Driving a Customer-Centric Supply Chain - 7 NOV 2016

Driving a Customer-Centric
Supply Chain
Insights on Defining and Implementing
a Customer-Centric Supply Chain
11/7/2016
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC

Contents
Research Methodology
Disclosure
Executive Summary
State of the Industry
How Does Customer-Centric Fit into a Demand-Driven Strategy?
Three Pitfalls
Implementation Strategies
Recommendations
Summary
Appendix
Additional Reports of Interest
About Supply Chain Insights LLC
About Lora Cecere
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Research Methodology
We are committed to delivering thought-leading content for the supply chain leader. Our goal is to be
the first place that visionaries turn to in order to gain unique insights to drive supply chain excellence.
This report is based on quantitative research completed during August through October 2016. The
findings are based on the quantitative data derived from the study outlined in Figure 1 and insights
gained through sharing the data with supply chain leaders. Additional details on the demographics of
the population from this study are shared in the appendix of this report.
Figure 1. Overview of the Quantitative Study on Customer-Centric Supply Chain Management
Disclosure
Your trust is important to us. In our business we are open and transparent about our financial
relationships. In this research process we never share the names of respondents and/or give
attribution to open-ended comments collected in the research.
Our philosophy is “You give to us, and we give to you.” We collect data from a private network of
qualified participants and openly share the results. The participants of our research always receive
the final reports; and, if interested, we share insights from the studies with the respondents in a
roundtable discussion with their peers.

This report is written and shared using the principles of Open Content research. It is intended for you
to read and share freely with your colleagues and through social channels like LinkedIn, Facebook
and Twitter. When you use the report all we ask for in return is attribution. We publish under the
Creative Commons License Attribution-Noncommercial-Share Alike 3.0 United States and our citation
policy is outlined on the Supply Chain Insights Website.

Executive Summary
As growth slows, manufacturing companies struggle with rising complexity and increasing levels of
demand error. The question is “Could companies decrease complexity and improve growth by
building outside-in processes that are customer-centric?” We believe the answer to this question is a
resounding “YES!” However, there is a problem. Across the industry there is no common definition of
customer-centric supply chains. There is no clear and accepted methodology to build this core
competency. As a result, most companies have forged their own paths. In this study, 80% of those
surveyed have a customer-centric strategy; yet over half (54%) state that there is room for
improvement to drive performance changes in their supply chain. Companies struggle to drive
alignment and build constancy of purpose. The goal of this report is to fill this gap.
State of the Industry
Today 46% of respondents rate their supply chain as performing well on the delivery of a customer-
centric supply chain strategy. The definition of a customer-centric supply chain used for this research
is: one that is aligned with order management, product strategies and distribution processes to
deliver/adapt to against customer segmentation strategies.
Figure 2. Customer-Centric Supply Chain Definition and State of the Industry

Delivering on the promise of a customer-centric supply chain is not easy. One of the largest issues is
understanding what customers really value. Some of the issues include:
Table 1. Verbatim Responses to Why Supply Chain Is or Is Not “Customer-Centric”
Gaining alignment to serve the customer is the goal. When companies look at what is important
versus current performance, the gaps become clear as shown in Figure 3. The reason why? Most of
the historic focus was on distribution-centric processes—examples include scorecards, vendor
managed inventory, and collaborative planning. Companies do these well, but they do not drive the
required change. The tougher and more important tactics include the implementation of meaningful
cost-to-serve policies, management of complexity, and driving customer segmentation into Available
to Promise (ATP) and order policies. Closing these gaps requires strong cross-functional alignment
with sales and a clear understanding of what the customer values. Both are an issue in most
organizations.

Figure 3. Customer-Centric Policies: Performance versus Importance
How Does Customer-Centric Fit into a
Demand-Driven Strategy?
Many companies bandy about words like customer-centric in strategy discussions, but fail to define
the term to make it actionable. Many confuse demand-driven, customer-centric, and outside-in
processes; these are three separate, but intersecting, strategies. In Figure 4, we share the overlaps.

