Expert Insight: Living Supply Chains
  By Dr. John Gattorna  
  August 10 , 2007  
  All Pathways Lead to the Customer  
  Leading Companies are Segmenting Customers by Supply Chain Requirements, Not Traditional Characteristics
Gattorna Says:
The secret to designing a superior supply chain is to start by re-segmenting customers along buying behavior lines and then reverse engineering from there.

What do you say? Send us your comments here

We have all been seeking the holy grail of improved operational and financial performance. The problem is we have been looking at all the wrong places. The secret to designing a superior supply chain is to start by re-segmenting customers along buying behavior lines and then reverse engineering from there.  Instead, most companies continue to segment their customers by "institutional" type; industry sector; size; profitability; geography; ...all of which have nothing to do with anything when it comes to improving our understanding of "how" customers want to buy their products/services, and "why" they may prefer to buy from us!

We then need to shape specific value propositions for each discrete type of buying behavior identified, and underpin these with appropriate organization structures, processes, technology and other building blocks. Consider the supply chains that exist in your industry today.

How difficult would it be to shift towards using multiple supply chains to serve your different customer segments? And how effective would this be? Where would you start?

The good news is that the idea of "aligning" supply chains with customers, suppliers and third party logistics providers is intuitively attractive and catching on around the world.  For instance, we are seeing evidence of this approach in the fashion industry, high-tech electronics, and even building materials. Companies as far apart as South Africa and Columbia are applying "alignment" principles to their business. But mostly the distinguishing factor is the visionary leadership of the companies that are experimenting with this "new way."   However, in the overall scheme of things, there are still relatively few enterprises that have joined all the dots and understand through practice on the ground just how to engineer and operate "aligned" supply chains. More commonly we are still seeing partial solutions at best, and a continuance of outmoded practices at worst. In the meantime, the rthymn of business is speeding up so new solutions must be found in the near term in order for some businesses to even survive. 

One of the best examples of alignment is the Hong Kong based Li & Fung company, which has evoled from a trading business into perhaps the best supply chain manager in the world today, working as a go-between for major retail clients in both soft and hard-goods categories. This company has, like Zara in Spain, broken it's previous business model and organized itself in a completely different way, throwing out the now defunct functional silos that most companies are still deperately clinging to. Herein lies the secret: organize yourself internally to directly mirror the structure of your marketplace, and you are half-way there. Cling on to old norms and you will surely die, fast or slow. The solution is there for the taking. It's over to you!

Agree or disgree with our expert's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the web site. Upon request, comments will be posted with the respondents name or company withheld.

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