How a Company Should Manage the Process That Begins and Ends with the Customer

We want to meet customer demands while also conducting business at minimal costs. Suppliers, manufacturers, distributors, and retailers are part of the chain. There is no best strategy for this; there is one that the company has chosen in accordance with its goals and limitations.

Growth, growth, growth! Sell, sell, sell! Devise a strategy to acquire the customer! Once you acquire them, do you have a strategy to retain them? What strategies do you use in acquisition? Just promotions, incentives, sales, or something more? The customer is now cautious, unpredictable, demanding, spoiled, and aware! And the competition is getting stronger. What will you offer the customer as added value so they don’t go to the competitor? More or less everything is revealed, you have no idea, you’re struggling, thinking, straining, while the owner and management are pressing. Familiar, isn’t it? You lower the price as much as possible without incurring a loss. Can it be better? In the quality of service to the customer, but also in the efficiency of the process? What does better mean? How to measure it? And at which points in the processes?

At suppliers, manufacturers, distributors, retailers? They are all participants in this endless tug-of-war game on the other side of the chain, trembling in uncertainty, nervously waiting, trying to predict, plan, organize, and realize. There is no respite, no time for a break; strategies are created, changed, and adapted to market demands and the customer.

Customer as a little devil

In this effort to satisfy the needs of this little devil customer, supply chain management (SCM) began to be taken more seriously in Croatia about ten years ago. What is the supply chain? Is it logistics, transport, storage, production, and what is its role in sales and in relation to the customer?

Traditionally, processes within and around the company are isolated (so-called silos), each department focuses on its part of the job, tries to excel in its domain, and is not too concerned about what happens outside of it. Departments do not communicate, do not exchange information, struggle with their problems, and do not cooperate with the goal of achieving and maintaining high service to the customer. They are competitors to each other, competing, negotiating to protect their own interests, and do not consider how their cooperation might contribute to increasing utility for all.

Supply Chain Management

With the development of information technology, supply chain management is also evolving. It becomes easier to track processes, integrate them into a whole, and develop their interrelationships. The supply chain is not just the flow of goods as it was traditionally perceived, but the flow of goods, services, and information. It is important to emphasize the word flow. As well as the word information. Thus, information is what distinguishes the supply chain from traditional logistics, which was based on transport and storage, i.e., on the flow of goods. We are talking about the flow of goods, services, and information from suppliers, through transport, manufacturers, distributors, retail, to the end customer. We can also talk about the supply chain in the service sector, not just in manufacturing. For a hotel to function, it requires the procurement of furniture, towels, bedding, soap, televisions, computers, groceries, cutlery, all for the purpose of creating the product we call providing accommodation and hospitality services.

And what is all this for? Where does it all begin? From the customer, of course! And we are back at the beginning! The customer and satisfying their demand. With a low price, on time, with satisfactory quality and variety of products or services. But how? How to bring the service to the customer to the highest possible level while still operating at minimal costs? How to be responsive and efficient at the same time? The eternal trade-off! Where to position the company on that continuum between efficiency and responsiveness (supply chain efficiency and supply chain responsiveness)? The answer to that is provided by supply chain management. A useful tool for this is the SCOR model.

How to be visible

The company increasingly wants to inform the environment and the end customer through its website or social media about the efforts it is making to ensure that its product or service is of high quality. It wants to get closer to the customer and show them that it values them and is willing to continuously improve its processes to achieve a high level of service. It also wants to demonstrate social responsibility towards the environment and the community, as well as towards owners and employees. Companies have realized that it is not enough to invest in marketing; they need to make the customer a participant in their processes. The customer will buy a product in a sea of quality products if they know the history of its creation. Such an act by the company is perceived as a sign of respect and care for them.

Responsibility

Companies also want to show responsibility towards suppliers. The concept of customer relationship management is well known, but managing relationships with suppliers is not as much. Traditionally, companies and suppliers are competitors, the goal is to negotiate the best possible price, outsmart each other in defining contracts, who will gain more… New trends show the need for cooperation between companies and suppliers, for mutual benefit. The concept of Supplier Relationship Management (SRM) is increasingly mentioned, emphasizing the need for information exchange, transparency, investing effort in mutual respect and assistance. Information about all these practices also reaches the end customer, who then bases their purchasing decision on that as well. All this points to the trend of turning supply chains towards developing efficiency while maintaining high responsiveness, due to the economic crisis that has halted revenue growth, so profits must now be increased by reducing costs. But not haphazardly and unplanned, but smartly, with vision, optimizing processes, and with sustainability. Adding to this is the ever-increasing competition, leaving no choice but to manage the supply chain efficiently.

What is efficient

To clarify what it means to be efficient, one must look at the drivers of the supply chain and then explore how to act within that framework. There are two groups of drivers: logistical and cross-functional. Logistical drivers are facilities, inventory, and transport, while cross-functional drivers are information, procurement, and pricing. To position the chain on the continuum between efficiency and responsiveness, it structures its drivers and strategies on how to act within them. For example, a company can define low prices, product availability, and timely delivery as its customer-oriented strategies. For its supply chain to respond to that demand, it is necessary to develop an action strategy within each driver of that chain. Regarding the positioning of facilities, care must be taken regarding the appropriate location and method of acquiring that facility (own construction or leasing). Furthermore, inventory must be managed wisely, meaning that care must be taken regarding how often and in what quantities the company will order or produce. Will the inventory be stored, or will it just be repackaged and immediately sent to the next destination? In transport, decisions must be made about optimal routes, transported quantities, and whether the company will have its own fleet or hire an external carrier. In procurement, efficient supplier relationship management must be implemented, which involves information exchange, transparency, communication, evaluation, and ranking of suppliers according to multiple criteria, not just the price criterion. Care must also be taken regarding economies of scale as this reduces delivery costs. Companies need to implement information systems that enable fast and transparent information exchange among all participants in the chain because today efficient business is not possible without it. Procedures should be simplified as much as possible, documentation should contain only key information, yet precise enough for everything to be clear. Improvements should be made in every small domain, and continuously. Total quality management implies constant monitoring, noticing, proposing solutions, implementing activities to achieve it, and then control and correction if necessary. And so on, day after day, month after month, without stopping, because the market relentlessly evolves, slips away, meanders, becoming increasingly uncertain and elusive in its wild dance.

Planning (S&OP)

Thus, for a company to provide a high level of service, it must manage the supply chain more efficiently. Therefore, it needs to act in segments of all its drivers. But this action, of course, must be planned and coordinated. Traditionally, this was done within the framework of a concept called aggregate planning. However, with the development of awareness of cross-functional action, collaboration among different departments, and teamwork, we arrive at the concept of S&OP (Sales and Operations Planning). S&OP aims to balance supply and demand. So, we are back at the beginning. The customer has their demand, and S&OP plans the resources, time, finances, labor, equipment, and facilities needed to satisfy that demand. Adding to all this is the potential variability of demand, making the task of S&OP truly challenging. This, of course, could not be implemented without the use of information technology, without which no company can survive today, as well as without continuous cooperation and communication among departments and functions within the chain and the company, which requires breaking down silos within the company. Silos belong to the past, and the future is transparency, communication, collaboration, and joint action.

Ah, that customer!

And finally…? Here they are again! The customer is here! Everything starts from them; they activate the entire chain, everything is activated and operates because of them. We want to be responsible towards them, meet their demands, but also be efficient, which means completing the entire job at minimal costs. Of course, with a high level of service, which encompasses quality, favorable price, product variety, and accurate delivery. These are two conflicting goals, so the company positions itself on that continuum between efficiency and responsiveness according to the strategy it has chosen.