Figure 4. Customer-Centric Supply Chain Definition
Three Pitfalls
The average respondent in this study had a customer-centric supply chain strategy for their primary
customer over five years; yet, 54% report their supply chain is not working well. Our takeaway?
Should they feel so good about their progress? We think not. Success is easier said than done.
There are many pitfalls. Here we discuss three:
Pitfall #1: Being Customer-Centric Does Not Mean Doing Whatever the Customer Wants. Let’s
consider the story of two clients in Houston. The companies were fierce competitors. Each distributor
delivered oil and gas products to refineries. The companies were commodity-based businesses and
operated on razor-thin margins. One company defined the customer-centric strategy as, "Do
whatever the customer wants." Their costs were higher and their reliability to the customer was
lower. The organization was always jumping through hoops. The second organization had a very

different definition of customer-centric. Their vision was to manage distribution policies based on
customer segmentation with a focus on reliability. At the second company, policies were clear and the
focus was on reliable delivery. At the end of the year we watched both companies gather in a room
for the most valued supplier award. The company that constantly jumped through hoops did not win
the award, while the second company won the Supplier of the Year. What can we learn? When it
comes to customer-centric supply chain strategies, reliability matters. Failed promises, no matter how
well-intended, have long-term consequences.
Pitfall #2: Getting Clear on the Customer. Most companies have multiple customers. In this study,
the average manufacturer served three customer types. These relationships form a value network
within the channel. The key is to identify the primary customer and gain clarity on what is valued, and
then align the organization against what is important. For example, while the healthcare industry has
historically seen the doctor as their primary customer, the power is shifting to health and wellness.
This does not mean the doctor is unimportant. Instead, it is about managing multiple parties in the
value chain, including the patient.
Figure 5. Healthcare Value Chain
Pitfall #3: Segmentation and the Management of Complexity. In Figure 6 we show the gaps in
the execution of customer-centric policies and strategies. The top three gaps are: visibility of channel
inventories and orders; management of complexity; and the alignment between commercial and
operations teams. These three characteristics often go hand-in-hand. When there is close alignment
there is usually better management of complexity and the sharing of channel data.

Figure 6. Gaps in Customer-Centric Strategies
The average company uses five practices to execute a customer-centric supply chain. The details are
shared in Figure 7.
Figure 7. Customer-Centric Policies Deployed

The issue is that the strategies deployed do not resolve the gaps. While there is a focus on
scorecards and distribution strategies, companies struggle to align on customer-centric policies. To
drive true value, sales and operations must align and manage customer and product complexity.
There are many gaps in the execution of customer-centric strategies. The implementation of channel
visibility solutions is very low (16%). The lack of use of channel data and customer sentiment data is
one of the reasons why most companies feel their supply chains are underperforming despite the
availability of data.
Implementation Strategies
To implement a customer-centric strategy, companies need to make a conscious choice on which
strategies to pursue. Let’s start with a clear definition of the terms for building outside-in and
customer-centric processes. The consideration of these techniques can deliver more value than only
thinking of distribution and order fulfillment:
 Demand Networks. A demand network translates demand across multiple parties. The focus is on
channel data: price, inventory positions, and policies. The use of advanced analytics enables the
sensing of out-of-stocks. As markets shift, a demand network enables a clear understanding of market
positions with minimal latency. It is about much, much more than Vendor Managed Inventory (VMI) or
Collaborative Forecasting and Replenishment. An example of a global demand network is IBM
iBAT. We know of ten demand networks using this definition. They are the most prevalent in the
consumer electronics industry.
 Social Listening. Social listening is the use of unstructured text mining and sentiment analysis to
understand and listen to customers’ responses to products and services in near real-time. Advanced
companies are building cross-functional teams to use unstructured data to analyze warranty, quality,
and service failures. An example of social listening is the Lenovo Case Study presented at the 2015
Supply Chain Insights Global Summit. We only know of five case studies of cross-functional listening.
 Market Drivers. To become outside-in, the primary signal for demand becomes a market signal. The
value network is triggering off of market signals which represent independent demand. In contrast, the
traditional supply chain forecasts using historical orders, and adjusts based on sales forecasting. This
introduces demand latency into the supply chain. (The order translation from the channel based on
replenishment points is order latency. For most companies it is weeks and months, but can be multiple
quarters.)
 Channel Sensing. Channel sensing enables the use of channel consumption, and the modeling of
inventory across channels, to understand global and regional trends in order to maximize opportunity

