The Service Side of Supply Chain Management
Supply Chain Management Review introduces a new series called “Back to Basics.” It’s a look into how excellence in the core logistics and supply chain activities leads to overall business success. The articles in this seven-part series are written by educators from the University of Tennessee. Pictured: Daniel J. Flint, The Proffitt’s, Inc. Associate Professor of Marketing, University of Tennessee.
November 8, 2010
Service traditionally has been viewed as part of the market offering. However, by thinking of supply chain management services in this way, we are focusing on service as a noun. I want you to think of service as a verb.
How does supply chain management “service”? Notice I did not use the phrase “provide services,” which reflect the noun form of the word. The verb “to service” means basically to help or to assist. Products and services assist. Consumers purchase products because they assist them in solving problems. These problems may be to repair a deck (so he buys hammers, saws, wood), to enjoy a night on the town (so she buys a dress), to ease the suffering of a sick child (so she buys cough medicine), or to entertain others (so they buy fresh groceries and wild salmon). Obviously, that notion of assisting or helping holds true for “services” (the noun form) when we think about haircuts, banking or printing services. And it holds true to business buying from ball bearings, to semiconductors, to transportation and financial services.
All of this is obvious, you say. What’s not so obvious to many managers is that every product and service (noun form) that is “purchased” is servicing a customer. In helping to solve a consumer problem, even a manufactured product is servicing that consumer. In fact, in the act of consuming or using that product, the consumer is taking part in the servicing aspect of the product. That’s how the value is derived from the product or service. Thus, every product and service (nouns) should always be seen as servicing value creation for the customer or consumer. This concept is part of what has become known as a service dominant logic.
In thinking about service dominant logic, consider that supply chain managers design processes for and manage the operations of resource flows—the movement of products, people, information, and finances. And in so doing, they facilitate the integration of various resources across multiple organizations. Every one of these “things”—products, people, information and finances—is a resource that gets integrated with other resources as firms build and sell their offerings. In connecting all of these resources, SCM is always about servicing resource integration by managing flows on both the demand and supply side.
So why should supply chain managers care about service dominant logic? Because thinking this way may fundamentally change the way in which you perform the supply chain job and, in fact, conduct your business. Begin by asking some important questions. In what ways do we service our customers—both immediate and downstream? In what ways do we service our suppliers?
Well let’s see. With regard to customers, getting the right product, in the right condition, to the right place, at the right time, at the right price seems to be a well entrenched principle of SCM professionals. One of our core competencies is providing time and place utility of goods we move through supply chains. Customers evaluate how well logistics operations deliver these services. Research on logistics service quality indicates that customers care about things like product availability and condition; timeliness; and quality of order-related information, interpersonal communication, and the discrepancy-handling process. Customers (whether a retailer or end-user consumer) care about these things because having the right products available when needed not only satisfies their own needs but also is a pre-condition to servicing their customers further downstream.
In managing flows up and down supply chains, supply chain managers become involved in far more than just the movement of products. They are immersed in relationship management, IT, finance, operational processes, forecasting, and activities very close to customers such as front line customer service, packaging (primary, secondary and tertiary), and on-shelf presentation/assortment. Here is where I want to focus for a minute.
Focusing on the Front Line
The retailer environment for consumer goods is changing dramatically and in ways that today’s supply chain managers don’t even realize.
One reality of today’s environment stands out: servicing retailer locations is getting exponentially more complex as a result of more customized programs being designed within collaborative vendor and retailer partnerships. This requires stores to be serviced very differently even if they are right across the street and especially (this is the hard part) if they are the same type of retailer. Let me emphasize that. The more alike competing retailers are and the closer they are geographically, the greater will be the differences in servicing requirements. The reason: retailers are in an all-out war to differentiate their brands—as unique store identities—from their competitors and they are demanding help from specific vendors.
This means that in helping customers resolve problems in servicing them, we must understand that retailers’ problem is brand differentiation now. Not differentiation of their private label brands (although that may part of the problem), but differentiating their store as a brand—a shopper destination if you will. Doing so is their path to higher returns on net assets.
But the retailers can’t do it alone. This means that supply chains will look different in a few years as leaders focus on creating highly agile partnerships across many firms and find ways to service accounts with more (not fewer) SKUs but at a lower cost than before. Partner organizations will collectively create many shorter term, in-store, solution centers, unique to each major retailer. They will develop unique packaging to better engage and satisfy consumers. And they will create unique assortments and bundling combinations for specific retail locations. But all of this must be done at a cost savings to today. This is a strategic and daunting task.
We are no longer simply tracking store-level data. We also are tracking shopping basket-specific data for each and every trip for each and every shopper over time. We are analyzing correlations between in-store initiatives and specific shopping baskets, which enables retailers like Kroger to customize promotions by shopper. We are driving traffic through digital and mobile media to specific stores and are able to change demand quickly to take advantage of opportunities.
The implication is that if you thought servicing customers already requires agility and visibility, it’s only going to get far more complex as we move forward. For one thing, as more and more consumers and firms become concerned with sustainability and social responsibility, more attention will need to be pain to servicing returns and/or redistribution as well as alternative product and energy consumption. Much of this will ripple to other non-retailing sectors.
Next Stage: Anticipation
We have long known that transportation is a service and vendor managed inventory is a service—as in nouns. Think about how many different ways can you service (a verb) your immediate and downstream customers in ways that uniquely help your key customers and your customers’ customers solve any of the problems they have? This is not about efficiency. This is about effectiveness. We always balance the two in supply chain management. But in today’s world, the bar for effectiveness is rising more rapidly than ever before. The standard is now driven by consumers and shoppers who are incredibly fragmented and have nearly perfect access to price, availability, and service performance information—globally.
If you can get a handle on this reality, the next big opportunity is to anticipate changes in what individual business customers—and ideally shoppers—will want. The goal: To retain their loyalty even as what they value changes. Serving customers at the highest level of effectiveness means far more than being responsive, it means being anticipatory. This is called proactive customer orientation, a topic for another conversation!
In examining the basics, our experts from the University of Tennessee will explain how mastery in the following areas leads to success on the bigger supply chain stage:
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