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Ch12 Class

Apr 05, 2018

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    McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

    Chapter 12

    Customer Value

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    12-2

    12.2 IntroductionEvolution of quality definition from internalmeasures to customer valuePromotes a broader look at a companysofferings and its customers.

    Ability to respond to customerrequirements one of the basic premises forSCM

    Relates to customer specific aspects such asdelivery status or production status

    SCM also impact prices by reducing costsDell, Wal-Mart

    EDLP strategies

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    12-3

    Customer Value Defines the SCM

    SCM strategy determined by:type of products or services it offersvalue of various elements of this offering to thecustomer.

    Examples:If customers value one-stop shopping => carry a largenumber of products and optionsPersonal customization of products => flexible supplychain

    Supply chain needs to be considered in anyproduct and sales strategy

    SCM strategy could provide competitive advantagesleading to increased customer value

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    12.2 The Dimensions of CustomerValue

    Conformance to requirements.Product selection.

    Price and brand.Value-added services.Relationships and experiences.

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    Conformance to Requirements

    Market Mediation:Ability to offer what the customer wants and needsCosts associated with the market mediation occurwhen there are differences between supply and

    demand.Functional ItemsProduct demand is predictableMarket mediation not a major issue.

    Fashion items or other high-variability itemsNature of demand can create large costs due to lostsales or excess inventory.Requires responsive supply chains

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    12-6

    Conformance to RequirementsBuilt on Three Principles

    Closing the communication loop

    Sticking to a rhythm across the supplychain

    Leveraging capital assets to increasesupply chain flexibility

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    Product Selection

    Proliferation of product optionsLarger variety means greater problems with:

    Managing supplies

    Predicting demandThree successful trends:

    Specializing in offering one type of product(Starbucks/Subway)

    Mega-stores that allow one-stop shopping for a largevariety of products (Wal-Mart/Target)Mega-stores that specialize in one product area(Home Depot/Office Max/Staples)

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    Similar Trends on the Internet

    Some sites offer a variety of productsOthers specialize only in a specific line ofproducts

    Combine virtual with physical storesDell with its physical stores to compete with Apple

    Long-Tail PhenomenonLack of physical or local restrictions allows retailers to

    focus and make revenue on the less popular items intheir cataloguesOnline sites offer titles/items not carried by traditionalretailers

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    Build-to-order model

    Configuration is determined only when theorder comes in.

    Effective way to implement the push pullstrategy by employing the concept ofpostponement

    Amazon.comMoving from a push to a push-pull strategy

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    Suitable for products with longmanufacturing lead times, such asvehiclesDCs allow manufacturer to reduceinventory levels by taking advantage ofrisk poolingFactors to consider:

    Inventory costs of cars at the DC Equalizing small and large dealers

    Larger Inventories at Major DCs

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    Fixed Options Cover Most

    RequirementsHonda offers a limited number of optionson its cars.Dell offers few options for modems orsoftware that can be installed on itsmachinesLarge product variety is not required in allcases such as grocery products

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    Price and Brand

    Price cannot be a differential in many industriesCompanies like Dell and Wal-Mart use cost reductionstrategies to improve profit

    Brand names become a guarantee for qualityPremium brands can ask for premium pricesSupply chain has to be more responsive

    Pricing in services more difficultOpportunities for companies that can offer newservicesNot easily transformed to commodities

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    Value-Added Services

    Additional services to improve profitsDifferentiate from competitionMore important now than before because:

    Increased commoditization of productsNeed to get closer to the customer. Increase in information technology capabilities thatmake this offering possible.

    Examples:B2B services offer additional services to increaserevenueMost of IBMs income today is from services

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    Relationships and Experiences

    Build a relationship with the customersmakes it more difficult for customers to switchto another providerDell configures PCs and supports them forlarge customers

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    Customer Experiences

    Beyond relationshipsDesigning, promoting, and selling uniqueexperiences to customers

    Offering distinct from customer service: Examples:

    Airline frequent flyer programs, theme parks, Saturnowner gatherings, Lexus weekend brunch and car

    wash events.

