Did you know that supply chains existed even in the days of the Old Testament? It’s true, although back then it seems the good lord himself held the monopoly on supply of all goods and materials. The concept of customer service in biblical times was a little different than today of course, as revealed by the following two passages from the Book of Deuteronomy:
1) “God will bestow abundant supply and blessing on His people when they obey His commands.”
2) “God will curse his people with scarcity when they do not obey His commands.”
Clearly this was a time when the supplier, rather than the customer was king, and everyone on earth was in awe of the king’s commandments.
Now as far as we know, the good lord never did publish a set of supply chain commandments for Moses to relay to his people, so we decided to correct that omission. The path to improved profits and customer service excellence is hidden in your supply chain operation, but you’ll find it revealed in this, the Logistics Bureau tablet of 10 supply chain commandments.
10 Supply Chain Commandments for Improved Profit and Service Excellence
1. Your Customer is King, and the Shareholder is God
As the good old book of Deuteronomy tells us, God made very clear his status as the supplier who must be obeyed. Today though, most businesses are concerned more with meeting the wishes of their customers than those of their suppliers.
That of course, is as it should be, but…
If you believe that your customers are the absolute be-all-and-end-all for your business, you should take note of our first supply chain commandment.
In striving to satisfy your customers’ every need and desire, and aspiring to out-service your competitors, you should remember one very important point that some companies do in fact lose sight of—the need to generate profit.
By all means, treat your customer as the king, but you should really treat your business and its shareholders as your metaphorical god. It’s true that without customers you will have no business, but those customers must also be profitable to your business.
So how should supply chain commandment number 1 be interpreted? … Ensure your supply chain supports business survival, by understanding and minimising the cost impacts of your customer service policies. If your service policies are constraining profitability, consider whether they are really appropriate and how they might be changed without harming customer retention.
2. Thou Shalt Define the Supply Chain Clearly to All
A lot of businesses struggle with goals that conflict across functions, especially between those which are closely involved with the supply chain and other functions with less involvement.
When the supply chain is not clearly defined to all, it’s too easy for functional teams to inadvertently throw spanners in the works and hamper performance.
For example, when the marketing department launches a promotion without communicating its intention to logistics managers, there is every chance that customers will find themselves unable to take advantage of the promotion. After all, the supply chain team can’t build inventory if they don’t know sales will increase.
Make sure your company avoids falling into traps like this, since they result in excessive supply chain cost and introduce the risk of service failures. These negative consequences can easily be prevented with a little communication.
Task your management team with developing a clear definition of your supply chain, its structure and strategy, and with carrying that definition to all functions in your enterprise. Teach functional teams how the supply chain works, how their actions impact its performance, and how that in turn impacts the business.
3. Thou Shalt Understand and Group Customers According to Their Needs
If you obey this commandment, you’ll avoid another common mistake in supply chain management—the application of a single level of service which assumes all customers have the same needs
Supply chain performance can be improved by segmenting your customer base into groups, based on factual knowledge of each group’s order fulfilment expectations.
That means of course, that you will need to conduct some meaningful research with your customers, but by doing so and then acting on the results, you can achieve something which many businesses fail to get to grips with—the ability to delight all your customers with a service closely tailored to their needs.
For example, you might group customers according any of the following criteria:
- Average value of their orders
- Average size of orders
- Service expectation
- Geographic location
- Payment terms
If you group your customers in this way, and develop strategies aligned with the characteristics of each group, you’ll open the door to improved profit margins for your business, as well as service improvements for your customers.
4. Thou Shalt Measure and Manage Thine Costs
In our consulting work, we come across an insane number of senior managers who lack knowledge of the costs involved in running their companies’ supply chains. That makes little sense given the proportion of business costs involved in purchasing, warehousing, and transportation.
That’s why obeying commandment number 4 will help your company to use its supply chain as a differentiator.
An obsessive approach to measuring, understanding, and managing key supply chain cost drivers will facilitate superior service—delivered at a cost your competitors will struggle to match.
Over time, we expect many companies will improve clarity of their supply chain cost drivers. Currently though, if your company is missing this knowledge, timely action to change the situation will give you a competitive advantage.
5. Thou Shalt Not Use the Word “Commodity”
It doesn’t matter what products your company manufactures or sells. You, your senior leaders, your managers, and your workforce must consider the term “commodity” to be blasphemy and hence cast it from the business vocabulary.
If your products compete solely on price, you have an opportunity to lift the image of your brand from a commodity supplier to that of a customer service specialist.
The secret to doing this lies in your supply chain. By emphasising service in the supply chain and following commandment 4 above, you can grab a larger share of your market through service differentiation—even if you manufacture something as inconsequential as paper clips.
It’s time to start thinking of your company not as a manufacturer or retailer, but as a customer service provider that just happens to be in the business of goods supply.
6. Thou Shalt Not Portray False Images of Supply Chain Performance
Surprisingly, it’s not that unusual to see supply chain organisations creating false images of performance, both to their customers and their C-suite occupants. We once came across an enterprise that would fabricate service issues, and then make a show of righting those issues to create an image of super-responsiveness … the mind boggles!
