In the face of economic uncertainty, the inherently unquantifiable areas of a company get a higher level of attention than ever before. The center of attention for many companies today is the integration of marketing strategies and programs to supply chain planning, management and optimization. The extent to which marketing and supply chain management teams are synchronizing their plans together is directly proportional to the ROI both attain together to create a customer-driven supply chain. This has to go beyond Collaborative Forecasting Planning and Replenishment (CPFR) and encompass supply chain management as part of the New Product Development and Introduction (NPDI) process. Companies that take this approach and define dashboards and scorecards that get beyond just measuring their own activity and contributions to measure accuracy, speed and permanency of change they bring to each other through collaboration is what is of the greatest value.
Why Being Demand-Driven Matters More Than Ever
The Perfect Order as a Barometer of Customer Expectations
The Perfect Order Index (POI) is one metric that captures the effects of collaboration on supply chain execution and fulfillment. What’s needed are links to the four main components of the POI that measure how effective demand generation strategies are in general and marketing specifically are in ensuring on-time, complete, damage-free orders that have been accurately invoiced. At first glance, many would argue these four metrics that comprise the POI (on-time delivery percentage) x (percentage of orders shipped complete) x (damage-free order percentage) x (accurate invoicing) are only relevant within supply chains.
Defining the Perfect Order Index
In fact, all forms of demand generation strategies have a direct effect on these measures, because the initial market direction and expectations created by a company through its marketing and selling strategies define, in the customers’ mind, what the minimum level of performance of each of these measures are. Perceptions don’t lend themselves well to the metrics that drive POI calculations, yet they are just as if not more powerful.
Consider the launch of the Apple iPhone to see how the perception of perfect-order performance impacts the calculation of the POI for a new product that relies on a significantly different supply chain. Apple and its intensely loyal customer base have very high expectations of any new product being intuitively designed, cool in ergonomics and navigation and most of all, integrated. Apple has created this expectation over the years of having their products come out of the box and work immediately, and must have PhDs in the fields of ergonomics and user design on staff who study the out-of-box experience customers have with these products. All of these factors together set the POI bar very high for Apple, and having demand generation an integral part of supply chain planning, management and fulfillment was critical for the launch of the product.
Customers don’t think in terms of POI scores obviously, but they definitely can, given the chance, quantify their expectations of a company’s performance. At the intersection of customer expectations, demand generation strategies that create expectations, and supply chains and fulfillment delivering on them, is the customer’s perception of performance. All three-demand generation, supply chain performance, fulfillment and customers’ expectations-are interlinked. Given the pervasive adoption of Web 2.0 technologies, it’s possible to overlap POI data on a per-product basis to customers’ attitudinal scores, creating a barometer of how effectively a company is meeting or exceeding their customers’ expectations. In the vernacular of Web 2.0, this would be called a mash-up, combining structured financial data with unstructured attitudinal data captured through surveys or through comments from customers analyzed through text mining for example. Forward-thinking companies could actual trend line this and see the effects of bringing supply chain planning, management and fulfillment into the New Product Development and Introduction (NPDI) process over time. The goal of having a measurement of how collaboration and synchronization between demand-generation strategies and supply-chain performance would be achieved. Taking this one step further, publishing these measures of performance for customers to see would bring entirely new levels of accountability and collaboration into any company’s daily culture and no doubt bring collaborative efforts to the forefront of any project.
Driving Up Lifetime Customer Value in Tough Economic Times
The saying, “no one ever cost-reduced their way to market leadership,” takes on entirely new meaning given the current economic uncertainty that leads many companies to cut back on investments in integration demand generation and supply chains, production and fulfillment with each other. Arguably the level of sales a company attains is driven by the continual meeting and exceeding of customers’ expectations, and the cycle of supply chain and demand generation being synchronized is essential for a company to continue to grow. Since customers’ expectations are the future of any company, it’s critical to keep demand generation and supply chain, production and fulfillment integrated together. It’s extremely difficult, however, for companies in the middle of tough economic times to look at becoming demand-driven, or be committed to staying on the path to its fulfillment. Costs of integrating demand-driven strategies, including marketing programs to supply chain planning and production to fulfillment that together increase a company’s ability to attain higher POI levels, seem like a much lower priority versus pursuing aggressive cost-cutting. Measuring the Total Cost of Ownership (TCO) for supply chains that don’t invest in becoming demand-driven is like only measuring half of the factors that go into calculating perfect order performance. It simply does not make sense and is short-term as a result. Reduce the cost for any series of systems and processes long enough, and there will be a positive ROI and low TCO. Yet the far greater and quantifiable gains of exceeding customers’ expectations through exceptional performance have a far greater financial impact. When the ability to consistently meet or exceed customers’ expectations are taken into account as part of perfect order performance, ROI and TCO of demand-driven supply chains shift from cost reduction to top-line revenue growth. Instead of worrying about the pennies saved by not connecting one process or system to another, the concern needs to be on how to make more dollars using demand generation and fuel new business growth.
