Quick Take: Results matter most
Can distributors lead the supply chain mindset to focus on achievements rather than performance? On outcomes rather than experiences?
Creating better customer outcomes
As I prepare my remarks for CSCMP EDGE 2022, the Council of Supply Chain Management’s annual industry conference, I have noticed an emerging mindset: The supply chain of the future is not defined by moving and delivering products, but rather through creating and managing value for customers. To be sure, an algorithmic and connected supply chain operating on data and artificial intelligence might achieve previously unimaginable efficiencies, but customers don’t care. Or better said, customers take care to make decisions in a frame that considers risk and results. Papering over problems with just-in-case inventory and redundant sources is putting lipstick on a pig. A resilient, responsive, and regenerative supply chain will offer data for decisions and the freedom to act—transparency, coupled with enablement.
Here’s an example: Distributors are on the right path, but need a course correction. By reimagining themselves as front-end businesses, distributors are evolving away from a self-image of operating warehouses, taking orders, and adding value to products. Putting thought into words, distributors often say that they are becoming customer experience companies. But this is wrong-headed. Customer experience (CX) is defined as how customers interact with brands, products, and services. Focused, CX business models gaze inward, measuring customer satisfaction through metrics designed to optimize processes about how a supplier prefers to operate.
The system-changing opportunity for distributors is to act on a different idea—that what a product or service achieves is more important than how it performs. Measures connote meaning, and measuring performance validates a supplier-centric supply chain—one that originates with products and adds value through intermediaries. Achieving outcomes is a breakthrough mindset that imagines a supply chain that begins in the real world, where customers actually live and work. The future of distribution is the relentless pursuit of customer outcomes—CO not CX—and leading the supply chain to become a flexible resource that enables ever-better business results and innovations in the customer’s business. CO ensures that the supply chain prospers only if customers prosper. CO is putting the cart before the horse.
Looking for evidence of CO in theory or practice, I was excited to discover Gene Cornfield’s article The Most Important Metrics You’re Not Tracking (Yet), published here by Harvard Business Review. This passage hits home:
Most leaders say they’re customer-centric, but if everything they measure is company-centric, how could that be true? Revenue, growth, and similar Key Performance Indicators (KPIs) measure how customers are performing for the company. But organizations that wish to be customer-centric (and maximize growth) must also measure how the company is performing for its customers.
Now, while customers typically don’t have online dashboards with data visualizations that reflect how a company is performing for them, customers do bring to every interaction a purpose, problem, need, intent, or question—a desired outcome—along with expectations for how quickly or easily that outcome will be realized. These outcomes can be measured by associated Customer Performance Indicators, or CPIs.
If distributors are to lead the supply chain and follow CO as a North Star, they must master CPIs. The place to start is realizing that: “Any group that directly or indirectly touches customers can use CPIs, including marketing, sales, product management, customer service, operations, and finance,” as Cornfield explains. He also highlights what not to do:
There are four common mistakes companies make when trying to define their own CPIs. These include: simply adopting CPIs from another company (which will only reveal what’s important to their customers); relying on expert judgment from internal teams who assume (usually inaccurately) that “we know our customers and what they need”; focus groups (which reveal misleading groupthink); and surveys, which are the most tempting of all because of relative speed and scale.
Anything worth doing is worth doing right, and usually involves a lot of hard work. Again from the HBR article:
Instead, the most effective approach for identifying CPIs is contextual inquiry, an ethnographic research method in which specially trained researchers speak with or observe customers in the actual environments in which customers think about or try to achieve specific outcomes (homes, offices, stores, other locations, or traveling in between). Researchers trained in this type of ethnography know what to look for to reveal customer frustrations, expectations, and target outcomes at specific points of their journeys, and then ask the right series of open-ended questions to gain insights that surveys wouldn’t know to ask, and that customers might not be inclined to answer in a survey.
Next month, I will kick off my next Facing the Forces of Change® initiative as a distinguished Fellow for the National Association of Wholesaler-Distributors (NAW). Our goal is to design an innovation process by and for distributors, one that intentionally helps customers drive results and innovate in the customer’s business. We will meld approaches from elsewhere, especially customer outcomes achieved through CPIs. Distributors will need to master ethnographic research methods, but not by outsourcing the work to skilled professionals. Since distributors live and work side by side with customers, we will find a way to help distributors acquire the requisite capabilities and execute them through business processes implemented in collaboration with manufacturers, customers, and digital startups.
In my recent Discoveries edition, I shared Warren Powell’s admonition that “if you want a better supply chain, you have to make better decisions.” Through conversations with Powell, I have also learned that every decision involves risk and risk must always be assessed. Wise words, and I think a founding principle for the nascent practice of CO, the future of distribution, and building a better supply chain.
Do you agree? What are you doing? Can you do more? How can I help? Please share your comments below or reach me at firstname.lastname@example.org.