Bangkok--Nov 22--Hill & Knowlton
DHL, the world's leading express and logistics company, recently hosted an executive forum on Thought Leadership in the supply chain at the Conrad Hotel. John Gattorna, The audience was offered insights by John Gattorna, who has been continuously engaged in the evolution of supply chain thinking, from the early days of 'physical distribution management' (1975), through 'logistics management' (1980s/1990s), to the current 'supply chain management' era (1990s/2000s).
John spoke about his current theories for supply chain dynamics and how they should be utilised in order to generate maximum efficiency and profit. The theory focuses on staff at the top and the bottom of company hierarchies - strong leadership is an essential ingredient, especially from individuals who know their customer's needs. Leaders who possess a strong understanding of their customers can then utilise it to engineer solutions throughout the company hierarchy, ultimately benefiting the customer.
Knowing Your Customer
To date most logistics theory has focussed on segmenting customers, , understanding the behaviour of numerous segments anddelivering a solution for them. However, in John's opinion, this is an inefficient way of working because there are four simple categories of customer behaviour and each follows a series of set patterns:
Collaborative
This type of customer demands and develops a trusting relationship with their suppliers. In these cases the relationship is more important than the price of the solution and there is a lot of teamwork involved which leads to joint development and lots of information sharing. These customers normally use only one supplier and their business is largely regular and predictable.
Efficiency
These customers are also largely predictable and require a consistent response from their supply chain service providers based upon reliability and efficiency. They require regular deliveries from multiple sources; they try to be very controlling and can be very price sensitive.
Demanding/Quick response
These customers have unpredictable levels of demand and their logistics requirements are often time sensitive. They are price aware and results driven which fosters low brand loyalty.
Innovative Solutions
These customers have a very unpredictable level of demand and their operations also carry higher risks. Work with these customers tends to be based upon solutions with a high focus based on innovation. Customers who exhibit this type of behaviour pattern are not so price sensitive so there is little focus on the cost of solutions.
Understanding the demands and behaviour of customers allows companies to develop logistical solutions. Even thoughcustomer behaviour falls into four distinct patterns, the supply chain should be flexible enough to support a short-term change of focus on the customer's side which can result in a different behaviour type.
Supply in the System
Traditionally the field of logistics has had a narrow focus, mainly on manufacturing. John believes that this scope is too narrow and by examining the complete supply chain there is the potential to increase efficiency. He cited the fashion store Zara as an example of a company with a modern, agile supply chain.
Zara has the capacity to get a brand new fashion collection from the designer's board and into stores in just three weeks. This turn-around of product has enabled them to give customers the variety they require, while increasing the amount Zara sells. It has only been made possible by the way their complete logistics chain works from suppliers to manufacturers to stores.
To ensure the facilities are available to manufacture garments, they book capacity before the designs are finalized. Once the designs are complete, the raw materials are ordered and ready for the manufacture. Then the manufacturers take delivery of the raw materials, the garments are made and then delivered to a central warehouse. The warehouses have acres of spare capacity so they can cope with bursts of stock, thus preventing bottlenecks and allowing Zara to turn things around at break-neck speed. From the warehouse, just a short while after the designs have left the drawing board, the completed garments are shipped to the stores where they are put straight onto the racks.
By re-evaluating the customers demands for a constant supply of new products and building the supply chain to meet this, Zara has been able to beat traditional fashion retailers who normally deliver new collections to store once every three months.
For a company that gets its logistics right, there are huge benefits - a drop of between 30-50% in costs as raw materials are turned around rapidly so less investment is tied up. This also results inan improvement in service. However for many companies there are internal cultural hurdles that need to be crossed before such a radical change in thinking could be introduced. , Typically, the communication channels must be improved; hence the requirement for strong and inspired leadership.
Strategic Supply Alliances
Some companies with inspired leaders have not shied away from introducing radical change and have begun to experiment with new business models focused on the supply chain. The thinking began in the 1990's with the 4th Party Logistics Provider model where the knowledge and technology of logistics specialists such as DHL was utilized to develop comprehensive supply chain solutions for clients. Some of the trailblazing companies who developed business in this model have now further developed an innovative, brand new supply chain model.
The new business model requires companies who have a symbiotic relationship to form a Joint Service Company (JSC). The JSC is then enhanced by introducing specialists for each business unit (such as DHL to provide logistics). The strategic alliance jointly develops and delivers an individual product or service, starting with its creation and continuing through the process until the end product is provided to the customer. By drawing on the expertise of each partner, costs are reduced and risks are minimized.
Because the companies from a JSC with a joint commitment of capital, the risks involved are not as high as doing nothing or investing heavily in projects that may or may not succeed. As a direct result, the individual companies have a lower capital risk than they would if they were responsible for the complete project, and they also have a combined interest in its success.
For companies wishing to guarantee their future success, John Gattorna believes that bold management decisions, leading to the construction of JSC could be the way forward. For companies who are making investments, but whose share price continues to fall because analysts and investors do not believe the current business forecasts, this radical new business model could be an answer.
Dr. John Gattorna is regarded as one of the world's leading thinkers in the field of Supply Chain Management. Prior to becoming a freelance consultant, he operated his own consulting company for over a decade, specializing in marketing, logistics, and channels strategy. He had also authored/ co-authored 10 books and numerous articles in this field. In addition to his rich industry background, Dr. Gattorna has a strong academic background having taught in many famous universities in Australia and UK.
Oranuch Nuntaratn
Senior Consultant
Hill & Knowlton Thailand
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