The four characteristics of a customer-centric supply chain
What makes a customer-centric supply chain different from a traditional one? Recent research from Accenture says they are tailored to the customer, agile, trustworthy, and innovative. How can you get there? Emerging technology can help.
We are in a new reality. No longer are a company’s products the sole driver of value. The end-to-end customer experience now rules. To deliver that experience, a business must be able to understand its customers, anticipate their needs, and adapt the supply chain to exceed their expectations.
COVID-19 has quickly and very visibly highlighted the critical importance of supply chains in enabling the customer experience. In the face of large shifts in consumer behavior, the role of the supply chain has been elevated to become a fundamental enabler of a company’s customer responsiveness. The key lesson from 2020 is that customer-centric supply chains are an imperative, not a luxury. Consider the way the pandemic has forced companies to rethink the rapid segmentation of products (essential vs. nonessential), use ad-hoc partnerships for the distribution of goods, enable contactless deliveries, and develop new capabilities to protect customers and employees.
We believe that there are four key characteristics that make up a customer-centric supply chain: tailored fulfillment, agile operations, trustworthy relations, and a focus on innovation. As the pandemic subsides, the goal will be to build a customer-centric supply chain that is resilient and flexible enough to meet future day-to-day business requirements as well as “black-swan” shifts in supply and demand. In many cases, this may require transforming the fulfillment function to be more “intelligent” by redesigning the physical network, warehouse operations, and last-mile transportation. To accomplish this goal, companies will need to conduct a full review of their operating model to determine the capabilities, digital enablement, and collaborative partnerships needed to support these elements.
Changing expectations
How have customer expectations changed? Across all industries, customers want ever-faster delivery, and they want it cheap—or even free. They want more control over delivery windows, real-time visibility, and tracking of their orders, and even direct communication with providers and drivers. According to a recent report by Accenture on last-mile delivery,1 the evidence is clear:
90% of customers track the status of their online orders,
81% of customers are unwilling to pay more than $5 for same-day delivery, and
27% of customers have abandoned or cancelled an order because same-day delivery was not available.
This increase in customer expectations is also driving the development of the business-to-business (B2B) e-commerce market. Today, e-commerce makes up just 12% of B2B sales.2
Tomorrow, however, entire swathes of B2B fulfillment may be supported by e-commerce. Forrester has projected the B2B e-commerce market will grow to $1.8 trillion by 2023, accounting for 17% of all B2B sales. COVID-19 may now accelerate that growth.
What makes a customer-centric supply chain?
Companies need to redesign their supply chains as engines of growth. That means creating new customer-centric fulfillment capabilities that can deliver the experience customers crave. A customer-centric supply chain should therefore focus on four characteristics:
1. Tailored: Delivering products and services in a customized way that meets each customer’s specific needs.
2. Agile: Possessing the ability to flex and change to keep up with continually evolving customer demands.
3. Trustworthy: Supporting transparency, traceability, and responsible behavior across the end-to-end value chain.
4. Innovative: Being able to continually attract and delight customers and bring new and relevant products and services to market.
Let’s look at each of these characteristics in more detail.
Tailored
Companies must differentiate themselves by offering customers a personalized experience. From a fulfillment standpoint this could include providing personalized last-mile delivery and direct-to-consumer offerings. A 2020 Accenture survey, however, showed most companies lack the flexibility to deliver differentiated customer offerings on demand. To gain this flexibility, traditional models aligned to categories, markets, or businesses must be replaced. It’s also vital to consider restructuring to create multiple supply chains tailored to specific segments based on unique value propositions. This will enable companies to focus on the customer experience across the value chain for each segment.
Digital technology is also key to being able to provide a tailored supply chain. Machine learning and artificial intelligence play a key role in providing personalized last-mile delivery and direct-to-consumer offerings that give customers what they want, where, and when they want it. Analytics enable a company to look at all dimensions of its products, customers, and channels to understand how to segment customers by common characteristics and needs—and then configure the right supply chain activities to meet those needs. Companies also need to build capabilities to support ongoing network optimization and be able to flex and adjust in near real time as those customer needs evolve.
One company that excels in tailored experiences is Inxeption. This B2B e-commerce company provides a platform for small to medium-sized industrial companies to list, sell, and distribute their products. Thanks to a recent partnership with UPS, Inxeption customers can track transactions from listing to delivery. Inxeption creates a tailored experience for their customers by allowing them to select how, when, and where they want to receive their order.
