Supply Chain, Strategy and Customer Closeness - Essay Example

? HOW DO COMPANIES DESIGN AND MANAGE SUPPLY CHAINS WITH A FOCUS ON VALUE ADDED AND SATISFACTION? Table of Contents Page No Introduction ……………………………….. 3 2. Literature Review ……………………………….. 4 2.1 Supply Chain, Strategy, Customer Closeness …... 6 2.2 Customer Focus …………………………………. 9 3. Conclusion ………………………………………. 11 References …………………………………………… 12 Figure Supply Chain and Customer Closeness 7 1. Introduction Meeting the customer’s needs and wants is a business trend in the age of globalisation. Organisations now aim for customer loyalty while keeping cost of production low. This is shooting two birds in one shot but difficult to achieve; difficult because meeting the customer’s needs and wants at the same time minimising cost of production do not ensure quality product or service. Authors argue that customer satisfaction must be an important strategic part of marketing. Products and services must be geared towards customer focus, and customer satisfaction is a goal in a value added supply chain. Firms realise that supply chain management (SCM) can do wonders for the company and for the customer. SCM enables the company to cut costs and look for ways to satisfy customers. Supply chain management excellence is crucial to customer satisfaction; consequently, customer satisfaction is critical to customer loyalty, and loyalty critical to profitability (Reichheld 1996 cited in Flint et al., 2008, p. 258). In order to address the problem of customer loyalty, firms apply product and service innovations. Supply chain learning should be a part of the firms’ strategies to address customer satisfaction and loyalty. This is also the main objective of market orientation – customer satisfaction through superior performance of products and services (Singh, 2004, p. 3). This essay will try to examine how successful companies do it – aim for customer satisfaction and gain profits, while delivering quality product or service at the same time. 2. Literature Review Companies attain competitive edge through constant innovation. The first periods of the new century marked profound shifts in organisation’s strategies with aims for talents, technologies and customer’s focus and loyalty (Venkatraman and Henderson, 2008, p. 258). Organisations keep constant contact with customers, looking for ways to satisfy their needs and wants. Good customer relation is an important aspect of business (McColl-Kennedy & Schneider, 2000, p. S884). To get closer to the customers, businesses have to work as cohesive organisations, using tools and technology (Gulati and Oldroyd, 2005, p. 92), and focus on knowledge-based economy, slowly moving away from the industrial economy. Identifying and working out to strengthen customer satisfaction, supply chains can help in having good relationship with customers, but supply chains have two attributes which are cost and service. Service is itself responsiveness to the customer’s demand, but demand can also increase cost. Putting on a lot of innovations on the product/s means adding cost on production. “Supply chain efficiency is measured as a cost of producing and delivering goods and service to the customer.” (Hines, 2004, p. 61) This means that if we increase responsiveness to supply chain, we add cost to the delivery of service. Businesses also have to care for their employees who are considered the most valuable asset of an organisation (Storey, 2007, p. 60). According to JoAnna Brandi (cited in Fisher, 2004), a consultant based in Boca Raton, Florida, employee happiness is somehow related to customer happiness. Customer relationship marketing (CRM) creates value for the customer (Chan, 2005, p. 32). Kotler et al. (cited in Blythe, 2006, p. 5) includes the idea of value in the definition of marketing, which is “the relationship between what is paid and what is received, and can be increased or reduced by marketing activities” (Blythe, p. 5). Marketing involves selling, advertising, packaging, transport, storage, marketing research, product development, wholesaling, retailing, strategic planning and consultancy. A business organization must sell products to survive and to grow. Marketing activities sell an organization’s products. The marketing concept states that an organization should try to provide products that satisfy customers’ needs through a coordinated set of activities that also allows the organization to achieve its goals. Customer satisfaction is the major aim of the marketing concept. The organization has to find out what will satisfy customers, and create satisfying products. The organization must continue to alter, adapt and develop products to keep pace with customers’ changing desires and preferences; thus marketing is continuous innovation. The marketing concept stresses the importance of customers and emphasizes that marketing activities begin and end with them. (Jobber & Lancaster, 2003, p. 15) A comprehensive definition of supply chain management is that it "involves designing, managing and improving product and service flow processes that span functions, organisations and countries in attempts to serve downstream customers’ and ultimately end-use customers’ ever changing desires, needs and expectations, i.e., to help create superior value for and with them over time” (Flint et al., 2008, p. 257). New trends in supply chain include seeing to it that the customer longs