products are sourced, made, and delivered, understand what goes into pricing, and generally take great joy in the experience. A world where customers are fluent in the language of supply chain.
It’s not as farfetched as you may think.
Supply chains solve complex problems. And in the company of supply chain professionals, we use big words and complicated terms to talk about it. Words like multi-modal logistics and global transportation, mass-customisation and postponement, procurement and letters of credit, demand management, the cost of inventory and buffer stock, assurance of supply, warehousing, and the last mile.
We nitpick over the differences between distribution and fulfilment centres, debate the true definition of supply chain visibility and the role of control towers to support orchestration across a complex network of suppliers, trading partners, and carriers. And we’re still not sure if our industries are facing an apocalypse or simply working through the growing pains of transformation in the digital age.
It’s a mouthful. And as we dive into the technical details and jargon that comprise the modern language of supply chain, one can’t help but picture the average consumer’s eyes glazing over.
But that’s not necessarily the case. There’s mounting evidence people care more about supply chain than ever – they’re just not using our words for it.
Therein lies the secret.
The words used to describe supply chain were different at the recent Shoptalk Europe conference in Copenhagen, Denmark, a gathering of more than 2,500 retailers, start-ups, technologists, and investors all focused on the worlds of retail, fashion, and ecommerce. Though most attendees weren’t purely in the business of operations and supply chain, all were exploring how to reach, engage, and enlighten the customer wherever and whenever they might choose to shop.
And as technology continues to smooth the seams of commerce, the lines between supply chain, stores, digital, and omni-channel have all seemed to blur, and the only thing that really matters (or that’s always mattered) is the customer at the centre of it all.
Listen closely enough to your customers and internal stakeholders, and you’ll hear discussions about supply chain’s growing role in an increasingly digital world. People understand and talk about things like visibility and logistics, pricing, and how products made more than ever – and the effect they have on people’s lives.
Customers care about logistics. They expect to know when and how a product will arrive, what it costs, and what happens if they’re not available to receive it. Gone are the days where a three- to five-hour (or day) delivery window was an acceptable practice.
One example of this evolution is Picnic, a Dutch grocery start-up that, in the words of founder Joris Beckers, has reinvented the milk man. Like the delivery services of yore, Picnic focuses on the direct relationship between the service provider – in this case a delivery driver – and the customer. Picnic solves for the last mile not with stores or outsourced delivery services, but with a fleet of custom-designed electric trucks built for urban areas and driven by delivery people who consistently work the same route in the same neighbourhood every day.
The result is a customer base that’s not only loyal, but that in many cases has adopted their driver as a part of the community. That direct relationship is backed by technology that, similar to Uber, shows customers exactly when their order will arrive and where it is – from the distribution centre all the way to their front door. Though the company started small, Picnic grew fast and grabbed investors’ attention along the way. And while Beckers doesn’t talk supply chain directly, the business has clearly won its customers on shipment visibility, real-time logistics data, and the seamless integration of assortment, inventory, payments, and delivery.
For better or worse, we live in an age of instant access to information. And that access has given customers more insight into how products are made and their true cost. Some businesses are turning that into a competitive advantage.
Dollar Shave Club founder Michael Dubin also presented at Shoptalk, as his company – now owned by Unilever – plans to scale the business and expand overseas. In its rise from modest subscription start-up to a $1bn business, Dollar Shave Club won its customers not only with clever marketing, but with a price and delivery scheme that gave customers greater transparency into what shaving and grooming products actually cost. The company built up a base of more than 4.25mn subscribers – all who care about receiving products from a low-cost supplier at consistent service levels and with an assortment tailored to their specific needs. To Dubin, DSC is as much a community as it is a business. One that grew because of its supply chain.
For a growing number of people, it’s not just important to know how a product’s made, it’s true cost, or whether or not it’s in stock. Many consumers also want to know whether a product is ethically sourced, has a low environmental impact, or is made under humane working conditions.
One example of customers pushing brands to show their work in supply chain is fast-fashion retailer H&M. The apparel industry is notorious for its waste, environmental impact, and treatment of workers, a fact that makes fast fashion that much more sensitive a space. To help mitigate these concerns, H&M adopted practices like clothes recycling, annual sustainability reports, and product listings that go beyond price and description but also show where a garment is made and what raw materials and processes go into them. Clear signs that customers care about the supply chain even if they don’t use the same words as we practitioners do to describe it.
Ultimately, supply chain was a big part of Shoptalk Europe – even though only a small slice of its presentations were explicitly about supply chain. And as research has shown, 61% of millennial shoppers will switch brands because of some issue directly related to the supply chain, whether it’s quality, availability, how it treats its workers, or its impact on the environment. They just don’t use the same words as most people in operations and supply chain to describe their feelings.
In any industry, not just fashion and retail, the supply chain has a wider impact than we may think. After all, delivery methods, shopping experiences, transparency, and product insight all derive from some aspect of supply chain. Whether we’re trying to sell customers on this fact or even internal stakeholders within a different part of the company, it’s important to remember that the words we use matter. Indeed, supply chain is a space ripe for analysis, data science, academic study, and creative thinking.
And with the high complexity and widely distributed nature of today’s global supply chains, it’s no wonder we often describe them in polysyllabic and seemingly monolithic terms. But it’s worth remembering that supply chain can also be related in common terms, as a story of what went into the creation and delivery of a product, and the meaning it has to the all-important customer.
Perhaps the secret to making people care about the supply chain is to not talk about supply chain itself, but about the difference it makes in peoples’ lives. There is commonality among all these examples. It’s not just about changes to the world – it’s about how supply chain makes the world a better place.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”