The Japanese convenience store Lawson is another example. Japanese convenience stores in general are viewed as one-stop-shops and often handle package delivery services, allowing customers to pick up their packages along with their grocery staples. Now the company has partnered with Uber Eats for the delivery of its grocery and household goods. This partnership allows customers to receive one, tailored delivery instead of having to coordinate several separate ones.
Agile
Agility is a key feature of the customer-centric supply chain due to the customer demand for increasingly faster deliveries. Accenture research shows that 89% of companies agree e-commerce is driving these expectations.3 Today’s same-day delivery market has grown 40% year-over-year and is expected to reach $13 billion in 2020 (and $92 billion by 2025).4
Yet, as recent events have demonstrated, most established fulfillment operating models cannot react flexibly to changes in volume, variability, and mix, among others. Nor can they necessarily fulfill customer orders at the pace demanded while simultaneously optimizing cost to serve.
To increase agility, companies should consider an asset-light supply chain model and re-evaluate the physical length of their supply chains (and how close they can bring fulfillment and other agile components to their customers). In some cases, the company may rely entirely on ecosystem partners to fulfill incremental demand from segments that it cannot handle effectively or profitably on its own.
Consider Fabric, an Israeli startup that provides fulfillment as a service. It offers warehousing and distribution capabilities through micro-fulfillment centers in urban areas that feature robot product pickers and human packers and shippers. Fabric partners with companies to store and distribute their products or allows them to use its platform to run their existing facilities more flexibly.
Another example is a freight and logistics company that is creating an agile, adaptive supply chain network by leveraging its ecosystem partners and using digital tools to increase responsiveness. It has implemented robotics-enabled carts and integrated its systems with Google Glass to support pick and pack. Its automated carts follow pickers as they work, and Google Glass helps them quickly visualize what products to pick and where to place them in the warehouse (product barcodes are also scanned by Google Glass).
Trustworthy
Trust is paramount in creating a sustainable customer-centered supply chain. In fulfillment, the opportunities to build that trust are huge—but so are the opportunities to disappoint the customer. The supply chain is now a primary provider of customer confidence and satisfaction, and several capabilities play a role in helping companies earn and sustain trust.
Blockchain can be an important enabler here, potentially providing full traceability across the value chain from farm and factory, to transportation and distribution, to final delivery. Data security is also central. Given the large amount of data needed to provide a tailored and seamless customer experience, companies must ensure they are responsible stewards of customer data and transparent in how they use it.
Sustainability is another key aspect. Companies should be looking to embrace circular economy practices in their supply chains so their customers can be sure that goods are acquired and handled in an ethical and environmentally sustainable fashion. That means, for example, being able to address returns, resales, and redesign of items via an efficient collection and sorting process.
The American clothing retailer Everlane has been successful in winning over customers through trust. The company is transparent about its sourcing practices, including vendors, types of materials, and margins. For each product, it provides a breakdown of direct costs and margin, showing how the retail price compares to a similar product from a “traditional” retailer. Everlane also provides an overview of the factory where each item is produced with accompanying pictures and information.
Innovative
In order to attract and retain customers, companies need to continue to seek out innovative ways to interact with potential and existing customers. For example, there are some new technologies that provide new opportunities to learn more about customers and provide new products and services. Digital assistants and connected household devices allow customers to place orders, track deliveries, and coordinate returns from any location. Wearable devices transmit data indicating customer usage, location, and frequency.
Interacting with customers through such devices will only become easier: The deployment of 5G will enable the seamless connection of these devices and the creation of integrated experiences on an unprecedented scale. The use of 5G is expected to further boost e-commerce revenue by $12 billion by 2021.5 In fact, Gartner predicts that this year there will be approximately 20 billion internet-connected devices.6 Many of these won’t be smartphones or PCs, but dedicated machinery such as vending machines, jet engines, and myriad other examples.
As greater numbers of connected devices are incorporated into the supply chain, companies will gain an immediate feedback loop of information. This will encompass everything from connected machines providing output data at the factory to finished goods that transmit their location at the warehouse via low-frequency sensors and provide data on final product sell-through at the retailer. All this information can be used to provide better service to the customer.
Technology-led innovations that create a more customer-centric supply chain can also be good for the top line. Accenture’s research shows that companies that invest in building a digital architecture that facilitates cross-functional collaboration, use new technologies for innovation (like augmented reality, virtual reality, and machine learning), and create new streams for data driven insights can drive up their revenues by as much as 8% on average over a three-year period.
