Building blocks of a Customer-driven Supply chain

Just think about the explosion in choice customers are being offered today.

Amazon.com, Alibaba.com, Walmart, Ikea, Procter&Gamble, Apple, Cisco,..., all face an ever increasing number of customizations to their products and services, customers buy. Just walk into any retailer outlet and you can choose amongst a wide variety of options.

How can such a responsiveness concept be achieved? We call it a Customer-driven Supply Chain. And article below shares with you key enablers of such powerful new supply chains.

In theory all that is needed is the widely publicized kanban-system promoted by Toyota and other Japanese companies for more than 50 years. Or the idea to focus on less is more under the motto 'Without orders we do not produce'. Which means 'each time the customer buys, we replenish, but if there is no sales, we do not keep ourselves busy producing excess inventory, hoping these will sell later', as traditional companies do!

In reality such a boringly predictable, low inventory and profitable efficient supply chain takes years to put in place. For a kanban to function correctly, reliable and cost-efficient supply is absolutely essential. Short leadtimes from order to delivery become an obsessive focus. Long and variable leadtimes must be shortened and stabilized all across the chain and all customers and products must fit into the design of the supply chain. Automation, mechanization, simplification. No investment is avoided to meet this objective.

To understand how customers fit into the design, think of Amazon as an exemple. Each customer can choose a service option and must then accept the resulting rules and waiting times. This service comes at a cost as each order line shows purchase and delivery price separately. A customer either chooses the lowest price (slow delivery) or pays a premium for superior delivery service. To make this workable, distribution must be fast and responsive.

Products must be produced to refill the inventories, whenever there is a need. Here flexibility and changing production from one model to the next fast guarantees the speed. as Henry Ford used to say when inventing the assembly line for his famous Black Ford T, speed leads to superior quality.

Speed in distribution, coupled with transparent delivery costs for the customer, and flexibility to change production based on order patterns and inventory changes is what determines how customer-driven your supply chain is.

Without this speed there is no way a company can reduce its reliance on sales forecasting. And that is the ultimate goal of a customer-driven Supply Chain: reduce forecast-driven activities which are based on wrong predictions of the future in favor of customer-driven actions. It makes your supply chain more efficient, less costly and higher value-add with dramatically less inventory!

This does not mean forecasting is not important in a customer-driven Supply chain. On the contrary! Whereas forecasts in a traditional supply chain are very detailed, fragmented and used at operational level, the customer-driven supply chain emphasizes the importance of information quality and sharing! In a Customer-driven supply chain all parties down the chain must know the forecast, aggregated or disaggregated to the level where it supports business decisions, instead of supporting execution of a transaction. Data standards must be shared across the chain, with clear and agreed conversion rules for bottom-up aggregation and top-down translation.

In a customer-driven supply chain, forecasts, supply plans and inventory information are available to all in simple dashboard format. but the data underneath the dashboards are transactional building blocks that can be aggregated, added, subtracted and multiplied without complex translations.

We have now completed the review of the 3 key building blocks that enable a Customer-driven SC to operate correctly:

1. flexible production

2. predictable distribution leadtimes allowing customers to choose a service option with transparent costs associated to them

3. shared, real-time quality information in dashboard format to support decisions based on very detailed, transactional, standardized data-building blocks all in the chain can access

Exciting work in coming years for all supply chain professionals. Redesigning the supply chains of the future. Customer-driven supply chains! As Toyota envisioned more than 50 years ago. The journey just started.