Taking Steps on the Demand-Driven Journey
With so much pressure within companies to reduce costs, it’s important to get started on a pilot project that quickly shows the positive impact of making supply chain planning and management more demand-driven. Product introductions, product-line extensions, the launch of a new service, channel management strategy or on-boarding a new channel partner all are events companies have used to rationalize making investments in being demand-driven. For manufacturers of complex products that have build-to-order strategies, being demand-driven is a necessity. Of all selling strategies, built-to-order most influences the POI score of a manufacturer because it directly influences both the percentage of Shipped Complete orders and the percentage that are shipped Damage Free. Optimizing order-capture systems to make sure a customized order is taken right the first time not only saves the time of production planners, it may surpass customers’ expectations as well. One truck manufacturer known globally for its customized industrial truck designs takes on average seven iterations of an order to get it accurately entered. It’s doubtful the customer expects several phone calls to get the order right, yet it’s a certainty they expect the truck to be configured to their requirements and delivered on the date promised on the quote. This example sets the foundation for the steps needed in making the demand- driven journey:
1. Get outside your company and see how your supply chain is changing customers’ expectations. It’s too easy to sit back and get complacent in a company and not notice how supply chains are out of sync with all aspects of being demand-driven, from the initial expectations of customers to fulfilling customized product orders. Get outside your company and experience how it sets expectations, and monitor how they fulfill them or not. There are many ways of doing this, but don’t outsource it to a research firm. Get out and experience it firsthand to see if customers’ expectations are getting fulfilled or not. The bottom line of this exercise is seeing whether or all of the expectations demand-driven strategies create are actually being fulfilled through supply chain, manufacturing and fulfillment integration. It’s a good idea to get a sense of your POI score at this point to see improvements over time as well to perfect order performance.
2. Take the lessons learned and start integrating people, processes and systems together to make supply chain planning and management more demand-driven. Get customer-facing processes-including order capture, quoting and pricing-and with channel partners or retailers, forecasting, integrated back to supply chain planning and management. Redefine processes as part of a pilot in this phase, and measure the impact on the specific area’s POI score. This is a great way to see how changing customer-facing processes impacts perfect order performance.
3. Take the lessons learned from the pilot and define a plan for integrating all customer-facing processes to supply chain planning and management systems. There are many aspects of this last step, the greatest being to get people to change how they do their jobs today in the demand-generation, supply chain planning, management, manufacturing, fulfillment and services areas of the company. There’s also the need to look at how to bridge the gap between demand-driven initiatives and strategies and supply chain planning, management and production. The Cincom Acquire Enterprise Sales Portal has been specifically designed to enable manufacturers to bridge the gap between demand generation strategies and supply chain, manufacturing, fulfillment and service operations areas.
3. Individual Responsibility and Accountability
The perfect order isn’t just for supply chains anymore. When one considers the impact it has on customer expectations and as a barometer of how well a company is fulfilling those expectations, it forces the issue of how demand-driven a supply chain really is. Since customers’ expectations are any company’s future, it’s also important to not try to cost reduce operations so that high ROI measures are achieved at the expense of being able to fulfill orders accurately, completely, on time with no damage. Creating pilot projects to see how becoming demand-driven in just a single area impacts perfect-order performance is the approach many companies are taking, gradually expanding into all customer-facing channels and processes over time. Even in tough economic times, investing in demand-driven has the potential of bringing in top-line revenue growth and permanently changing a company’s ability to compete for new business.
Courtesy – Louis Columbus
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