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    8 Steps to CustomerExperience

    Create a compelling brand/distinct offering thatcustomers can identify with. Deliver a seamless experience across channelsand touch points.Care about customers and their outcomes. Measure what matters most to customersHone operational excellence. Value customers time. Place customers information requirements andneeds at the core.Design to morph i.e. the ability to changepractices based on customer requirements.

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    Dimensions and AchievingExcellence

    Companies need to select their customervalue goalsSupply chain, market segmentation, and

    skill sets required to succeed depend onthis choice.Companies cannot excel along all thesedimensionsA company needs to be dominating in oneattribute, differentiate itself on another,and be adequate in all the rest.

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    12.3 Customer Value Measures

    Measures that start with the customer.Typical measures include service leveland customer satisfaction.What are the basic measures of customervalue?

    What are the supply chain performancemeasures?

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    Service Level

    Typical measure used to quantify a companysmarket conformance.Usually related to the ability to satisfy a

    customers delivery date Direct relationship between the ability to achievea certain level of service and supply chain costand performance.

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    Customer SatisfactionCustomer satisfaction surveys used to measuresales department and personnel performanceAlso provides feedback for necessaryimprovements in products and services.However, reliance on customer satisfactionsurveys can often be misleadingMeasure customer loyalty

    Easier to measure than customer satisfaction.Analyze customer repurchase patterns based oninternal databases.

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    Customer Defections

    Identifying such customers not an easytask

    Dissatisfied customers seldom cancel anaccount completelyGradually shift their spending, making apartial defection.

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    SC Performance Measures

    SC performance affects the ability toprovide customer valueNeed to develop independent criteria tomeasure supply chain performance.Presence of many partners in theprocess/requirement of a common

    language.Standardization initiatives such as theSupply Chain Councils reference models.

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    SCC and SCOR ModelSCC organized in 1996 by Pittiglio Rabin Todd &

    McGrath (PRTM) and AMR Research

    Supply Chain Operations Reference-Model (SCOR)Process reference model

    Analyzes the current state of a companys processes and

    its goals,Quantifies operational performanceCompares it to benchmark data.

    Developed a set of metrics for supply chain performance

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    Overall Business Performance MetricsPRTM Survey

    Total supply chain management costs Cash-to-cash cycle time

    Upside production flexibilityDelivery performance to request

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    12.4 IT and Customer Value

    Many valuable benefits for customers andbusinesses.Three aspects:

    exchange of information between customersand businessesuse of information by companies to learnmore about their customers so that they canbetter tailor their servicesenhanced business-to-business capabilities.

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    Customer BenefitsOpening of corporate, government, and educationaldatabases to the customer.Availability of uniform data access tools of the Internet.Innovations have had the effect of increasing customervalue while reducing costs for the supplier of the

    information.Automated teller machines (ATMs)Voice mailInternet

    Opening of the information boundaries betweencustomer and company

    Part of the new customer value equationInformation is part of the product.

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    Effects of the InternetIncreased importance of intangibles

    Importance of brand names and other intangiblesService capabilities or community experience inpurchasing decisions.

    Increased ability to connect and disconnectIncreased customer expectationsGreater ability to compare and the ease of performingvarious transactions

    Tailored experienceAbility to provide each customer an individualexperience is an important part of the Internet.

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    Business BenefitsUse information captured in the supply chain tocreate new offerings for customers.Sense and respond to customers desiresrather than simply make and sell products andservices.Many forms of analyses:

    Sophisticated data mining methodsCorrelate purchasing patterns

    Learn about each individual customer by keepingdetailed data of preferences and purchases.Method applied depends on the industry andbusiness model.

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    SUMMARYCreating customer value is the driving force behind acompanys goals Supply chain management is one of the importantmeans.Customer access to information about the availability ofproducts and the status of orders and deliveries isbecoming an essential capability.Adding services, relationships, and experiencesdifferentiates company offerings in the marketIdentifying the appropriate customer value measure notan easy task.Ability to provide sophisticated customer interactionsvery different from the ability to manufacture anddistribute products.No real customer value without a close relationship withcustomers.