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Customer experience drives supply chain transformation

One of the most common reasons companies choose to invest in supply chain transformation is cost reduction, but this is not the only factor to consider when making these choices. Another important reason to invest in the supply chain is to add to the company’s brand equity by adding noticeable value to the customer.

There are three main stances we frequently encounter when discussing supply chain with our customers: proactive, reactive, and adaptive.

1. Proactive: Lead the market

Some companies have a genuine understanding of the way supply chain can serve as a driver of competitive advantage, so they adopt a proactive position, looking to improve their offerings. These companies focus on delivering improved customer experience to set a new customer experience benchmark that changes expectations in the market. A proactive position offers the competitive advantage of time: it can take competitors years to catch up to their supply chain transformation and the new expectations for customer experience.

Example: Woolworths

In the late 1990s, Woolworths launched ‘Project Refresh’, with the aim of optimising the path from source to consumer, leading to fresher product for their customers and the ability to invest savings into lower prices.
To achieve this, Woolworths adopted improved inventory and transport systems, redesigned the supply chain network and invested in world class, state-of-the-art distribution centre facilities.

Project Refresh cemented Woolworths’ dominant position for many years and has continued to reap benefits for the company into the present. While Project Refresh resulted in some immediate benefits such as improved product quality and lower prices, they also created a superior base to innovate from which would take significant time for competitors to replicate or equal.

By adopting a proactive position and setting the new industry standard, Woolworths was able to win new customers as well as build brand equity with existing customers, effectively using the supply chain to deliver customer value.

2. Reactive: Defend the market

While some companies are proactive, others are in a reactive position, working to meet customer experience expectations that have been established by competitors. This may be a response to new entrants in the market or new service offerings in the market from existing competitors. Attempting to catch up and/or exceed expectations can be difficult and takes time, but it is vital to respond in order to remain competitive.

Example: The entry of Appliances Online to the whitegoods market in Australia

The whitegoods market in Australia was dominated by a handful of retailers who based their success on great store experience, large ranges and good value for money with regular sales. However as online retailing emerged, these dominant retailers left a supply chain service related gap in the market, which allowed for a new entrant: Appliances Online. Retailers at the time were offering home delivery services which took time and were reasonably costly. This created an opportunity for Appliances Online to enter the market with free next-day delivery. They captured market share as a result of their superior offer, leaving other retailers attempting to catch up by improving their capabilities.

3. Adaptive: Adapt to external changes

Sometimes businesses are forced to respond to changes that do not originate from competitors. Macro trends other than changed customer expectations can drive transformation, and without adaptation to these new conditions good customer experience could not be maintained. These trends are often in the form of demographic or social change, and all competitors within an industry must adapt to remain competitive.

Example: Japan

Companies in Japan are being forced to respond to a number of challenges presented by the aging population in order to maintain the established customer service standards. These challenges include increased building costs and a shortage of available labour at all stages of the supply chain. These problems are expected to worsen over time.

Businesses must find ways to maintain the same level of customer service with less input. This has lead local Japanese companies to an increased focus on robotics and automation, and increasing sophistication in planning and analytics software. In this way, companies must adapt and invest in supply chain transformation just to maintain their existing customer experience expectations and to future-proof themselves.

Supply chain is increasingly a primary differentiator for customers in choosing who to shop with across all industries. By investing in supply chain, businesses can gain significant competitive advantage in the market, especially because it can’t be replicated easily by competitors.

At XAct Solutions, we have the expertise and experience to guide our clients through the process of supply chain transformation, whether they are in a proactive, reactive or adaptive position. We understand that meaningful change is about far more than cutting costs, and must be driven by an understanding of customer experience and adding value.