and wants for a ‘remake’ of the product. In other words, it aims for the customer’s coming back to want for more. That is customer loyalty. But customer satisfaction does not necessarily mean loyalty on the part of the customer. William Keenan (2000) says that having continuous communication with the customer is one step to loyalty. Customers have to be asked to rate the importance of particular attributes and performance levels of the product/s. They have to be asked about their likelihood to repurchase and to recommend the products bought. These steps can provide accurate reflections of customer loyalty. (Keenan, 2000) As consumers, people make decisions and ultimately adopt products for use and consumption. Companies endeavour to educate their target customers: promotional activity explains product usage, presents an image for the product and convinces customers that they have a reason to purchase. More attention is now being paid to the skills, attitudes and motivations of personnel involved in the marketing channel. Most companies are recognizing the key role played by their personnel, particularly in their interaction with customers. Supply chain goes with the demand chain “to address emerging market complexities” (Agrawal, 2007, p. 67). Demand chain is a network of trading partners which include manufacturers and end users. The demand chain is linked to the customers who have to be consulted on the product quality. It starts with the manufacturer, goes to the customer or end user but has to link back to the manufacturer because the customers’ ideas and opinion regarding the product is significant. Logistics firms, on the other hand, have to continue to innovate to get closer to customers (Hubbard, 2010). Logistics firms have to continuously seek and apply innovations on their products to get closer to the costumer, and the higher the innovative and service component, the more the customers have to be involved. They have to be consulted and involved in the performance equation. 2.1 Supply Chain, Strategy and Customer Closeness How important is supply chain to global firms and to consumers? What are its strategies and capabilities? How does it relate to customer satisfaction? This can be simplified in Figure 1. In a research conducted by Edward Morash and Daniel Lynch (2002), which involved surveys on global capabilities and performance measurement practices, they found that customer closeness is important in demand-oriented capabilities and performance. Customer closeness is supported by responsiveness to customers and customization. The research also found that some supply chains are also experimenting with mass customization, which is a strategy that combines operational excellence with customer closeness. The innovative strategies and their relationships to supporting capabilities are indicated on the top portion of the Figure, which shows the types of capabilities firms are most likely to rely on to achieve this. The right side of the figure shows the important capabilities for customer closeness, and the operational excellence capabilities are on the left-hand circle. The center circle refers to mass customization strategies which reflect both flexibility and information systems for product visibility and order fulfilment. Supply chains are not only about “production and distribution mechanisms but also as important competitive weapons” (Hult, Ketchen, & Nichols, 2002; Hult, Ketchen, & Slater, 2004 cited in Villena et al., 2009, p. 636). Companies have to be flexible in dealing with customers, and should have the ability to change and react (Upton, 1994 cited in Govindarajulu and Daily, 2009, p. 83). Flexibility is defined as “the ability to change or react with little penalty in time, effort, cost or performance” (Upton, 1994 cited in Govindarajulu and Daily, p. 83). A flexible organization should respond to rapid changes in product mix, delivery, or volumes demanded by the customer (Fisher, Hammond, Obermeyer, and Raman, 1997 cited in Govindarajulu and Daily, p. 83). In some studies flexibility refers to operations and financial performance (Jack and Raturi, 2002 cited in Govindarajulu and Daily). Customer interaction is now enhanced by technology and the internet or the World Wide Web. Customers can ask questions or complain through company websites which have many features. Modern information technology used in supply chain include Electronic Data Interchange (EDI) which is the information transmission backbone of manufacturing companies and supply interfaces. EDI is the electronic exchange of standardized business documents over a communications network that links computer systems of various trading partners (Young 2002 cited in (Lyons et al., 2005, p. 4291). The popularity of the Internet has led to the introduction of Internet-based EDI. Supply chain management is traditionally focused on least-cost transaction, but the new trend in business-to-business transaction is long-term relationship (Ryals, 2007). It is almost similar with customers and consumers. The question that is always in the mind of the manager is: “will the customer come back?” One significant strategy in meeting the needs and wants of customers is introducing a “customer-driven approach to supply chain management” (Barsky and Ellinger, 2001, p. 32). Satisfying the needs and wants of customers is always a challenge to businesses. Knowing the customers’ needs have