and mitigate risk. Channel sensing combines VMWE, CPFR, and the use of channel signals into a
holistic demand signal.
 Cross-Channel Management. Cross-channel management is the corporate ability to understand the
customer across channels. An example is understanding the shopper across the moments of truth in
omnichannel strategies.
 Customer Segmentation. This is the rationalization of customers and the translation into priorities for
orders, Available-to-Promise (ATP), production scheduling, and inventory allocation.
 Order Policy. This includes the use of customer segmentation strategies to define order policies for
lead times, discounts, allocation, and shipping priorities.
 Cost-To-Serve. This involves the analysis of the relative costs to serve customers, and a data-driven
process to reduce and manage costs at specific customers. L'Oreal is one of the few companies we
have interviewed that has been able to sustain cost-to-serve.
 Customer-Driven Available-To-Promise. This is the use of customer segmentation to determine
priority in matching inventory with orders during the order cycle.
 Use of Channel Data. This is the harmonization and synchronization of channel data to be used in
forecasting, replenishment, and inventory planning.
 Demand Sensing. Demand sensing is the use of pattern recognition and advanced analytics to
analyze order patterns in order to translate tactical demand planning (forecast) into a short-term, and
more accurate, demand signal for replenishment.
 Demand Shaping. Demand shaping is the use of price, promotion, sales/distributor incentives, new
product launch, marketing campaigns, or positioning to elevate and improve baseline demand.
 Demand Translation. This is the translation of independent demand into cycle stock reduction in
production planning and material buying in demand-driven MRP.
 Attribute-Based Planning. This is modeling based on attributes (abstraction from item/location logic
termed SKUs) to better see patterns in demand and supply planning.
 Push/Pull Decoupling Points. This involves choices on when to push, and when to pull, with
translation into inventory policy and decoupling points. This requires modeling and continued
refinement. An example of the use of customer segmentation into push/pull decoupling points is
the SanDisk case study from the 2015 Supply Chain Insights Global Summit.
 Supply Chain Visibility and Supplier Connectivity. The sharing of forecasts in supplier relationships
is of little value. Instead, companies link suppliers to multiple signals: manufacturing production plans,
distribution requirements, and current inventory positions to help suppliers better plan for supply.
These Supply Chain Operating Network Strategies enable multi-tier many-to-many enablement of first
and second/third tiers of suppliers of services, materials and transportation.
 Buffer Design. The design of buffer strategies—capacity, inventory, and supplier relationships—is
designed to absorb demand and supply variability.

 Network Design to Reduce the Bullwhip Effect. This involves designing the network to reduce nodes
and improve B2B connectivity to align the network and maximize agility.
So, while many companies toss these concepts around in discussions on supply chain strategies,
most are stuck because they are not clear on the definition to make them actionable.
Recommendations
The starting place for a customer-centric strategy is to understand what matters to the primary
customer and then aligning the supply chain organization around the policies to make the strategy
successful.
Get Clear on What Each Node of the Channel Values. Each organization has cultural nuances,
and each customer segment has differing needs. The important step is gaining the understanding of
what is valuable in an independent format. While many companies have Net Promoter data, this type
of analysis does not distill what is important for the supply chain to do in order to improve customer
satisfaction. Start by brainstorming the needs of the customer touchpoints in the value chain. In
Figure 8 we share the old and new views of customer centricity using an example from one of our
clients. In this case, the traditional supply chain process only looked at the relationship of the
customer to the order; but as the view expanded to evaluate the multiple touchpoints, the supply
chain team was better able to align with the commercial teams of marketing and sales.
Figure 8. Customer-Centric Supply Chain Definition