While the above example seems too blatant to be true (but is actually true) some organisations practice a more subtle massaging of performance through the way KPIs are interpreted.
A prime example of this is to classify late deliveries as “on-time” after contacting the customers concerned to ask if they’ll accept a delivery-time or date change. Rescheduling to a later time really doesn’t constitute on-time delivery, whether the change is approved by the customer or not.
In short, this practice is nothing more than a cover-up, but one that’s commonly followed, along with similar methods of distorting performance data. Don’t tolerate it in your operation. It does nobody any favours.
Always be open and honest about performance shortfalls. Let your customers and leaders know what’s going on and why, and most times they’ll be on your side.
Just make sure your performance KPIs reflect the truth after the event. This will not only be good for your organisational reputation, but will also facilitate problem solving, so you can prevent similar issues from arising in the future.
7. Thou Shalt Put Yourself in the Shoes of Others
Please don’t take this commandment literally. What we mean is that good supply chain management means empathising with customers and suppliers, and treating them always as you would wish to be treated if you were in their shoes.
While the heavenly father no longer holds the monopoly on supplies, good suppliers are not always easy to come by, and in any case, your company is unlikely to be your supplier’s only customer. If you nurture solid relationships with key suppliers though, you will at least hold a position as a preferred customer.
Being a preferred customer is something which will really matter during supply disruptions or when economic times become difficult, as they are wont to do on occasion.
Treat your suppliers well, especially those which are strategically important, and do the same for your customers. This is a simple matter of integrity, which will assure your company of the trust and support of its stakeholders.
8. Thou Shalt Strive for Reliability
Even if your company operates in a market where speed of service is vital, you might be surprised to know that reliability is still a quality prized by your customers.
A commitment to same-day delivery for example, won’t mean a lot if you can’t consistently meet that promise.
Your company will enjoy greater loyalty from customers if you make the effort to truly understand their needs, and deliver on them with monotonous reliability. It’s better for example, to guarantee delivery in 48 hours and then exceed expectations when it makes sense and is profitable to do so.
9. Thou Shalt Smite the Singular and Embrace the Plural
The term “supply chain” might not be as antiquated as “thou” and “thee”, but it is outdated, at least when referred to in a singular sense. Best-in-class operators recognise the need for multiple supply chains, each tailored to a specific range of needs.
By all means take advantages of synergies and consolidate the use of assets where you can, but if you want to beat the competition, stop trying to meet all conditions with a single supply chain mechanism.
Flexibility has become the best approach to supply chain management and strategy in today’s digital age, especially for companies fulfilling online orders.
Even if you aren’t yet serving customers through a combination of online and brick-and-mortar sales channels, a tiered service structure (as we’ve already mentioned) will help you to profitably meet the needs of your customers and your business.
As a simple example, you might offer the following tiers of service:
- 7-day delivery lead time for bulk orders to large customers
- 3-day delivery lead time via a fulfilment centre for orders placed online
- 24-hour delivery for rush orders, for which you charge an expedited delivery fee
- Same-day order fulfilment for customers prepared to self-collect from your warehouses
However you segment your customers, orders or products, the objective is to adapt each relevant supply chain for effective and profitable service delivery.
10. Though Shalt Smile in the Face of All Adversity
Lastly, remember that while supply chain management can be frustrating and stressful at times, every problem and challenge is an opportunity to improve profits, reduce costs, and win the loyalty of customers.
Through adversity comes excellence, as long as you can learn from mistakes and leap at opportunities.
Above all, it’s important to develop a sense of humour, keep smiling, and stay positive whatever the good lord in his infinite wisdom decides to throw in your path. Just try not to excuse mistakes and performance shortfalls as acts of god. There’s no place for fatalism in the world of supply chain management.
If You Fail to Obey the Ten Supply Chain Commandments…
… You won’t be damned for all eternity, but life in supply chain management will not be as rosy as it could be.
While we’ve tried to apply a little levity to a sometimes dry topic, the ten supply chain commandments outlined here are real, at least in terms of their guiding principles.
To conclude this post, here is a very brief summary of the ten key messages in our supply chain commandments, just in case you want to inscribe them on a tablet for posterity:
- Customers matter, but serving customers profitably matters more.
- Make sure all functions know your supply chain and how it supports your business.
- Make sure you really understand what your customers want. Know for sure that they don’t all want the same
- Foster awareness of your supply chain cost drivers. Measure and manage them.
- Use the supply chain as a service differentiator.
- Always be open and honest about the performance of your supply chain.
- Treat your customers and suppliers as you would wish to be treated if you were them.
- Prioritise reliability in your supply chain service.
- Remember that you have multiple supply chains (not just one) serving your business and its customers.
Last but not least, keep smiling and enjoy the challenges of developing a great supply chain operation. The good lord might not be judging your performance, but you can bet your company’s shareholders are.