The Customer is Redefining Demand-Driven Strategies

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The conversation around the table turned to a discussion about channel strategy when the voice on the phone said, “there are no channels anymore, but who cares?” The natural response to such a bold statement was defensive – “I care, because it’s my job to care” – but what followed was more existential – “does my job exist to serve the channel, or to serve the customer?”

The voice on the phone, a noted chief supply chain officer, went on to explain that the customer tells you the strategy, so understanding their evolving expectations will provide the insight into the strategic direction you must take. Realistically, opinions are approaching irrelevancy, as customers are now demanding their own path to purchase, and historical perspectives about forecasts and channel management must change accordingly. What is relevant are the choices that you make in defining your strategy and capabilities to serve those customers… if you choose to serve them at all.

Variation vs Personalization vs Specialization

In response to customers increasingly asking for variations in products to serve their individual needs, companies are debating the optimal product assortment to balance variation with personalization. For example, an engraved iPad is not an entirely different product, but by giving customers the chance to personalize a unit, Apple has effectively doubled its SKU count.

It makes sense in this case, as personalization connects a user more closely to a specific device, which operates within a specific ecosystem, all as part of Apple’s mission. Taken by itself, an expansion of this significance is not uncommon, as a quarter of respondents to our 2016 Future of Supply Chain study are taking similar actions.

However, in parallel to expanding offerings, Apple and many others are also discontinuing products as part of a continuing cycle to refresh products in line with customers’ wishes: 36% of respondents are expecting ‘some’ SKU expansion and 30% are expecting ‘little or no change’.170206 GraphFurther still, saying no to SKU expansion can be an equally strategic decision, especially in the cases of product specialization or extreme product loyalty.

Fulfillment all the Way to the Customers’ Hands

Pursuing customers through a channel distribution strategy is a bit like a movie car chase. Someone (the customer) is in the front of the pack, making split-second decisions about where to go next, while someone else (the seller) is trailing, forecasting the next move. In this pursuit, a traditional channel strategy would allocate resources along predefined paths and hope that their forecast is right.

That can still work if the channel strategy is aligned to the customer expectations – just over a third are seeing ‘little or no change’ to existing channels – but more so, supply chains must consider how to deliver product anywhere, at any time, directly into customers’ hands.

Nearly half of our supply chain community is trying to build that direct-to-customer capability themselves. In more extreme cases, this capability development is a complete strategy transformation whereby businesses are abandoning their historical methods to build their future models today.170206 Graph 2

Fashion house BCBG announced in January 2017 that it’s closing stores entirely to rebuild as an e-commerce and boutique brand, and Macy’s is restructuring to better align its digital and physical capabilities.

Fewer than one in five are relying on partners for customer fulfillment, but with its acquisition of Jet.com in 2016, and despite an existing e-commerce group, Walmart is moving in that direction. As part of its transformation, Jet.com’s founder Marc Lore, now President and CEO of Walmart eCommerce U.S., has said “we’re investing in ways that directly improve our customer experience”.

No matter the approach, as my colleague Kevin O’Marah says in SCM World’s recent Future of Supply Chain Report, “…the pace of change has only accelerated, completely redefining what it means to be demand driven”.

Change is not only inevitable, but the pace of it is accelerating. Digitization is creating outlets for customers to say what they want, when they want it, how they want it delivered, and in what packaging they want to receive it. This level of expectation is erasing the historical linearity and causing supply chains to examine the impact of every single demand, ie demand driven isn’t just about forecasting anymore.

A company’s ability to respond to its demanding customer base must be centered on a customer-centric unifying strategy, upon which supply chain decisions can be made and differentiating capabilities can be built.

Your questions and feedback are always welcome via email at patrick.vanhull@gartner.com, or via Twitter @pvanhull.

Author Patrick Van Hull

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