Why do so many supply chain initiatives focus primarily on cost reduction and efficiency – rather than on customer experience metrics? In a demand-driven supply chain 2.0, companies know precisely what clients value and organize their entire operations around satisfying these needs, to create a consistent, excellent customer experience.
What does demand-driven 2.0 look like?
In many organizations, the supply chain is still largely isolated and not closely integrated with customer-facing parts of the business. Key performance indicators (KPIs) and subsequent incentives are largely focused on cost reduction and efficiency, which, although important, fail to consider measures such as order times and accuracy, which have a huge bearing on customer satisfaction and experience. In addition, performance targets in functions such as sales, marketing or procurement may not be aligned, which encourages conflicting behavior, with some groups rewarded purely on cost targets and others incentivized on volume.
Customer-embracing, demand-driven companies:
If the supply chain is not viewed as a single, organization-wide system, there is insufficient visibility over each step in the chain. Without such transparency, suppliers do not receive signals quickly, which can significantly impair their ability to react to order changes, promotions or stock-outs. In the worst cases, it can take as long as a month to respond, leaving the end customer dissatisfied and vulnerable to defection. The alternative is to over-stock, which ties up valuable working capital in items that may never sell.
Companies have invested huge amounts in making their supply chains more demand-driven. However, these efforts are typically confined to one geography, one business unit and/or one function, such as procurement, planning, logistics or inventory management. A lack of common, organization-wide, end-to end processes restricts the ability to access reliable data, make robust decisions on future demand patterns or segment customers.