Focusing on Customer-Centric Supply Chain Management

Gone are the days of linear supply chains centered on the product. Today's digitally driven consumers are more empowered and demanding than ever, and supply chains have had to adapt to stay competitive. Instead of using a product-oriented, "push" supply chain system, companies have begun building "pull" supply chains backwards from the customer. This new supply chain paradigm manages demand instead of simply responding to it, welcomes innovation, and forms a global supply network. The new customer-centric supply chain model has exciting implications for the future of logistics.

Abandoning the Arm's Length Model

In the past, companies took the arm's-length approach to supplier and customer relationships. Integration was limited, if nonexistent, beyond basic transactional activities, such as placing an order. With this model, companies jealously guarded information to retain power, which lay almost exclusively with the brand owners.

The power differential between brand and consumer quickly vanished with the dawn of the digital era. Today's consumers are less loyal and can access any brand, at any time, on any device, from anywhere. The subsequent shift in the balance of power has made the customer the touchstone of supply chain performance. Suppliers have abandoned the one-size-fits-all approach, and in so doing, they have begun to break down the barriers that once kept the customer and the supplier at a safe distance.

Collaboration, connectivity, and unprecedented information sharing now characterize the modern relationship between the customer and the supplier. More candid communication between the customer and the supplier has minimized uncertainty, resulting in more efficient supply chains. For example, a customer with a collaborative supplier relationship benefits from more transparency in supply and demand conditions by not having to carry an emergency stock for unexpected supply shortages.

Changing the Way Distribution Centers Operate

Another significant outcome of the customer-centric supply chain is how distribution centers run. Historically, distribution centers (DCs) only managed pallet or case picking to replenish retail stores. Today, with the explosion in e-commerce and m-commerce, DCs must now also manage huge volumes of small-order picking in addition to cartonization and parcel shipping. Formerly, many companies entrusted third parties with e-commerce when channels were less interconnected.

That supply chain management model is less feasible and much more expensive today as digital and physical channels continue to merge in the face of burgeoning online sales. For instance, if a customer places an online order through an outsourced e-commerce channel to pick up in-store, how does the store account for the reduction in inventory? How does replenishment work?

Similarly, modern consumers make digital purchases with an unparalleled sense of urgency, expecting next- or same-day deliveries. Today's consumers are also harshly unforgiving when companies fail to meet these expectations. According to a JDA survey, one in four consumers who shopped online in the past year had a problem with delivery. Half of those who reported a negative delivery experience said they wouldn't shop with that retailer again. Clearly, DCs must now have the agility to keep pace with the digital consumer's demands, which typically means abandoning traditional replenishment processes.

The systems cost of maintaining an infrastructure to handle the rise in e-commerce can be a financial drain on an e-commerce company (who typically need to invest most of their revenue into the front-end of their business, the website, inventory, etc.) 3rd Party Logistics companies typically are re-investing a higher percentage of their capital into systems as that is critical to their core business. 3-PLS are typically more current with the systems needed to drive the supply chain requirements for e-commerce shipments.

The emergence of digital commerce and the digital consumer has turned the traditional supply chain on its head. Now, the brand and the product take a back seat to the increasingly powerful customer. For more information on adapting to the consumer-centric supply chain, request a free consultation here.

Posted: 2/4/2016 10:47:55 AM by Global Administrator | with 0 comments

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