Supply Chain Management:

From Vision to Implementation

Chapter 2: Customer Fulfillment Strategies

DrAdel.Bahrian@gmail.com
Presented by Prof. Adel Al-Alawi
16 March 2023
 What is SCM Prof. Walters
 https://youtu.be/zZxHXp_NKPE

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Chapter 2: Learning Objectives

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Chapter 2: Learning Objectives
3. Explain the nature of customer service and
satisfaction and how they differ from
customer success.

4. Explain why the end customer should be the

focal point for the entire supply chain.

Next Slide

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Chapter 2: Learning Objectives
5. Segment customers based on strategic
importance. Describe the relationships,
systems, and processes needed to deliver
desired levels of service to different
customers.

6. Discuss the role of operational excellence in

assuring profitable customer relationships.

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Information-Empowered Customer
 Customers are empowered with a broad range
of product and pricing information
 Channel power is shifting down the supply
chain toward the end consumer
 Combined these phenomena have created
customers that use market leverage to demand
higher levels of service at lower cost:
 “High-Service Sponge” Customers
 Toyota, Intel, Wal-Mart, etc.

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Information-Empowered Customer

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Information-Empowered Customer

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Creating Value
 Companies seek to develop a
distinctive/unique advantage and differentiate
themselves in the mind of the consumer.
 Customers seek value in terms of:
 Quality
 Cost
 Flexibility
 Delivery
 Innovation

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Competing on Quality
 Quality includes both design and
manufacturing elements.
 The product must be designed to live up to or
exceed customer expectations.
 Manufacturing must then conform to the
design specifications during production.
 Quality must be designed and built into the
company’s products and processes.

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Eight Dimensions of Quality
1. Performance - the primary operating characteristics of the product.
2. Features - the “bells and whistles” or extras that distinguish a
product from competitors’ offerings.
3. Reliability - the notion that a product can be counted on not to fail.
4. Conformance - measures how well a product matches established
specifications.
5. Durability - refers to the product’s mean time between failures and
its overall life expectancy.
6. Serviceability - the speed of repair when quality problems arise.
7. Aesthetics - perception of fit and finish or artistic value.
8. Perceived quality - overall perceptions of a product or brand’s
quality reputation
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Competing on Cost

Four cost reduction strategies are widely pursued:

1. Productivity enhancement
2. Adoption of advanced process technology
3. Locating facilities in countries with low-
cost inputs
4. Sourcing from the world’s most efficient
suppliers

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Cost Issues
 Performance measured by total landed cost
 Cost drives strategic decisions such as:
 Global manufacturing rationalization
 Outsourcing
 Downsizing
 When cost performance improves, companies:
 Increase market share
 Increase scale economies
 Improve profitability
 Invest in future capabilities

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Competing on Flexibility

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 Requirements for a Flexible Culture
 Make cycle time a priority throughout the organization
 Map processes to make them visible
 Identify key time-related activities/decisions
 Benchmark against customer requirements and competitors’
capabilities
 Cross-train workers and organize work in multifunctional teams
 Design performance measures to value fast-cycle capabilities
 Develop information systems to track activities and share
information
 Build learning loops into every process throughout the organization
Amazon.com, The limited, Toyota, and Wal-Mart have set the standard for
flexibility. Amazon.com can trace its success to:
1- a flexible Web site that self-personalizes to each customer’s buying habits
and
2- a high level of rapid and complete order fulfillment to customer requests.
At the LIMITED the goal is to bring the desired product from the mind of the
customer to the retail rack within 1000 hrs about 60% faster than competition.
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Competing on Delivery
 Competing on delivery means consistently
delivering on-time and in the correct quantity.
 Fast, reliable delivery requires the reduction
of order cycle time and the elimination of
variability.