become a foundation for which a company is founded (Mohr-Jackson, 1996 cited in Kotri, p. 5), and organisations have to be customer-oriented (Miller and O’Leary, 1994b cited in Caker, 2007, p. 144). For a firm to be marketing orientated requires that a number of changes take place in organization, in practices and in attitudes. Implementing the marketing concept requires more than paying lip service to the ideas inherent in the concept. Behavioral sciences can lead to an understanding of buyer behavior; another example is the development of quantitative and qualitative techniques of marketing research for analyzing and appraising markets. (Jobber & Lancaster, 2003, p. 13) The practice of customer-oriented approach can be understood as the organisation’s openness to the customer, or the organisation being “accountable to the customer” (Caker, 2007, p.144). 2.2 Customer Focus Gulati and Oldroyd (2005) suggest the four stages of customer focus, namely: Communal coordination. Create a centralised repository of customer information, which records the business interaction of customer and the company. Customer can be defined in several ways. For an airline company, a customer can be a travel agent, corporation, or consumer. For a pharmaceutical company, a customer might be a physician or a patient. In other words, organisations have to manage and collate their interactions with different kinds of customers. Gathering the information for the company requires a lot of job to include networking with different organisations within the industry. By having a database of customer information, firms can have a program of activities for innovations, or to change what are lacking in the supply chain. Serial coordination. This involves coordination to manage ‘a continued collation of data’ by different units so that these information and data can be analysed and shared within and throughout the company. The supply chain can be enhanced through the network inside and outside the organisation. Information and data are very important in instituting strategies and improvement for the delivery of products and services to the manufacturer to the end user and back. Symbiotic coordination. From analysing the customers’ information, companies can shift focus to analysing what the future holds for the customer and the company. This may include determining if the customer may still want to deal with the company, or buy products from the company or shift to other competitors. The information on the customer satisfaction is vital in the improvement and enhancement of the product. This information and data can be linked back to the manufacturer for further quality enhancement. Integral coordination. Companies can shift focus on a ‘sophisticated understanding’ of the customer, and incorporating this understanding into their daily operations. (Gulati and Oldroyd, 2005, p. 99) Again this customer focus is vital to the supply chain since “understanding the customer” is analysing what the customer wants. The information can be inputted back to the customer for enhancement of the product. If it is service-oriented, the company has to modify the service. 3. Conclusion A number of subjects have been emphasized in this essay – customer satisfaction, focus, loyalty and supply chain. Supply chain have to be always improved in order to attain customer satisfaction and loyalty, while customer focus can reflect satisfaction and loyalty. An excellent supply chain management can attain customer satisfaction; at the same time, customer satisfaction may lead to loyalty, although satisfaction does not necessarily lead to loyalty. It was stressed in the literature that before loyalty can be attained, customer closeness is crucial; meaning some activities have to be geared towards contacting the customer in order to acquire more data and information about the product, and how the customer reacts to the product, including suggestions for improvement. Acquiring more profits, which is one of the major goals of companies, seems to be not a sure goal. It is also one of the difficult objectives to achieve. There are more and more products being manufactured everyday, but there are less customers who buy these products. Companies, or global business and organisations, have to find their segments and customers because they have more products to sell. There is a surplus of products and less customers. In other words, organisations around the world compete to gain more customers, and one way of gaining more customers is to win their trust, answer and meet their needs and wants, and make sure that they come back. It is not enough that they buy the company’s products; it is important that they come back. Customer satisfaction should be able to gain customer loyalty. A lifelong partnership between the company and the customer can make the company last a lifetime. Supply chain is an important factor to consider in attaining customer satisfaction. When a product is being bought by a customer, it must be delivered quickly, with ease and comfort of delivery, and must have the desired quality that the customer asks for. That is supply chain. References Agrawal, D., 2007. Demand chain management: issues and initiatives in India. Decision, Vol. 34, No. 2, July – December 2007 [e-journal], Available through: Staffordshire University Library [Accessed 25 Mar 2011]. 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