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  July 13 , 2006 - Supply Chain Digest Newsletter
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Featured Report

Special Report: Comparing ERP WMS Functionality to Best-of-Breed Solutions

The fact is, there are critical differences between the warehouse management functionality contained as a component of an ERP system and the functionality of a stand-alone, best-of-breed WMS. This free special report, entitled “ERP Versus WMS: The True Functionality Gaps,” reveals the critical decision factors every supply chain professional must consider when comparing these two very different options for optimal warehouse management efficiency.

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First Thoughts by Dan Gilmore, Editor

Focusing on Customer Sacrifice

There’s an important difference between the level of customer satisfaction, and the amount of customer sacrifice.

That’s an interesting insight I learned earlier this year during a great presentation by James Gilmore (no relation) at the Georgia Tech Supply Chain Executive Forum.


I try to write on customer satisfaction issues at least once each year, and for some reason the topic seems to generate many of my favorite quotes or concepts, and this is the latest.


After a number of years at the old Cleveland Consulting, Jim Gilmore is currently an author, speaker and business consultant, and his latest book, The Experience Economy, includes an excellent and unique take on thinking about “customer sat.”


Gilmore told the audience at Georgia Tech that most of our current notions about customer satisfaction are wrong, or at least very incomplete. The most common definition for customer sat is something like this: that satisfaction equals what we expect to get minus what we perceive we got.  Meaning, in short, if our experience meets or exceed what we expect, we will say were were satisfied.


But does that mean we really received the product and service(s) we wanted? Absolutely not.


The other key angle on this is the inadequacy of most customer satisfaction surveys in terms of generating real understanding. As Gilmore points out, customer sat surveys are OK at identifying the general needs or perceptions of a customer base, but tell us very little about individual customers. They also tends to focus attention on averages, and in the end tell us very little about the collection of unique, individual customers wants and needs. The perspective, in the end, is really internal, and on the question “How are we doing?”


I don’t know if Gilmore and co-author Joseph Pine invented the concept of “customer sacrifice”, but this presentation was the first time I have heard it. It can be summarized something like this: Companies need to move beyond customer sat to focus on understanding customer sacrifice, which equals the gap between exactly what the customer wants and what they ultimately settle for.


As consumers or businesses, we can be satisfied with what we get from a company, but only in terms of whether it matched up with what we expected to get. But that could still be accompanied by a deep sense that we didn’t really get just what we wanted, and if someone else could just provide it…..Customer satisfaction surveys will never discern, really, the level of sacrifice individual customers may be experiencing.


So, how do we reduce the level of sacrifice and get customers just what they want? More choices? Well, not really that either. Customers don’t want scads of choices, in the end – they want just what they want. And more variety or adding more features/services as a standard part of the mix not only can frustrate customers, but can be incredibly wasteful. I love this example: how many hotels go the expense of putting an ironing board in each room for the one in a hundred or maybe even one in a thousand guests who actually use them? Adding more and more SKUs/choices/features “offers a surefire way to add cost and complexity to operations.”


I’m running out of space, but if more and more choices isn’t the answer, what is? It’s building a supply chain – or maybe better a demand chain – that can customize what a customer receives and provide something very close to an exact match. Ultimately, customizing not only the product but the services creates a unique “experience” (hence the title of the presentation and book) but that’s a topic for another day.


Now, I understand it’s easy to say all this, and forget how many buying decisions at both the B2B and B2C levels are made hugely on price.


It’s also complicated by the fact that anyone selling through any sort of channels has at least two customers – the channel and the end user, which means reducing “sacrifice” has to be managed at each level.


Still, there is something here really worth considering. My quick take as to what it means for most supply chain professionals is this:


  • Don’t rely solely on (or hide behind) customer service or even customer satisfaction metrics. Work to develop a better sense of the perceptions of how much sacrifice your customers really feel with your product and supply chain services.
  • Decide strategically – not tactically, in response just to specific customer demands – about how to build over time more and more customization capabilities into your supply/demand chain. Today, I find most companies do this reactively, and as a result fail to really architect the right set of capabilities and processes.
  • Look hard at how attacking this with “choice” may be adding cost and yet not really meeting individual customer needs.

There’s a lot more to discuss for another day, but I’d love your thoughts on this topic.


What do you think of the concept of “customer sacrifice?” Do we fail to adequately capture and understand it? How important is building customization capabilities into the demand chain?

Let us know your thoughts.

Dan Gilmore


Worst Ever Supply Chain Disasters

SCDigest reviewed 20 years of Supply Chain history, and identifies the greatest foul-ups in history.

View our top 11 (we just couldn't find one to cut) and download the complete report now by

clicking here.



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Aug 3: The RFID-Enabled WMS

RFID is coming to logistics, but what is the real impact on distribution systems? How must Warehouse Management System (WMS) capabilities and architectures adapt to use RFID effectively - or maybe at all!

You'll learn all this and more in this informative Supply Chain Videocast™.

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July 13 , 2006

Global Logistics: Will You Become Your Own “4PL?”

