Ten mega-trends that will revolutionize supply chain logistics

Journal of Business Logistics, 2000 by Bowersox, Donald J, Closs, David J, Stank, Theodore P

The goal of integrated supply chain logistics is to enhance end-customer value. The term end-- customer is used to identify the last point in a supply chain where a specific product/service bundle is purchased for consumption. The end-customer could be a consumer or an intermediate channel member who purchases a product or component as an industrial input. Traditionally, supply chains created value through low price and broad product assortment. Today, however, supply chain managers are learning how to accommodate customers who demand greater control of the buying process, have the financial ability to make choices, and are willing to utilize a variety of ways to purchase goods and services to satisfy their lifestyle requirements.

Understanding that end-customers will increasingly define value in the context of a technology driven competitive environment is critical to supply chain success. In an end-customer's context, value is the measure of desire for a product and its related services. If desire is high, a product/service bundle will be perceived as valuable and it will be purchased. Determining how to provide meaningful product/service offerings to enhance end-customer value, however, is very difficult. In the extreme, it means generating a unique product/service offering for each end-customer. This, of course, is in direct contrast to principles of mass marketing. Reconciling this paradox is increasingly becoming a key element of success. The answer in part is to fully understand that end-customers have at least three different perspectives regarding value.

The first perspective is economic value. Economic value employs economies of scale in operations to generate efficiency. It is epitomized by cost trade-off analyses that have supported volume procurement over the past 30 years. Two operational initiatives that can help achieve economic value include product profitability and lowest total landed cost. Product service creation is also fundamental to economic value in the sense that the logistics of merchandising must be efficient. The end-customer take-away of economic value is low price.

A second value perspective, market value, builds upon effectiveness of channel relationships. The market value perspective focuses on economies of scope to achieve product service positioning. The end-customer take-away of market value is assortment and convenience.

Both economic and market value perspectives are important to end-customers and historically have driven firm and supply chain success. Over the last decade, however, supply chain leaders have increasingly recognized that success also hinges on something called relevancy value. The end-- customer take-away of this type of value is business and lifestyle accommodation. It's about doing those things that in the final analysis make a real difference in the way business customers work and consumers live. The challenge of the 21 st century is that relevancy will increasingly take precedence over economic and market value of traditional purchasing.

The end-customer value proposition focuses on diversity of choice. Firms that provide high levels of end-customer relevancy augment products with services that create specific solutions. End-customer value builds on one-to-one marketing designed to provide individual end-customer relevancy, i.e., providing exactly what a specific customer needs to meet personal expectations or succeed in a specific business environment. Such focused relevancy requires the total integration of business processes to enhance product/service configuration.

The value proposition that creates end-customer value is a combination of effciency effectiveness, and relevancy. The fundamental question becomes "How should a film and its supportive supply chain be structured to create end-customer value as it moves into the 21 st century?" Given the change in end-customer perceptions of value, firms need to rethink their value drivers and reposition their product/service offerings.

As firms expand their value initiatives to increase relevancy, they must be committed to operational excellence. At this level, six sigma operational performance moves from a goal to an essential attribute. In part this means the adoption of integrative supply chain management (SCM) operating principles. World class firms are converting low or non-profitable products and markets into economically efficient entities through many ingenious logistical capabilities, such as multivendor transportation consolidation, specialized slow-mover warehouses and merge-in-transit operations. One progressive self-supplied retail grocery supply chain has established "focused" distribution centers to replenish selected slow moving products for the entire market area serviced. Collaborative Planning, Forecasting and Replenishment (CPFR) is a multi-firm practice that uses Internet connectivity between supply chain partners to share information and coordinate operations. Other state-of the-art practices such as flow-through assortment, continuous replenishment, and warehouse-based product customization all enhance positive control over the logistical process by utilizing the supply chain as a virtual warehouse. Such practices eliminate redundant work and duplicate inventories throughout the supply chain.