April 2000 | Commentary | Viewpoint

Is Your Supply Chain Achieving Customer Loyalty?

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Business logistics executives face four major challenges:

  • Achieving dramatic reductions in time-to-market.
  • Creating value for shareholders.
  • Marketing their supply chain as a competitive edge.
  • Earning customer loyalty.

Organizations must focus time, attention, and dollars on these areas. While many companies have plans to achieve challenges one through three, market leaders know that without true customer loyalty, they cannot easily sustain success.

These market leaders, the same early achievers of supply chain benefits, are now entering the highest level of supply chain maturation, enterprise-to-enterprise (E2E). It is only at this level that they can earn and sustain the key to early 21st century business success—customer loyalty.

The biggest mistakes made in achieving true customer loyalty are attempting achievement before your supply chain is ready; not knowing that employee loyalty is an absolute prerequisite before achieving customer loyalty; and only measuring and achieving customer satisfaction, which is not true customer loyalty.

Understanding your supply chain maturation level will help you set expectations about your likelihood of success, and ensure you understand not only how to achieve true customer loyalty, but when to achieve it.

In today's global market, three unique supply chain maturation levels exist—micro, macro, and E2E. The goals, attributes, and benefits of each increase in complexity when, and if, a supply chain matures upward through each level. Because the likelihood of achieving and measuring true customer loyalty exists at the top E2E supply chain level, it is critical to determine where your company currently resides. These descriptions will help:

Micro supply chains. This first level is at the ground floor, and represents most companies' first foray into improving supply chains. The micro supply chain focuses on improving one of the business functions—demand, manufacturing, supply, distribution, transportation—within a company's supply chain.

The goal is to accelerate the efficiency and performance of one identified business function. Goals can include reducing miles, safety stock, and idle capacity, while increasing production utilization and quality.

Attributes are a focus on project planning, software implementations, and benchmarking. These goals, while important, are considered more of an operational target because they are not new goals. The software simply gets you to a level you were not reaching before. You should not consider this a lofty achievement; it's just a first step.

Most success is achieved by targeting the lowest hanging fruit of the supply chain benefits tree. All companies must plan on reaching this first level. Unfortunately, the majority of companies trying to improve their supply chains are still at this micro level and are struggling to reach the next level—the macro supply chain.

Macro supply chains. This next level represents a significant increase in complexity and rewards. It focuses on improving the performance of interacting multiple business functions within a company's supply chain.

The goal is to optimize the efficiency and performance between multiple business functions. Goals and benefits include those in the micro level and higher level activities—such as increasing earnings per share, return on assets, working capital and market share—while reducing production time, product development time, required capital expenditures, and cost per SKU.

Attributes revolve around reengineering, process changes, integration, change management, and changing the compensation and reward structure. The sweet taste of reaching this level has spurred a few companies to reach up and out to the next level—the E2E supply chain.

E2E supply chains. This highest level represents the challenge of integrating your supply chain with the supply chains of your business partners, vendors and customers, to satisfy mutual needs—enterprise-to-enterprise, or E2E.

Goals are measured by being first to customer and first to market, increasing the capability to acquire or ignore competitors, long-term deals, share price and the sharing of information; while reducing the risk of introducing new products and services, competitive losses, and redundant process quality checks.

Attributes are focused on how partners can best share ideas and ensure products and services are available to customers in the minimum amount of time, inventory, assets, cash, and risk. The biggest change is how these multiple companies use their supply chains as a differentiator and advantage over their competitive E2E supply chains while earning and firewalling customer loyalty. Once multiple enterprises are engulfed in sharing proprietary information and knowledge, it will be difficult for other enterprises to break the chain, thus sustaining the reciprocal access between you and your customers.

After reaching the E2E supply chain level, and having already saved millions, perhaps billions of dollars, why are top business executives and supply chain leaders still seeking customer loyalty within their E2E supply chains? For three major reasons—loyalty vs. satisfaction, repeat business, and the cost of losing a customer.

