Transcript Chapter 12. Customer Value - National Cheng Kung University

Chapter 12
Customer Value
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
12.2 Introduction
Evolution of quality definition from internal
measures to customer value
 Promotes a broader look at a company’s
offerings and its customers.
 Ability to respond to customer
requirements one of the basic premises for
SCM
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Relates to customer specific aspects such as
delivery status or production status
SCM also impact prices by reducing costs
Dell, Wal-Mart
 EDLP strategies
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Customer Value Defines the SCM
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SCM strategy determined by:
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Examples:
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type of products or services it offers
value of various elements of this offering to the
customer.
If customers value one-stop shopping => carry a large
number of products and options
Personal customization of products => flexible supply
chain
Supply chain needs to be considered in any
product and sales strategy
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SCM strategy could provide competitive advantages
leading to increased customer value
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12.2 The Dimensions of Customer
Value
Conformance to requirements.
 Product selection.
 Price and brand.
 Value-added services.
 Relationships and experiences.
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12-4
Conformance to Requirements
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Market Mediation:
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Functional Items
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Ability to offer what the customer wants and needs
Costs associated with the market mediation occur
when there are differences between supply and
demand.
Product demand is predictable
Market mediation not a major issue.
Fashion items or other high-variability items
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Nature of demand can create large costs due to lost
sales or excess inventory.
Requires responsive supply chains
12-5
Conformance to Requirements
Built on Three Principles
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Closing the communication loop
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Sticking to a rhythm across the supply
chain
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Leveraging capital assets to increase
supply chain flexibility
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Product Selection
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Proliferation of product options
Larger variety means greater problems with:
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Managing supplies
Predicting demand
Three successful trends:
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Specializing in offering one type of product
(Starbucks/Subway)
Mega-stores that allow one-stop shopping for a large
variety of products (Wal-Mart/Target)
Mega-stores that specialize in one product area
(Home Depot/Office Max/Staples)
12-7
Similar Trends on the Internet
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Some sites offer a variety of products
Others specialize only in a specific line of
products
Combine virtual with physical stores
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Dell with its physical stores to compete with Apple
Long-Tail Phenomenon
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Lack of physical or local restrictions allows retailers to
focus and make revenue on the less popular items in
their catalogues
Online sites offer titles/items not carried by traditional
retailers
12-8
Build-to-order model
Configuration is determined only when the
order comes in.
 Effective way to implement the push–pull
strategy by employing the concept of
postponement
 Amazon.com
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Moving from a push to a push-pull strategy
12-9
Larger Inventories at Major DCs
Suitable for products with long
manufacturing lead times, such as
vehicles
 DCs allow manufacturer to reduce
inventory levels by taking advantage of
risk pooling
 Factors to consider:
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Inventory costs of cars at the DC
 Equalizing small and large dealers
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Fixed Options Cover Most
Requirements
Honda offers a limited number of options
on its cars.
 Dell offers few options for modems or
software that can be installed on its
machines
 Large product variety is not required in all
cases such as grocery products
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12-11
Price and Brand
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Price cannot be a differential in many industries
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Brand names become a guarantee for quality
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Companies like Dell and Wal-Mart use cost reduction
strategies to improve profit
Premium brands can ask for premium prices
Supply chain has to be more responsive
Pricing in services more difficult
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Opportunities for companies that can offer new
services
Not easily transformed to commodities
12-12
Value-Added Services
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Additional services to improve profits
Differentiate from competition
More important now than before because:
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Increased commoditization of products
Need to get closer to the customer.
Increase in information technology capabilities that
make this offering possible.
Examples:
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B2B services offer additional services to increase
revenue
Most of IBM’s income today is from services
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Relationships and Experiences
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Build a relationship with the customers
makes it more difficult for customers to switch
to another provider
 Dell configures PCs and supports them for
large customers
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Customer Experiences
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Beyond relationships
Designing, promoting, and selling unique
experiences to customers
Offering distinct from customer service:
Examples:
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Airline frequent flyer programs, theme parks, Saturn
owner gatherings, Lexus weekend brunch and car
wash events.