One industrial manufacturing company Accenture interviewed for its supply chain research demonstrates the potential for digitally powered innovation. This company no longer builds physical prototypes. Instead, it creates a digital twin of a product it wants to manufacture and then tests it using an augmented reality environment. From design through to production, everything is digital. This helps the company to make products that are more personalized, longer lasting, and safer. It also gives the company new ways to connect with customers across the product life cycle.
Embrace customer-centricity
It’s never been harder to attract, delight, and retain customers than it is today. This is why reshaping the supply chain around customer needs is vital. And developing intelligent fulfilment capabilities is a key part of that process. This requires significant changes across a company’s operating model, infrastructure, and digital ecosystem. It also means rethinking network strategy, warehousing, and transportation to fully meet customer fulfilment expectations.
To do so, leaders must ask themselves:
Is our organization set up to make informed customer-centric decisions today? How can fulfillment operations be more digitally integrated to manage customer expectations in the future?
What investments need to be made across the physical network to power our future operating model and to deliver a great customer experience?
Have we created the right partner ecosystem in warehousing and transportation to deliver tailored and agile fulfillment operations?
Is our supply chain helping us build trust or destroy trust, and can we even tell?
The world is moving quickly, and customers are moving with it. For companies to achieve a competitive advantage, there’s no time to waste in embracing the customer-centric supply chain.
J.B. Hunt President and CEO Shelley Simpson answers a question from the audience at the Tuesday afternoon keynote session at CSCMP's EDGE Conference. CSCMP President and CEO Mark Baxa listens attentively to her response.
Most of the time when CEOs present at an industry conference, they like to talk about their companies’ success stories. Not J.B. Hunt’s Shelley Simpson. Speaking today at the Council of Supply Chain Management Professionals’ (CSCMP) annual EDGE Conference, the trucking company’s president and CEO led with a story about a time that the company lost a major customer.
According to Simpson, the company had a customer of their dedicated contract business in 2001 that was consistently making late shipments with no lead time. “We were working like crazy to try to satisfy them, and lost their business,” Simpson said.
When the team at J.B. Hunt later met with the customer’s chief supply chain officer, they related all they had been doing for the company. “We told him that we were literally sitting our drivers and our trucks just for you, just to cover your shipments,” Simpson said. “And he said to us, ‘You never shared everything you were doing for us.’”
Out of that experience, came J.B. Hunt’s Customer Value Delivery framework. This framework, according to Simpson, provides a roadmap for creating value and anticipating customer needs.
Framework for Excellence
J.B. Hunt created the above framework to help them formulate better relationships with customers.
The framework consists of five steps:
Understand customer needs: It all starts, according to Simpson, with building a strong relationship with the customer and then using the information gained from those discussions to build a custom plan for the customer.
Deliver expectations: This step involves delivering on the promises made in that custom plan.
Measure results: J.B. Hunt believes that they are not done when freight makes it to the destination. They also need to measure how successful they were versus what the customer expected from them.
Communicate performance: This step involves a two-way exchange, where J.B. Hunt walks the customer through their performance and gets verbal agreement on whether or not they have met the customer’s needs.
Anticipate new value: Here J.B. Hunt looks at what they are hearing from their customer today and then uses that information to derive what the customer may be looking for in the future.
Simpson said the most important part of the process is the fourth step, communicating performance (perhaps reflecting the piece that went wrong in that initial failed customer relationship).
Not only can this framework be used to drive excellence in a company, but it can also be adapted as a model for driving personal excellence, Simpson said. Instead of understanding the customer needs, the process starts with understanding yourself: what your strengths and interests are. This understanding helps drive a personal development plan and personal goals for the year, which can be measured and assessed. For example, each year, Simpson gives herself a letter grade on each of her personal goals and communicates her assessment back to her boss. She has also found it helpful to anticipate where opportunities lie beyond what she is personally doing.
Confronted with the closed ports, most companies can either route their imports to standard East Coast destinations and wait for the strike to clear, or else re-route those containers to West Coast sites, incurring a three week delay for extra sailing time plus another week required to truck those goods back east, Ron said in an interview at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
However, Uber Freight says its latest platform updates offer a series of mitigation options, including alternative routings, pre-booked allocation and volume during peak season, and providing daily visibility reports on shipments impacted by routings via U.S. east and gulf coast ports. And Ron said the company can also leverage its pool of some 2.3 million truck drivers who have downloaded its smartphone app, targeting them with freight hauling opportunities in the affected regions by pricing those loads “appropriately” through its surge-pricing model.
“If this [strike] continues a month, we will see severe disruptions,” Ron said. “So we can offer them alternatives. We say, if one door is closed, we can open another door? But even with that, there are no magic solutions.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.