Let's examine each reason:

Loyalty vs. satisfaction. Executives now know that customer loyalty is not customer satisfaction. Customer satisfaction is just an attitude at a moment in time, usually while responding to a verbal or written survey. Loyalty is actual behavior that results in multiple buying cycles over a period of time.

But customer loyalty cannot occur until you have first achieved employee loyalty. Employee loyalty is first experienced at the macro level. By educating all participants and synchronizing your company's business functions, you have eliminated the feelings that the left hand does not know what the right hand is doing, and that an employee's efforts have no impact on the company's success. Customers will pick up on your employees' loyalty and their increasing awareness of the entire business flow, which in turn makes them feel good and satisfied working with and buying from your company.

Repeat business. Conversely, customers will quickly pick up on an employee's lack of loyalty and awareness of their role in the big picture. While they may be happy to do business with you, they are ready to move on when they are offered a chance to work with a loyal employee base and a more mature supply chain. This is why trying to achieve customer loyalty before your supply chain is ready at best only produces satisfied customers.

Satisfaction does not necessarily indicate a customer's commitment to spending money with your company. Statistically, there is no strong evidence that satisfaction results in repeat business. More companies are now moving away from satisfaction and toward customer loyalty.

The cost of losing a customer. Achieving and measuring customer loyalty is not as nebulous as you think. Customer loyalty equals customer retention. Customer retention not only means huge profits, it is a key reason e-commerce is evolving so quickly as a strategic enabler in the E2E supply chain.

Here are some noteworthy e-commerce statistics:

Strengthening the customer relationship, and earning customer loyalty, are the major focus for today's e-commerce initiatives, according to a PricewaterhouseCoopers survey of executives at 83 large international manufacturing firms. Eighty-two percent say that the priority of their e-commerce initiatives is to exchange information with customers. Customer retention ranks second at 63 percent.

The real strength of e-commerce lies in helping companies easily and securely share information with their many partners and customers in an E2E supply chain. It is this knowledge and information sharing that creates one of the strongest loyalty bonds between partners and customers. In fact, 75 percent of survey respondents measure e-commerce success by its ability to increase customer loyalty.

Supply chain success has become synonymous with applying some form of process reengineering and enabling software technology. But software always displays some shortcomings. This should be expected because certain processes are what make companies unique. Because you might be the only company performing this activity, no out-of-the-box software package should be expected to manage it.

To ensure the software will be able to handle most expected issues, the rules governing the software's decision process are usually relaxed to encompass and resolve as many scenarios as possible. Letting the software's rule-based decision capabilities satisfy your customers' needs is what we mean by making customer loyalty a rule at your company.

Your own success will increase the problem of software and process gaps. As your business moves toward an E2E supply chain, your gains in market share diversify the customer, platforms, and participating partner base that you must now work with and support.

Be assured your increasingly diverse customer base will grow faster than your set of products, process and services. This further increases the likelihood of process and software gaps and the need for resolving exceptions. Even the most sophisticated process cannot account for every partner's and customer's fast shifting needs, ensuring your E2E supply chain process will have exceptions.

Defining your commitment. It is during the resolution of these exceptions that your company's commitment to achieving customer loyalty will truly be defined. Resolving exceptions almost always requires two human beings to interact, and one of them will be from your company! Does this person have the training and access to knowledge to help direct the resolution process quickly and correctly? Sharing knowledge with your employees, partners and customers is the raw material of building a loyal employee and customer base within an E2E supply chain.

Most supply chain processes are designed and implemented at a strategic and tactical level, yet people at lower organizational ranks usually make or break strategies. Effectively implementing strategy and measuring success at the front lines is the true test of how a supply chain loyalty system is working, because it is estimated that 90 percent of customer contact is through an organization's front line.

When resolving exceptions, are your front-line people ready to interact with your customers and partners as representatives of your company within your E2E supply chain? Have they been educated in achieving and solidifying customer loyalty?

When you market your E2E supply chain, resolving unexpected exceptions clearly differentiates you from the others, while clearly defining to your partners and customers your commitment to achieving and measuring true customer loyalty.

Only after achieving these objectives will you know if customer loyalty is the strongest or weakest link in your supply chain.

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