Your Customer is Always Right, but is Your Supply Chain Right Too?

So, you’re looking to create a new product or service. To be successful, it will have to meet a customer need and solve a problem. Marketing gets to work, firing a salvo of feelers ranging from survey monkey and focus groups to Tupperware parties and the kitchen sink. The feedback is novel; the customer, you discover, wants quality, functionality and a certain instagramability. You prototype your new offering, and the customer loves it. You’re golden! Right?

Wrong. Let me explain.

The simple premise underlying the adage “the customer is always right” is that if the customer is made to feel satisfied and appreciated, then that’s as close a guarantee to a returning customer as you are going to get. The response to your service level becomes the very manifestation of a “right customer”. It is really another way of saying “beauty is in the eye of the beholder” in a world where each is entitled to their own definition of beauty.

In a competitive business environment, taking this line of thinking alone is insufficient to ensure your organization’s sustainability. The supply chain needs to be right, too. When a customer weighs a decision to purchase a specific product, the decision is often of a binary nature; buy or pass. But if we run a hundred parallel universes where the same customer is presented with a hundred variations of your offering respectively, we are likely to find that the customer would press the “Add to Cart” button on more than one instance. Each of the variations will naturally have its own cost structure (owing to a different Process Sheet). Unless the product we originally send to market is that with the highest margin, we are sure to have missed out on an opportunity for greater gains. The customer was made to feel right on several occasions (satisfied and appreciated), but the business is likely to have optimized profitability on just one.

Enter “Design-for-the-Supply-Chain”. Let’s look at how this works. First off, a product will have to sell profitably to sustain success. Profits are calculated as revenues (think customer) minus costs (think supply chain activities, which represent up to 70% of total costs). Even the most beguiling of products will need to be delivered at competitive cost levels to stand a chance at profitability. If we break down our supply chain activities, we find that procurement sources the raw material, production makes the product and logistics handles storage and deliveries. The associated cost drivers for each of these activities are primarily influenced by product design. Chief among these drivers is the choice of raw material, product weight and dimensions, handling requirements and reverse logistics. If product design doesn’t account for these at the nascent stage, you risk increasing costs to financially unsustainable levels.

One company that is really taking the principle of design-for-the-supply-chain to town is Ikea. To accommodate for the supply chain, the company designs most of its products around just 3 types of raw material (wood, plastic and textile). This guarantees a lean cost structure at the procurement and incoming logistics levels. Also, furniture items are packed unassembled to save space, reducing outgoing storage and shipping costs. In addition, each product is designed to fit in packaging with predefined dimensions that optimize palletization, generating further savings on logistical costs. For instance, the original 50-cent “BANG” mug was redesigned 3 times to optimize space. It was finally reincarnated as the cone-shaped FÄRGRIK mug with its miniature handle pushed up to the rim. This enhanced stackability such that it allowed Ikea to go from 864 to 2024 mugs per pallet, reducing shipping and storage costs by 60%. Thanks to design-for-the-supply-chain thinking, Ikea is able to price 30 to 50% below the competition.

Planning the way your goods flow through the supply chain should start at the product design phase. Your product development team would be wise to work within the design parameters that ensure that they get the supply chain right. Failing to do so will put your organization’s sustainability on the line even when you subscribe to a “customer is always right” philosophy.