The Customer Relationship in Supply Chain Management
written by: Ian Johnson•edited by: Jean Scheid•updated: 9/2/2010
Why are some companies better at managing their customer relationships than others? It's because they have a well-run supply chain that ensures the most common parts are available and they never promise something they can't deliver? Learn here about customer relationship in supply chain management.
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The Customer Relationship in Supply Chain Management
When it comes to managing a supply chain, most companies concentrate on lowering their inventory cost of ownership. Rarely do they consider how important a role their supply chain plays in customer management. The proper supply chain can shorten product lead times, increase sales, and grow market share. So, how important is the customer relationship in supply chain management?
The entire purpose of inventory is to have product available to sell and make money. The issue is knowing when to have that inventory and knowing when a customer will need it. Sounds pretty easy doesn’t it? Well, it isn’t. There is nothing at all easy about inventory management. Purchase too much and hold it too long, and inventory costs rise. Purchase too little and your company misses sales opportunities. Neither is acceptable. Before discussing a possible solution, it’s best to review how the proper supply chain can shorten lead times, improve customer relationships, and grow market share. Afterward, we’ll look at the strategies adopted by some of the best companies and see how they maximize the customer relationships by a constant supply chain.
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A Well Run Supply Chain Shortens Product Lead Times
Most companies are aware of what it costs to manage inventory. However, the key to sales success is to have the inventory when customers need it. It’s a catch-22. Companies need inventory to sell and capture opportunistic sales, but often can’t afford the costs to hold that inventory. However, the right supply chain approach can lower product lead times. Lower lead times on critical parts helps to grow sales and put companies ahead of their competition.
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A Well Run Supply Chain Grows Customer Relationships
A growth in sales means you are able to service customers better and faster than the competition. Customers come to rely upon the strongest companies and the ones best able to get them out of a bind. When companies capture opportunistic sales, they do so by having the inventory available at a moment’s notice. This allows sales to increase the number of new customer accounts.
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A Well Run Supply Chain Increases Market Share
At the end of the day, increases in sales are what increases market share. Companies who are able to increase market share are able to increase their sales volumes, shorten lead times, and increase their inventory turn over rates. More customers after a given product means less incidence of obsolete or outdated inventory. Increased sales to multiple accounts helps to lower inventory costs by decreasing the time it takes to sell that inventory. It’s a continuous feedback loop where increased sales and market share mean lower inventory turnover rates and lower inventory costs.
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What are the Best Approaches to Running A Supply Chain?
While this all may seem like a pipe dream, there are companies whose supply chains are so well run that they are able to do all of the above. In fact, it’s perhaps the number one reason why some companies become market leaders and dominate a market, and others become market followers and fight for scraps. So, what approaches do these companies use to ensure they put their customers’ requirements front and center in their supply chain approach? More importantly, how do they maximize the customer relationship in supply chain management?
Please click on page 2 to learn more about customer relationship in supply chain management including tips on vendor support, marketing, inventory grading, and vendor supply agreements.
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When it comes to growing sales and improving the customer relationship in supply chain managmeent, it all amounts to ensuring the company has multiple customers for its most common parts. This ensures a high inventory turnover rate and promises that customers are attained.
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Importance of Proper Vendor Support
When considering the customer relationship in supply chain management, the best run supply chains rely heavily on excellent vendors who have product and materials ready to immediately replenish inventory. This helps to reduce the company’s inventory holding costs and ensures they’ll have the product available to meet any customer demand. They hold a safety stock in their own inventory and insist on another safety stock at their vendor’s location. In every instance, they visit their vendors consistently to ensure inventory levels are maintained and supply is not a concern.
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Aggressive Sales & Solid Market Information
The best companies align their sales and marketing information directly to their purchasing and inventory management. They do this with aggressive sales professionals who constantly feed information on the market itself as well as customer demand patterns. They have forecasting software that immediately notifies purchasing and inventory management of a change in demand, and improve upon this by pursuing their own contractual agreements on needed supplies with customers.
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Inventory Grading System on Common Parts
One of the biggest reasons companies become apprehensive with their inventory is when they experience issues with obsolete and outdated parts. This typically happens when companies put product in inventory with only one customer outlet to sell it. The best run supply chains have a grading system on their inventory for common parts. In most cases, the only parts a company will hold are parts that can be sold to multiple customers. This helps to reduce the incidence of obsolete and outdated parts, and ensures inventory turnover rates are high.
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Contractual Supply Agreements on Obscure Parts
When customers want parts that are either custom made, or are so obscure they simply can’t be sold anywhere else, they must be willing to sign contractual agreements on supply. If not, then they must be willing to deal with extended lead times. The best run supply chains never hold inventory of custom made parts without an agreement in place. The mindset is that if a customer isn’t willing to sign an agreement, then it’s not an order worth pursuing. Most companies designate these parts as “made to order" only. No inventory is held without a guarantee from the customer.
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Improving the Customer Relationship in Supply Chain Management
When companies use the approaches above, they are better able to meet customer demands for those products they have available. The best run companies don’t promise something they can’t deliver and they never hold obscure parts without an agreement on supply. They use a grading system for the most common parts and feed information from sales and marketing back to inventory management and procurement. They train customers on what they have and never promise something they can’t deliver. Customers hate to be misled, and it’s perhaps this reason why they gravitate to companies who deliver what they promise. There are far too many companies out there who promise something they simply can’t provide and it’s the reason why they have high inventory costs and less common parts to sell.