With the dynamic changes in the marketplace, from the age of "mass production" to the interim phase of "mass customisation" phase to the present "touchscreen" world, it seems the value chain will soon supplant supply chains. Changing consumer preferences have forced an unprecedented rethinking of the meaning and purpose of the supply chain.
Mass production as a paradigm of management, with standardisation and efficiency the keys, took root in the 1920s and fuelled tremendous economic growth for most of the twentieth century. However, with shifting demographics and changing consumer preferences, companies began to realise that customers could no longer be lumped together in a huge, homogeneous market.
Early customisation efforts in the form of "made to order" products and services had long lead times and were not tied to flexible manufacturing systems. But continuing innovations in flexible manufacturing, inventory management and integration of global supply chains enabled companies to offer tailored products at costs almost the same as for standardised production and mass marketing.
Mass customisation completely altered the centuries-old tradeoff between tailoring a product to the needs of specific customers and the costs and time associated with delivering that product. However, with the continuing sharp decline in computing and communication costs, and growing acceptance of online shopping, "traditional" mass customisation has become increasingly commoditised. A revolutionary new form of mass customisation has arisen, dubbed "customerisation" by Jerry Wind of Wharton Business School and Arvind Rangaswamy of Penn State University.
Customerisation encompasses more activities and functions than mass customisation. It exploits a "build-to-order" mass customisation process, with the customer an active participant at every stage of product development, purchase and consumption, a co-producer in effect. Individually and collectively, these customers now have the means to directly influence a company's policies and strategies.
Such customerisation has forced a rethink of the role of supply chain management and value creation. Supply chain management has always been viewed as a tool to wring costs out of the system and make processes more efficient to enhance competitiveness. Unfortunately, this won't be enough to deliver value to customers in today's digital age.
The value of products and services today is based more and more on creativity _ the innovative ways that they take advantage of new materials, technologies and processes. Value creation in the past was a function of economies of industrial scale: mass production and the high efficiency of repeatable tasks.
Value creation in the present and future will be based on economies of creativity: customerisation and the high value of bringing a new product or service improvement to market, the ability to find a solution to a vexing customer problem, or the way a new product or service is sold and delivered.
With value creation, value chain management will gain more traction as customers force innovation out of R&D labs and make the marketplace the "real laboratory". This means managing a whole new world of creativity that is structurally fluid _ where individuals come together in creative networks to co-create a new product/service based on an ever-changing landscape of customer needs and desires, often at a moment's notice _ in the same way as interactive social networks function.
The obvious result: higher customer satisfaction and loyalty as customers stop thinking about the company as a maker of products and begin to view it as a service provider. The service in question gives customers access to the manufacturing facilities to design and produce their own products.
By combining customer configuration with a mass-production strategy, companies can also gain valuable insights about customer preferences that may portend emerging trends. The multinational food producer Nestle has done this very successfully through its 60/40+ approach to develop the tastiest and healthiest products. In line with its "Good Food, Good Life" promise, it invites consumers at the Nestle Research Center to innovate products that meet rigorous standards for nutrition and consumer preference. In this case, "60/40" means at least 60% of consumers prefer the Nestle product over a competitor, and the '+' underscores the nutritional superiority of the products.
With value chain management gradually taking precedence over the supply chain, organisations need to get obsessed with value. All employees need to continuously ask themselves: How do we define value? How do we measure it? How do we make new changes in value creation? What new capability, product, or service will the organisation bring to customers that they will value? How will this make their life better? How will it amaze them?
Finally, in today's touchscreen world of customerisation, success depends much more on finesse _ the ability to deploy effort into areas that generate higher customer value than the added cost of providing that value. While huge marketing campaigns and massive ad budgets may still work, they are no longer as important for success as they once were. Given the direct channels for reaching customers, the increasing number of strategic options available, and the increased acceptance of co-creation, finesse is more important than brute strength.
As management experts are fond of saying, "In the new competitive environment, the big will not eat the small. The fast will eat the slow."
Kanishka Ghosh is a supply chain professional and independent writer. The Link is coordinated by Barry Elliott and Chris Catto-Smith CMC of the Institute of Management Consultants Thailand. It is intended to be an interactive forum for industry professionals; we welcome all input, questions, feedback and news at: Barry.Elliott@inslo.com
cattoc@cmcthailand.org