CEO’s
don’t get it!!! Part II
In the first stage of the discussion (Part I), I
identified that many CEO’s still don’t understand the role of supply chain
management functions even though the concept has been in play since 1982.
Thirty+ years and counting….and less than half of the companies throughout the
world have a supply chain officer that reports to the CEO, COO or President.
There are two distinct applications of supply chain
management functions that need to be understood:
1. Military
2. Commercial
Military:
Mission Focused
In the military, SCM is a management function. Senior officers identify the target and the
process begins. The following steps are
usually employed:
·
Identify the specific goal and
objectives,
·
Develop an action plan, (after reviewing
multiple alternatives)
·
Staff the operation: people, equipment,
etc.,
·
Practice, Practice, Practice,
·
Execute the mission,
·
Implement Reverse Logistics (sometimes)
This process has been successfully employed for
years to solve a wide variety of problems and issues. The system works very well.
Commercial
Supply Chain Management: Consumer Driven
When SCM is applied in the commercial sector, it is
a marketing function. The consumer is
the focal point!! All activities, all
decisions about products and services are based on what she (the consumer)
wants and is willing to pay for. It’s a
concept I have taught for years….Imagine standing in front of executives in a
classroom environment or speaking to global audiences and telling them that
their decisions have minimal influence on the long run success of the FCPG
industry.
As you can expect, this message is usually not well
received or is often ignored by the experienced (older) executives who are
making tons of money. They sincerely
believe that they ‘know’ what the customer wants and needs. Multiple times I
heard the comment: “We could put poo in a brown bag and sell it the customer!!!
Unfortunately, with younger generation leaders, they
often don’t understand the customer relationship either because their
backgrounds are often finance or legal, which means they make decisions based
on numbers and not a ‘feel’ for the business.
The biggest problem is these executives work in an insulated, sterile
office environment. They don’t shop the
stores so they have no clue what really happens!
The
Consumer Drives the Business!
In today’s challenging environment, the consumer
determines which products are/will be successful. They do this by voting with their money
(Cash, Credit or Debit). Every time a
purchase is completed, a signal is sent back through the supply chain telling
the functions to make and sell more.
Products that don’t sell are discounted, discontinued, sold as close-outs,
or are thrown away. What is the FCPG
industry performance? Not very good. Thousands
of new sku’s are brought to market annually (mostly line extensions) only to
disappear in a few years. IRI estimates that 190,000 new UPC’s were created in
2013[i]
Today’s
Consumers
Who is today’s consumer? A group of individuals with a wide variety of
complex thoughts, ideals and preferences which are subject to change depending
upon how the wind blows or who sent them the latest tweet, text, or email. The slide below puts a face to these people.
Customer
1 is a female who is time pressured to work, raise a
family, and is actively involved with her kids.
She is extremely smart, can effectively multi-task and is very
comfortable using technology (laptop, pad, or smart phone) to do her shopping
and to send gifts. Retail food shopping
is not in the top 10 of her to-do list.
She is a digital immigrant: A person born or
brought up before the widespread use of digital technology.
Customer 2 is
from generation Z. She is a digital
native: a person
born or brought up during the age of digital technology and therefore familiar
with computers and the Internet from an early age. Right now she is an influencer
significantly impacting household purchases; receives an allowance of $70 a
month, which translates to $44 billion a year. Recently, this group was
described as a “retailer’s worst nightmare’ because they are so different from
their older brothers and sisters. This
group will do most of their shopping with their fingers!
Customer 3 is
from generation Alpha. They are totally
unknown but they have their own tablets and use them daily at the age of 2,
which is a future behavior to study.
Going
Forward
Most FCPG companies have fallen significantly
behind; the laggards will die. Many are playing ‘Catch Up’ trying to improve their
supply chain networks and to successfully implement an effective ‘Omnichannel’
strategy. The challenge is great. Speed
is a requirement because the consumer is changing faster than the companies can
respond.
One company that understands the marketplace is
Amazon. Do they get everything right?
No! But they have got the right focus.
They have a series of rules of engagement which they live by. They are
posted on their corporate website.
Rule
1: Obsess over the Customer[ii]`
Leaders
at Amazon start with the customer and work backwards seeking continually to
earn and keep the customer’s trust
Can you suggest another company that puts the
consumer first?
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