When Stuart Whiting joined DHL Express Taiwan as General Manager he found an organisation with no standard approach to understanding or aligning with its customers.
“Companies traditionally look at customer segmentation from a transactional point of view,” Whiting explains.
“So the heaviest volume customers will be managed by the major account managers, and the lowest volume customers will be managed by the customer service department.”
“We knew instinctively this wasn’t right,” he says.
Whiting told the 2008 Supply Chain Business Forum panel on aligning enterprise supply chains with customers, suppliers and 3PL providers that while DHL was managing customer demand, processes weren’t systematised.
“We had multiple behaviours and multiple responses within the organisation,” he says.
“But we weren’t optimised. We weren’t providing the best of the organisation or satisfying customer needs.”
Whiting realised that if DHL Taiwan wanted to be number one and continue to stay ahead of its competitors, it was absolutely critical the team accept the need to change —a particularly difficult task given he was the only English speaker in the Mandarin speaking office.
“I was honest,” Whiting recalls. “I said: ‘I don’t know what we’re going to be changing, but let’s go into this with the view that we’ve got to change the status quo.”
“If we can do that, it will mean our eyes are open as we’re finding out what we need to achieve.’”
Whiting took action, adopting supply chain thought leader John Gattorna’s model of ‘Dynamic Alignment’.
Gattorna, whose initiative was behind the invitation-only Forum, and who was chair of the panel, argues that customers’buying behaviours aren’t chaotic. Rather, patterns are always discernible.
“Unless you start with a frame-of-reference, your operations strategy and everything you’re doing in terms of transformation is really just guesswork,” Gattorna says.
“The only absolutely accurate frame-of-reference is a complete understanding of what customers want when they buy your products.”
Gattorna’s Dynamic Alignment model, explained fully in his most recent book Living Supply Chains (FT Prentice Hall, London, 2006), deconstructs customer segmentation according to four main dominant buying behaviours and the associated customer service expectations.
These behaviours are defined as ‘Collaborative’, ‘Efficient’, ‘Demanding’ and ‘ Innovative Solutions’.
‘Collaborative’ behaviour relates to environments with stable, predictable patterns of demand, where mature, sometimes augmented products are delivered regularly.
Customers in this segment are loyal and forgiving, desiring a trusting collaborative partnership.
The ‘Efficient’ buying behaviour also relates to customers with regular or predictable demands, but it involves a more adversarial, transactional relationship.
‘Demanding’ customers require rapid responses to unpredictable supply and demand situations.
They are price-aware, make commercial decisions based on pragmatism and prefer a more impersonal, outcome oriented relationship.
The ‘Innovative Solutions’ customer looks for supplier-led development and the delivery of new ideas, fast.
He or she functions in high risk conditions where demand is extremely volatile, requiring speed, change, innovative solutions and individual decision-making.
This customer will pay no matter what the price. Although the patterns are consistent, Gattorna says organisations can’t set up their supply chain on the assumption that customers will always buy products the same way, even staple ones like milk.
“What you need to do is set up three or four supply chain configurations involving different combinations of standard processes, and hard wire them in to your business,” he says.
“Then if a loyal customer suddenly has a break down and wants you to turn inside-out to solve the problem, you’ve got the capability already embedded.”
“You can then revert to the original, low cost lean supply chain when the crisis settles.”
Gattorna sees supply chains as living networks, driven by human beings, both customers and suppliers.
The key to Dynamic Alignment is the process of successfully matching internal business sub-cultures and leadership styles with the specific ways customers like to buy products and be treated.
“Once you understand the buying patterns for any product or service then it’s not difficult to reverse engineer the organisational design, processes, KPIs and incentives, internal communications – all the things you need to shape the sub-cultures within your business that drive the conveyor belts into the market place,” he explains.
But the proof is in the pudding.
It took Stuart Whiting eight months of intensive customer interviews and market research to really understand the dynamics of DHL’s Taiwan marketplace, including the role customers play in the global supply chain and the resulting strategies the team needed to address.
“We’ve seen a significant increase in profitability from our most important collaborative customer segment,” Whiting says.
“By systematising our response, we also opened up a whole new hitherto untouched customer segment.”
“Looking at our customer satisfaction responses in that very short period of time, we saw a 15 per cent increase across what we call ‘first choice KPIs’”.
