Supply Chain Management For Dummies. Daniel Stanton

needs. This chapter covers the factors that define how a supply chain needs to perform and how each factor affects costs. Then the chapter discusses how trade-offs are managed in every supply chain.

Prioritizing Supply Chain Goals

      A friend of mine has a sign on her desk that reads “Good, Fast, Cheap … Pick Any Two.” The message is relevant for supply chain management because you often have to figure out what’s most important to you and be willing to compromise on the rest.

      Step 1: Understand what customers value

To make good decisions about what to prioritize in a supply chain, start with your customers. Because the purpose of a supply chain is to deliver value to a customer, the first step in engineering and managing a supply chain is understanding exactly what your customers value. They may value having a wide variety of products to choose among, for example, or they might prefer to have a smaller number of options at a lower price. Alternatively, your customers may value having products available immediately for pickup or to have products delivered to their homes at a time that they choose.

      Your customers may actually want “all of the above,” but each choice creates different requirements for a supply chain, and the choices may be contradictory. It often helps to choose a key customer and focus on their specific preferences.

Some great techniques are available to help you identify what customers value most. One of the most popular of these techniques is officially called Quality Functional Deployment (QFD), but many people call it the House of Quality (HOQ). Figure 3-1 shows an example HOQ, which looks like a bunch of boxes with a roof on top. To build an HOQ, first you interview customers to determine which characteristics or features they value most. Then you match those features with your design to ensure that you’re focusing on delivering products and services that genuinely meet your customers’ needs.

      FIGURE 3-1: Example HOQ.

      

For more information on how to build an HOQ , visit https://hbr.org/1988/05/the-house-of-quality.

      Another common technique for determining customer preferences is called A/B testing. To perform an A/B test, you give your customer a choice between two options: A and B. Online shopping sites frequently use A/B testing to see which products or ads are most attractive to customers, but A/B testing can also be used in face-to-face experiments.

      Step 2: Recognize your competitors

      The next step in prioritizing your supply chain goals is recognizing your competitors. In the age of e-commerce, your competitors may not be who you think they are. Many traditional retail stores, for example, have been slow to realize that their most aggressive competitor is not another brick-and-mortar store, but a website: Amazon.com. Amazon.com isn’t competing only with retailers, however; it’s also competing with trucking companies, warehousing and distribution companies, and even technology companies such as Apple and Microsoft.

      To understand who your real competitors are, you need to stop thinking about the product or service that you sell and start thinking about the problem that it solves. Clayton Christensen of Harvard Business School called this approach to matching your product with a customer’s problem the Jobs to Be Done Theory. Think about what “job” your product or service does for your customers and what other products or services might be able to do that same job better, faster, or cheaper. These alternative products (or services) are your product’s real competitors, and you need to design and manage your supply chain so that your product can do that same job better than its competitors.

      Step 3: Understand your products or services

      The next step in prioritizing your supply chain goals is understanding the characteristics of your products or services. The easiest way to illustrate this step is to show how different kinds of products need to achieve different goals to deliver the greatest value to their customers.

      WHAT JOB DOES A MILKSHAKE DO?

      Professor Clayton Christensen gave a great example of his Jobs To Be Done Theory by telling a story about the managers of a fast-food restaurant who wanted to analyze their sales of milkshakes. The restaurant was selling lots of milkshakes early in the morning, and the managers couldn’t understand why. After interviewing their customers, they discovered that people were buying milkshakes at the beginning of their commute because it gave them something to do while they were stuck in traffic. In other words, the milkshake wasn’t just food; it was also entertainment! Understanding what their customers truly valued about the product helped the managers of the fast-food restaurant think differently about how to package the product, manage their business, and design their supply chain.

Table 3-1 and the sections that follow describe supply chain priorities for different kinds of products. These examples are definitely not an exhaustive list of supply chains, but they illustrate why the supply chain for corn, for example, has different priorities from the supply chain for computers.

TABLE 3-1 Supply Chain Priorities

Product Type	Supply Chain Priorities
Commodities	Low price, high availability, minimum quality standards
Luxury goods	High quality, uniqueness
Fashion goods	Fast throughput, low inventory, wide variety
Durable goods	Balance between transportation/inventory cost and customer needs
Technology	Speed, flexibility, security

      Commodities

      Commodities are things that are easy to find and easy to substitute. Common examples are food crops, metal ores, and gasoline. Because it’s so easy to substitute commodities from one supplier for commodities from another supplier, most people buy commodities wherever they can get what they need for the lowest price. Therefore, commodity supply chains need to have high availability, meet minimum quality standards, and be cheap.

      Luxury goods

      Luxury goods like high-end cars and jewelry are all about quality and variety. When customers are purchasing luxury goods, they want something in just the right size and color, and they don’t want everyone else to have the same item. Also, ensuring that luxury goods are free of defects and damage is essential. Supply chains for luxury goods need to accommodate a wide assortment of products with plenty of protection to keep them safe.

      Fashion goods

      Fashion goods like shoes and purses are all about selection and timing. Because styles change quickly, fashion supply chains need to transform ideas into products and get them sold to customers before the products become