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 Delivery capability is cross functional by
nature, requiring coordinated efforts by:
 Sourcing
 Operations
 Logistics
 Operations and logistics often represent 90%
of total order cycle time

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Competing on Innovation
 Innovation creates new markets and changes
industry standards.
 Early Supplier Involvement (ESI) in the
product development process is a key element
of innovation strategies.
 Products introduced on-time but 50% over
budget, realized only a 4% reduction in profit.
 Products introduced on budget but six months
late experienced a 33% decrease in profits.
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Trade-off vs Synergy/Collaboration Traditional
Managers believed:
 High quality was Delivery

inherently expensive
 Standardization and
customization are on Cost Quality

opposite ends of the

cost continuum
 Rapid delivery reduces
Flexibility
flexibility

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Trade-off vs Synergy: Contemporary
 Managers now seek
synergy along all Innovation

dimensions of
customer value. Delivery
Flexibility

 Systematically
addressing each results
in a stronger more
sustainable competitive
position. Cost Quality

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 Trade-off vs Synergy\collaboration

Delivery Innovation

Delivery
Flexibility

Cost Quality

Cost Quality
Flexibility

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 Understanding Satisfaction to Fulfill
Customers’ Needs
 Customer satisfaction is based on whether a good or
service meets or exceeds the customer’s a priori
expectations.
 The key to satisfying customers is to understand
their needs so that unique products and services can
be developed.
 Creating satisfaction should be the goal of the
company’s culture, structure, processes, and people.
 Customer satisfaction leads to customer loyalty.
 Loyalty is achieved when customers perceive truly
distinctive service.
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Expectations and Satisfaction

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Customer Satisfaction and Loyalty

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Customer Fulfillment Strategies
 Customer Service Strategies
 Meet internally set expectations
 Customer Satisfaction Strategies
 Meet customer-driven expectations
 Customer Success Strategies
 Help customers meet their customers’ needs

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Customer Service Strategies
 Traditional customer service focused on
internal service levels and goals:
 Percent defective products
 Percent on-time delivery
 Fill rate
 Without feedback it is easy to emphasize
activities the customer does not value.
 Service Gaps

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Customer Satisfaction Strategies
Customer satisfaction strategies require direct
input from a customer. Questions to be
addressed should include:
 How do important customers define quality, on-time
delivery, responsiveness and other key value areas?
 Are our internal measures consistent with customers’
measures?
 Does our current performance meet our customers’
requirements?
 Would an improvement in our performance be valued
by our customers?

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 7-10-12

 Customer input allows managers to:

 align measures to customer expectations
 allocate resources and reevaluate priorities
 adopt new policies or practices

 Information typically gathered from surveys,

focus groups, in-depth personal interviews, and
ethno-graphic studies.

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Customer Success Strategies
 Customer success strategies use supply chain
knowledge to help customers become more
competitive
 Success strategies consist of:
1. A clearly communicated goal to help customers
succeed
2. A clear understanding of downstream
requirements
3. Investment in customer-valued capabilities
4. Training provided to customers
5. Resources shared with customers 29
The End Customer
 The end customer is the only one who puts
money into the supply chain and is therefore
the focus of all activities.
 Successful companies share information that
helps the chain focus on the end customer.

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Customer Fulfillment Strategy
 Customer fulfillment strategies seek to address:
 What are the real needs of our immediate customers?
 What are the real needs of our customers’ customers?
 What are the real needs of our supply chain’s end
customers?
 What information must be shared up and down the
supply chain to meet these customer needs?
 What capabilities must be developed up and down the
supply chain to meet these customer needs?
 How can we help other supply chain members improve
the overall chain’s customer fulfillment capabilities?

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 Implementing Customer-Centric
Fulfillment Strategy
I. Matching Fulfillment Strategy to Customer Needs
II. Defining Relationship Intensity
III. Evaluating the Profitability of Customer Relationships
IV. Using CRM Systems
V. Recognizing Barriers to Effective Customer Fulfillment
Managers should consider two facts when developing
processes to match the right kinds and levels of
service to specific customers:
 Not all customers are equal and they do not all deserve
the same high level of service.
 Not all customers require the same service.