“These are the attributes that make DHL the first choice; the qualities that make a customer call 1800 DHL before any of our worthy competitors.”
“The process of developing a systemised model of dominant customer behaviours has also reduced our cost-to-serve from 2.9 to 2.5 per cent of revenue,” Whiting adds.
“With an optimised model, I can see we’re becoming sharper with the new focus.”
“Previously we had the mentality of ‘one-size-fits-all’ at the lowest possible unit cost to DHL,” Whiting says.
“But the new approach allows us to respond to four dominant customer behaviours in the marketplace, and ensures we deliver the appropriate agile or flexible responses in line with customer demand.”
Whiting says understanding customers and the marketplace is the hardest thing for a company to do.
“If you haven’t yet developed that critical understanding, you have no business playing with your supply chain,” he asserts.
At New Zealand based dairy co-operative Fonterra, customer segmentation enabled the misalignment of objectives and processes to be identified.
“With segmentation complete, we intended to meet the requirements of our customers in a phased approach,” says General Manager and panellist Nigel Jones.
“However, when data depicting what customers wanted Fonterra to deliver was compared with what the company planned to supply and what was actually delivered, the differences were marked.
“Our objectives were defined to drive performance at the business unit level and not across the end-to-end supply chain,” Jones explains.
“This ended up causing one business unit’s set of objectives to impact the performance of the others.”
“In addition, our production planning and manufacturing scheduling processes weren’t adequately linked.”
“We were left with a situation where there wasn’t enough time to correct supply plans when deviations arose, which affected the downstream supply chain.”
“Despite our good intentions, visibility was very limited, both in relation to customer requirements and off-take across the supply chain, and impacted negatively on operational performance.”
Often the wrong assumptions were being made for packing and shipping processes.”
With no mechanisms in place to stabilise the ‘must do’ part of the business, constant re-planning of supply was required, and this increased costs.
Once the alignment of Fonterra’s objectives was achieved, the organisation was able to collect better information to drive planning and improve plan stability.
“Visibility of production schedules and material availability dates finally began to increase,” Jones says, “along with increased compliance to plan and a decrease of re-work.”
Panellists agree it’s essential to incorporate strong leadership into the process of developing an organisation’s internal cultural capability.
For panellist and Managing Director of WA company Distinctive Building Products, Brett Rice, the process of understanding customers, recognising internal culture and reforming the associated attitudes and belief systems was a journey of two years at his former company Boral Panel Board (WA).
The process also required enduring a drop in revenue.
“In WA, the demand for labour is very intense,” Rice says.
“With a high level of staff churn it’s difficult to instil strong values around culture and process.”
“Misalignments were exacerbated by the sales people’s tendency to shy away from customers who needed better service, and over-service those who were stable.”
“Once we had segmented our customers, we needed to align what we knew about them with the way we executed internally.”
“It was time to enter the valley and ascend the mountain,” he quips.
“We approached this by embedding the values we were promoting into every meeting and reviewing our alignment strategies with customers regularly,” Rice says.
“We stay close to all our teams and customers, and make a point of investing heavily in development and training, including attending graduations.”
As a result of its focus on customer processes and culture, Boaral panel Board achieved an increase in sales volumes of 52 per cent over three years.
“Revenues increased by 53 per cent and operating profit by 350 per cent,” Rice proudly says.
“There was an enormous improvement in our ability to meet demand as cultural reform took effect.”
“As our track record grew, so did customer expectations which also invigorated our performance.”
According to DHL’s Stuart Whiting, everybody in the organisation should be a leader.
“It doesn’t matter whether you’re a driver, customer service, salesperson, the boss of the organisation; you’ve got to behave like a leader.”
“One of the things I promote heavily is making sure that every employee understands the strategy we are pursuing in the marketplace.”
“This allows them to adopt the mannerisms of leadership and make their own particular contribution.”
“Our team therefore knows what we’ve done as an organisation to align to customers’ buying behaviours, they know all of the attributes that make DHL different to the competition, and as a result the whole organisation is genuinely a lot more customer centric.”
Held at the Sofitel Hotel in Werribee, Victoria, the 2008 Supply Chain Business Forum was hosted jointly by the Institute for Logistics and Supply Chain Management at Victoria University, Melbourne, and Macquarie Graduate School of Management, Sydney.
The next Forum is scheduled for February, 2010 in the Hunter Valley.