How to Be a Customer of Choice?

CPO Agenda recently ran an article on “how to be a customer of choice” that merits some thought. If supply is limited, or a supplier innovation could shift the balance of power in the marketplace, you want to make sure that your organization is first in line to get it. And, since the size of your wallet, while still a hugely important element, may not in isolation be sufficient to guarantee your company receives preferential access to scarce resources, latest innovations or the best people, your organization wants to be a customer of choice. So how do you do that?

Becoming a customer-of-choice may not be as easy as one thinks because Key Account Management (KAM) is much more widely established and practiced than SRM, which means that, in terms of account management, your suppliers have a leg up on you. Plus, you can bet the average sales organization puts a lot more effort and investment into account management than a supply management organization does today.

According to the article, which quotes KAM experts Malcolm McDonald and Diana Woodburn, there are three (3) main elements that companies use to select key accounts (customers of choice):

  • Financial Outcomes
    past, present, and potential future income streams as well as “wallet share” (on the basis it can cost up to five times more to capture a new customer than grow a relationship with the existing one) over the next three years
  • Customer Needs
    and how well the supplier’s visions and objectives are aligned with their needs
  • Customer Attributes
    factors and behaviours that signal to the supplier whether “trusted partner” status is a reality

However, in some cases, key account status, which should be reserved for only a handful of accounts (15-35 is considered optimal by some), does not, by itself, guarantee preferential treatment. In practice, only a third of key accounts, on average, are given access to cost and productivity improvement resources, access to reliable sources of critical materials/services, and breakthrough innovation ideas.

Based on this, the authors proposes the following definition for customer of choice:

a company that, through its practices and behaviours, consistently positions itself to receive preferential access to resources, ideas and innovations from its key suppliers that give it a competitive advantage

And the best way to become one, according to the author, is to see things from the supplier’s perspective. The typical pain points of a supplier are:

  1. Willingness to Engage
    suppliers want a customer open to external ideas and willing to listen to what they say
  2. Information Sharing & Communications
    lack of openness makes a supplier worried about customer commitment and affects allocation of resources
  3. Getting Things Done
    suppliers want a customer that will make decisions and implement them
  4. Approach to Business
    is the supplier treated fair and respectfully by the customer and can it expect to be treated so in the future
  5. Paying the Bills
    customers do not like late payments or unfair payment processes

And these are all good points. In fact, as far as I can tell, all that is missing is the following:

6. Long Term Commitment
All of the above is a good start, but what a supplier really wants from a customer of choice is a long term relationship that is likely to be profitable.

Have Some Lessons Been Learned by Supply Professionals?

World Trade recently ran an article on “lessons learned by supply professionals” which started out by doing a great job of proclaiming the obvious — it’s been a rough year. As noted, unemployment continues to thwart efforts to tame it, customers are becoming more conservative, and in some quarters, forward thinking and strategizing seem to have been put on hold and profits are hard to make these days.

But is there a silver lining? New opportunities borne of anxiety and the desire among clients and potential clients to overturn every stone they can find to bolster their competitive edges and their bottom lines is a good start, but not a silver lining in and of itself. And executing on the lessons learned from 2008 is something companies should already be doing.

Understanding the market is good, understanding the technology requirements of the market is better, and understanding how to utilize both to provide more value to the customers is key, but should it take an extreme harsh environment to learn the lesson? And is the consensus reaction of lengthening decision times and more deliberation right when efforts need to be made to reduce costs and create value now?

And are 3PLs really getting more business opportunities? They’ve always done, and had the ability to consult on, inventory, regardless of whether or not companies care about inventory optimization outside of down markets. And there hasn’t really been any new offerings in VMI (Vendor Managed Inventory). And leading companies have always been doing supply network optimization on a somewhat regular basis. And smart companies never chase bad deals.

It sounds to me like average company hasn’t learned much, and that it definitely has not learned that the best way to weather a storm is to prepare for it before it hits. Innovation and improvement should be continuous and strategically planned, not a one-time tactical response to a down market. That’s the one lesson worth learning.

Is A U.S. Manufacturing Renaissance Coming?

A recent article over on bcg.perspectives on “the U.S. Manufacturing Renaissance” (registration required), summarized over on Supply Chain Brain (in an article that states “Manufacturing “Renaissance” to Begin Returning to U.S. Around 2015″), states that seven “tipping point” sectors are poised to return to the U.S. for manufacturing:

  • transportation goods
  • computers and electronics
  • fabricated metal products
  • machinery
  • plastics and rubber
  • appliances and electrical equipment
  • furniture

The expectation of Boston Consulting Group (BCG) is that these industry groups could boost annual output in the U.S. economy by 100 Billion while creating 2 to 3 Million jobs and lowering the U.S. non-oil merchandise trade deficit by up to 35% when combined with increased U.S. exports, starting in the next five years.

Note that these industry groups account for about 2 Trillion in U.S. consumption each year, and roughly 70% of the 300 Billion in goods imported from China. If the BCG is right, China will not only lose a huge cost advantage of the US, but a huge manufacturing advantage as well.

Why would this happen?

  • Labor costs in China are rising rapidly (at 15% to 20% a year) with required skill levels, quality and the rising yuan; the gap between US and China labor costs will be less than 40% by 2015
  • U.S. productivity is increasing
  • Factory automation is increasing, and a robot costs the same whether you operate it in China and the US
  • shipping and import costs (due to all of the security and
    paper trail requirements) are rising
  • management costs are rising with travel costs, as on site visits are becoming more expensive

It’s pretty clear that China is on its way out as a manufacturing location of choice for many industries and American companies, with the exception of those that have invested in World Class Facilities (like Apple, etc.) that could not be cost-effectively replicated elsewhere. But will the Renaissance take place in the US, or will we see a return to Mexico? That is not quite as clear.

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