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I. Matching Fulfillment Strategy to Customer
Needs

Three types of analysis are needed to

effectively tailor supply-chain service levels
to specific customers:
1. Customer Analysis
2. Supply Chain Analysis
3. Competency Analysis

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Customer Analysis
 Identifies customer needs, helping
management to segment customers.
 Segments customers – the identification of
unique groups of customers who possess
similar needs – allowing the development of
products and systems necessary to fulfill the
needs of different customer groups.

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Supply Chain Analysis
 Identifies the end customer needs and the
capabilities that must exist in the chain to
meet those needs.
 This used to
 Find customer success factors
 Find first-tier customer needs to satisfy their
downstream customers.

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Competency Analysis
 A core competency is something that the
company does so well as to provide it a
competitive advantage.
 Two questions can help to identify a core
competence:
1. What are we known for that makes us uniquely
good?
2. What do we do better than anyone else?
 Almost always cross functional

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II. Defining Relationship Intensity
ABC customer segmentation can be
created based on the Pareto principle
or 80/20 rule (about 80 percent of
sales generated by about 20 percent
of customers):
 “A” customers (5-10%) who
generate a disproportionately large
percentage of sales and receive
premium, and often customized,
highest service.
 “B” customers (10-15%) should be
managed carefully.
 “C” customers (75-85%) should be
managed fairly and efficiently.

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Competency-Success Factor Matrix

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 Customers-of-Choice (“A” Customers)
Relationships
 Customers of choice are the “A” customers
 Customer-of-choice relationships are characterized by:
 Frequent communication at many levels between the firms, including
marketing, engineering, logistics, and senior management.
 Inter-organizational teams are formed to solve problems or to work
on SC initiatives such as new product development.
 Information systems are linked to enable real-time information
exchange on inventory levels, order status, and future demand.
 Fulfillment processes are designed for flexibility to accommodate
customers' special requests.
 Policies and procedures support extraordinary efforts to meet
unexpected needs or unusual requests.

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 Highly Valued Relationships (“A”,”B”)
 Many “A” and most “B” customers.
 Highly valued relationships characteristics:
 Customer input is actively sought and utilized to meet
expressed expectations.
 Dedicated customer account teams.
 Information systems are a way to share information.
 Policies and procedures acknowledged the importance of
these customers.
 Members of this group often become tomorrow’s
customers-of-choice (loyalty).
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 Transaction Relationships (“C”)
 Comprised of “C” customers
 Receive little personal attention, leading
companies strive for high levels of standardized
service excellence.
 Service recovery is used to regain confidence of
customers when service failures occur.
 As data-capturing technology becomes better,
“C” customers will become candidates for more
tailored services.
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 III. Evaluating the Profitability of
Customer Relationships
 Managers need to know how much it costs to
serve specific customer segments.
 Activity-Based Costing (ABC), which ties
specific costs directly to the customers that
create them, can be used to identify the
profitability of a business relationship.

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IV. Using CRM Systems
https://youtu.be/Es3WMU10UrA

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 IV. Using CRM Systems
 Customer Relationship Management (CRM)
software can be used to create customer
profiles that capture buying habits and
determine customer profitability.
https://youtu.be/fbNPq-ZLzMM

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 V. Recognizing Barriers to Customer
Fulfillment
 Companies may seek to improve service
levels, but direct their efforts toward the
wrong activities.
 Companies may fail to deliver on their
promises to be customer-service oriented.
 Access to information has lead some
companies to provide low service levels to
“less valuable” customers.

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 Sources of customer dissatisfaction in almost 80% of
“horror stories”:
 Training - employees do not know how their behavior and
performance affects customer perceptions.
 Measurement - measures do not reinforce appropriate
attitudes and behavior toward customers.
 Empowerment - employees do not have authority
to solve problems and respond to customer needs.
 Policies - policies and procedures are inflexible
and often run counter to real service and satisfaction.

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Supply Chain Management:
From Vision to Implementation

Supplement B: Quality Management