Test What Matters to Customers and Drive Alignment Across the Organization. Each function
will often feel that they understand the customer best; and as a result, it is important to take a data-
driven approach to understand what the customer values. In one of our recent studies we evaluated
the impact of price and customer service on the supply chain. While the sales department felt that
price and one-off special requests were the important factors to drive a customer-centric strategy,
what was found in the research was that short lead times, delivery reliability, and manufacturing
quality were also increasing in importance, and that to serve the primary customer segment, the
company needed to focus on all of these elements.
Figure 9. Results of a Customer Survey for a Client
Use Channel and Customer Data. One of the biggest “Ah ha!” moments for us in doing the Supply
Chains to Admire analysis in parallel with this work is how few companies use customer data well.
The supply chain today, despite the wealth of customer data, is still using the customer order as the
proxy for demand. To improve lead times and reliability, the use of customer data is critical.

Summary
While companies talk about the need to be customer-centric and strive to deliver, the gaps are large.
To date, the largest success is in the management of the customer order, the use of customer
scorecards, and the implementation of vendor-managed inventory systems. The ability to align sales
and operations to meet customer needs, and drive success through customer segmentation and cost-
to-serve strategies, remains elusive. It is a goal which appears beyond the supply chain’s reach;
however, this does not have to be the case.

Appendix
In this section we share the demographic information of survey respondents, along with relevant
research findings to support the key insights shared in this report.
Our philosophy is that “respondents give to us and we give to them.” All respondents participating in
this survey were given the results of this study and invited to share in a roundtable with other survey
participants to gain additional insights.
In our research, the names, both of individual respondents and companies participating, are held in
confidence. The demographics and additional charts are found in Figures A–H. At the bottom of each
image are the specific questions asked in the survey along with the survey details.
For the full set of charts from the Customer-Centric Supply Chain survey, click here.
Figure A. Overview of Respondent Characteristics

Figure B. Industry Segments Surveyed for This Report
Figure C. Supply Chain Definition

Figure D. Role and Region
Figure E. Supply Chain Descriptors

Figure F. Primary Customer Definition
Figure G. Presence of a Customer-Centric Supply Chain Strategy

Figure H. Years and Performance of Customer-Centric Strategy for Primary Customer
Additional Reports of Interest
To gain additional insights on the topic of customer-centric supply chains consider these additional
reports:
Inventory Optimization in a Market-Driven World
Maximizing the ROI in Supply Chain Planning
Sales and Operations Planning: State of the Union
What Value of the Retail Scorecard?
What is the Value of Vendor Managed Inventory?
Why Is Sales and Operations Planning So Hard?
Why Is Supply Chain Planning So Hard?

About Supply Chain Insights LLC
Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is beginning its fifth year of
operation. The Company’s mission is to deliver independent, actionable, and objective advice for
supply chain leaders. If you need to know which practices and technologies make the biggest
difference to corporate performance, we want you to turn to us. We are a company dedicated to this
research. Our goal is to help leaders understand supply chain trends, evolving technologies and
which metrics matter.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and
the author of popular enterprise software blog Supply Chain Shaman currently read
by 5,000 supply chawen professionals. She also writes as a LInkedin Influencer
and is a a contributor for Forbes. She has written five books. The first book, Bricks
Matter, (co-authored with Charlie Chase) was published in 2012. The second book,
The Shaman’s Journal 2014, published in September 2014; the third book, Supply
Chain Metrics That Matter, published in December 2014; the fourth book, The
Shaman’s Journal 2015, published in September 2015 while the fifth book, The Shaman’s Journal
2016, published in July 2016.
Wweth over 12 years as a research analyst with AMR Research, Altimeter Group, and Gartner
Group and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has
worked with over 600 companies on their supply chain strategy and speaks at over 50 conferences a
year on the evolution of supply chain processes and technologies. Her research wes designed for the
early adopter seeking first mover advantage.

Driving a Customer-Centric Supply Chain - 7 NOV 2016

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