Supply Chain Management: Who are your customers?

I am reading a great book on SCM titled: "Esstentials of Supply Chain Management" by Michael Hugos. In it he has a great chart which suggests a three step technique to align supply chain & business strategy (pp 37): (1) Understand the requirements of your customers; (2) Define core competencies and the roles your company will play to serve your customers; and (3) develop supply chain capabilities to support the roles your company has chosen. He then goes on to describe the 5 principle drivers of SCM: Production, Inventory, Location, Transportation and Information.

What I found intriguing was his suggestion that as you improve your understanding of your customers you should develop supply chain capabilities to support the roles your company will play to serve your customers: Responsiveness or Efficiency. For instance:
  • Production Responsiveness consists of: Excess capacity, flexible manufacturing and many smaller factories.
    Production Efficiency consists of: little excess capacity, narrow focus and few central plants.
  • Inventory Responsiveness: High inventory levels and wide range of items.
    Inventory Efficiency consists of Low inventory levels and fewer items.
  • Location Responsiveness: Many locations close to customers
    Location Efficiency: Few central locations serve wide areas
  • Transportation Responsiveness: Frequest shipments; Fast and flexible mode
    Transportation Efficiency: Shipments few, large; Slow, cheaper modes
  • Information Responsiveness: Collect & share times, accurate data
    Information Efficiency: Cost of information drops while other costs rise.

What strikes me immediately is this deliniation for strategy alligntment to either responsiveness or efficiency. In my work in Lean Six Sigma consulting, we are often confronted with a process which is not delivering value expected by the customers to the process. There are, however, business processes which are distinguished from each other based on whether they serve internal customers or external customers:

  • Internal customers are interested in increasing operational efficiency of a business process because it affects their line of business level of profitability. The billing operations of an IT department serve other business units of the company who are interested in the efficiency of the billing process.
  • External customers are more interested in the responsiveness of a business process and its ability to deliver value because they are paying for it. The consumers of a certain product are interested in the responsiveness of the billing process at the same company and do not care at what operational efficiency you operate your billing department. You could employ 35 CPA's for all I am concerned as long as my bill is timely and accurate.

Gee, have you realized how supply chain management, the relentless pursuit of quality (Six Sigma anyone?) and core business processes seem to be aligned if proper consideration is made to ensure the value chains of a company truly address the customer needs?

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