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8 Steps to Customer
Experience
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Create a compelling brand/distinct offering that
customers can identify with.
Deliver a seamless experience across channels
and touch points.
Care about customers and their outcomes.
Measure what matters most to customers
Hone operational excellence.
Value customers’ time.
Place customer’s information requirements and
needs at the core.
Design to morph i.e. the ability to change
practices based on customer requirements.
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Dimensions and Achieving
Excellence
Companies need to select their customer
value goals
 Supply chain, market segmentation, and
skill sets required to succeed depend on
this choice.
 Companies cannot excel along all these
dimensions
 A company needs to be dominating in one
attribute, differentiate itself on another, and
be adequate in all the rest.
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12.3 Customer Value Measures
Measures that start with the customer.
 Typical measures include service level and
customer satisfaction.
 What are the basic measures of customer
value?
 What are the supply chain performance
measures?
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Service Level
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Typical measure used to quantify a company’s
market conformance.
Usually related to the ability to satisfy a
customer’s delivery date
Direct relationship between the ability to achieve
a certain level of service and supply chain cost
and performance.
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Customer Satisfaction
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Customer satisfaction surveys used to measure
sales department and personnel performance
Also provides feedback for necessary
improvements in products and services.
However, reliance on customer satisfaction
surveys can often be misleading
Measure customer loyalty
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Easier to measure than customer satisfaction.
Analyze customer repurchase patterns based on
internal databases.
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Customer Defections
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Identifying such customers not an easy
task
Dissatisfied customers seldom cancel an
account completely
 Gradually shift their spending, making a
partial defection.
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SC Performance Measures
SC performance affects the ability to
provide customer value
 Need to develop independent criteria to
measure supply chain performance.
 Presence of many partners in the
process/requirement of a common
language.
 Standardization initiatives such as the
Supply Chain Council’s reference models.
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SCC and SCOR Model
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SCC organized in 1996 by Pittiglio Rabin Todd &
McGrath (PRTM) and AMR Research
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Supply Chain Operations Reference-Model (SCOR)
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Process reference model
Analyzes the current state of a company’s processes and
its goals,
Quantifies operational performance
Compares it to benchmark data.
Developed a set of metrics for supply chain performance
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Overall Business Performance Metrics
PRTM Survey
Total supply chain management costs
 Cash-to-cash cycle time
 Upside production flexibility
 Delivery performance to request
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12-24
12.4 IT and Customer Value
Many valuable benefits for customers and
businesses.
 Three aspects:
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exchange of information between customers
and businesses
 use of information by companies to learn
more about their customers so that they can
better tailor their services
 enhanced business-to-business capabilities.
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Customer Benefits
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Opening of corporate, government, and educational
databases to the customer.
Availability of uniform data access tools of the Internet.
Innovations have had the effect of increasing customer
value while reducing costs for the supplier of the
information.
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Automated teller machines (ATMs)
Voice mail
Internet
Opening of the information boundaries between
customer and company
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Part of the new customer value equation
Information is part of the product.
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Effects of the Internet
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Increased importance of intangibles
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Importance of brand names and other intangibles
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Increased ability to connect and disconnect
Increased customer expectations
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Service capabilities or community experience in
purchasing decisions.
Greater ability to compare and the ease of performing
various transactions
Tailored experience
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Ability to provide each customer an individual
experience is an important part of the Internet.
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Business Benefits
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Use information captured in the supply chain to
create new offerings for customers.
“Sense and respond” to customers’ desires
rather than simply make and sell products and
services.
Many forms of analyses:
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Sophisticated data mining methods
Correlate purchasing patterns
Learn about each individual customer by keeping
detailed data of preferences and purchases.
Method applied depends on the industry and
business model.
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SUMMARY
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Creating customer value is the driving force behind a
company’s goals
Supply chain management is one of the important
means.
Customer access to information about the availability of
products and the status of orders and deliveries is
becoming an essential capability.
Adding services, relationships, and experiences
differentiates company offerings in the market
Identifying the appropriate customer value measure not
an easy task.
Ability to provide sophisticated customer interactions
very different from the ability to manufacture and
distribute products.
No real customer value without a close relationship with
customers.
12-29