It may be the right global logistics model, says AMR’s Greg Aimi

July 13 , 2006

Georgia Tech Extends Project to Benchmark Global Lead Time Variability

Everyone has the problem, but few have a good handle on the data


July 13 , 2006

Coke Says It Feared Private Label Sports Drink Brand by Wal-Mart if It Didn’t Change Distribution Approach

Private label threat and reality continues to affect consumer goods and other companies

June 29, 2006

HP Unwinds Central Supply Chain Function

In an unusual move, responsibilities are split among the operating divisions, but will have company-wide responsibilities

June 29, 2006

Weyerhauser Finds Basic Blocking and Tackling Helps Link Supply and Demand

How much will customers buy? Try asking them



Q. In 2004, Wal-Mart's inventory growth as a percent of sales growth peak at what percentage?

A. Click to find the answer below


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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

Well, our News and Views piece on "Is Saudi Arabia Running Out of Oil?" generated quite a bit of feedback, with many interesting and divergent points of view. We think actually much of the feedback came from non-SCDigest readers who found the article during general web surfing on the topic, but we're glad to have it too.

Several readers took the piece as not giving muh credit to the "Peak Oil" theorists - which we certainly didn't intend, and our re-reading of the piece leads us to believe we didn't write it that way. Indeed, while no one knows the real story right now, we are keeping a very open mind and reporting the news as we learn it. Our feedback of the wek is from Robert Lopez, economics reacher, and again you will find many other letters of all stripes on the subject below.


Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week: On Is Saudi Arabia Running Out of Oil?

I find it interesting that you characterize Matt Simmons as a "pundit" and "peak oil pessimist" and Yergin as a Pulitzer prize winning author and expert consultant. Matt Simmons is, at the very least, just as competent to make a professional judgement about Saudi oil production as Yergin and is himself an expert running one of the largest energy investment banks in the country. Simmon's book, Twilight in the Desert, is exhaustively researched and makes a sound argument for Saudi oil production decline.

As far as "experts" being spectacularly incorrect in their past oil depletion predictions, to pu it plainly, who cares? The fact is that global production is not keeping up with global demand. The world's largest oil fields such as the North Sea fields and the Cantarell field in Mexico are in obvious decline. Just look at the behavior of the big players; the EU, Russia, China, India, the U.S. There is a frantic scramble for control of energy supplies in central Asia and Africa as it becomes apparent that gas and oil consumption is becoming a zero-sum game. I pay little attention to the debates between the advocates of peak oil, abiotic oil and market manipulation theories. Simply look at the numbers and the geopolitics and the picture becomes painfully clear.

Finally, you know the peak oil cat is out of the bag when Greenspan is testifying before congress about oil depletion. It's easy for the government to pander to the public by demonizing Exxon-Mobile and their record profits. Not so easy to come up with real, sacrificial changes to our way of life as we begin to face global energy shortages.  Many of those changes will require tremendous courage and integrity. Such commodities are in short supply in Washington.

Please continue to raise these issues. I have come to my conclusions about the state of global energy supplies and the ramifications for our economic future as well as international stability. I don't see our government taking the necessary course of actions to help the country adapt to a new economic reality and, frankly, it scares the hell out of me.

Robert Lopez

Economics Teacher

More On Is Saudi Arabia Running Out of Oil?

After reading many articles and books on the Peak Oil problem, it's my opinion the Saudis are probably running into more problems with excess water cuts in their oil and probably having difficulty keeping the volume sustained at the levels we would like.  It's also my opinion their reserves have probably been inflated for quite a long time and they really don't have a good way of telling the world or themselves that they cannot keep pumping oil at the rate they have been pumping without doing more serious damage to  reservoirs. 

Like I said, it's only an opinion and time will give us the correct answer.  In the mean time we better pray our hurricane season is a little better than last year and next winter is as mild as the last one, otherwise prices will spiral up at an ever increasing rate.  I do believe the evidence is in that the world has no excess capacity of oil from which to draw from in the face of disasters or emergencies


Stan Conway

Whether or not Saudi Arabia has already peaked in oil production, the recent Hirst report on the economic impacts of an eventual peak in global oil production, warned that the US and the industrialized world will need twenty years of massive, governments led investment in alternative energy infrastructure to avoid disastrous economic dislocation when the peak does occur.  Yesterday Oil Major Total estimated global peak in 2020, i.e., 14 years.  By that estimate alone we are 6 years behind schedule.  Cynics might say that the US government has indeed been spending hundreds of billions of dollars securing a stable oil supply for the US - but that it has been a disastrous war. 


Environmentalists report that we are on the verge of a tipping point into disastrous global climate change triggered by the burning of fossil fuels, especially oil and coal, and that a renewable, carbon free energy infrastructure is already 30 years behind schedule.  Either way, we need to act and act now, with every spare dollar, pound, yen, yuan we have, to develop our way out of this mess, and into fostering cultural change on the US citizen in particular, to see all energy as precious, to be nurtured and conserved and worshiped as one would a golden calf.  Jared Diamond's recent book “Collapse” documents how societies survive or fall when faced with environmental or resoource constraints by their ability to change their cultural practices, to decide  which fatted calves (or literally fatted pigs) they can afford to sustain, and which they must regretfully cull for the greater good.  The whole of industrial civilization now faces that question.


Ralph Williams

United Kingdom

I don’t know if Saudi Oil Production is on the verge of decline or not, but what I do know is that if Saudi Oil production does go into decline, then global peak oil is at hand. There is no way we can meet growing demand as well as make up for the loss of Saudi Oil from the market.

In such a scenario of a rapid Saudi decline of 5% or more, yes I would describe it as a dire crisis.

Vinayak Raja

Lubbock, Texas


Q. In 2004, Wal-Mart's inventory growth as a percent of sales growth peak at what percentage?


A. About 92%; the retailer now has a goal of cutting inventory growth to half the rate of its sales growth.

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