Monday, February 27, 2012

Lessons learnt from three successful companies in Supply Chain Management

From the enterprise’s perspective, all the processes within its supply chain can be categorized into three main areas: processes focused output – Customer Relationship Management, processes focused internally – Internal Supply Chain Management, processes focused input – Supplier Relationship Management . And there is another category providing the flow between all of these processes called Transaction Management Foundation.
Hence, the model for Supply Chain Macro Processes can be described as the figure below:

 Figure 1. Supply Chain Macro Processes

In this article, I am going to share my lessons learnt from three main components that built the supply chain – CRM, ISCM, SRM; and each lesson were from a successful company in Supply Chain Management that I have researched in the course “Introduction to Supply Chain Management” offered by Professor Tim Zak.
Those companies are: Zappos, Toyota Motor Corporation and Herman Miller.

Zappos, excellent CRM

Figure 2. Zappos' logo

Zappos started as an online shoes selling company, now has been growing to an e-commerce retailer which offers a wide range of products. The revenue has been increasing dramatically since 1999, the year Zappos was founded, and hit US$1 billion in 2009. There were a lot of great management decision that launched Zappos to the summit of all greatest companies which can report 10-digit-number in revenue in financial statements, however, I have learnt the most from its success is the way the company sets the culture to over deliver customers and surprise them until they say “WOW!”.

What Zappos does is keep delivering happiness to its customers through great customer service experience. "On any given day, 75 percent of our orders are from repeat customers, so we're not as dependent on marketing and trying to get new customers," says Zappos CEO Tony Hsieh. "Our whole philosophy is to take most of what we would have spent on paid advertising or paid marketing and invest it instead in customer service. Then, we let our customers do the marketing for us through word of mouth."
Hsieh saw customer service as an investment rather than an expense. In order to deliver “wow experience”, the company focused to enhance CRM superiorly to its competitor. I can summary the key processes in the figure below.

Figure 3. Enhancing CRM of Zappos
  • Speed of the website. loaded faster than any other retail website.
  • Fit and return Policy. This is one of unique factor that made Zappos so friendly and caring in the eye of its customers. The company offered free returns and realized that customers who made use of free return policy also made more net purchases.
  • Online Product Information. It was also very important to provide as much information as possible to customers as they made their purchasing decisions. Zappos website provided enough significant information but not over-loaded details to its customers. Feedback and comments of each products were visible to other customers to improve accuracy of the information.
  • The Zappos Call Center (“Customer Loyalty”). By improving the interaction experience with its customer, Zappos had achieved the best marketing by “word-of-mouth” from its customers and the rate of repeat customer also increased naturally.
  • Free, Rapid Delivery. The company made a lot of efforts to improve shipment processes to its customers. Under-promising and over-delivering, that made most of Zappos’ customer wow when they received their orders in very short time.
  • Made use of social media and network. In an interview with Zappos Social Engagement Scientist Graham Kahr. Graham, he said: “We deliver the same world-class service in social media that customers would receive on the phone, live chat, email, etc.  Our Customer Loyalty Team doesn’t use any scripts on the phone and we avoid them in social as well. Every customer deserves their own experience and social media has been a great place to tailor positive experience.”
Lesson Learnt: By enhancing CRM, Zappos achieved a stable output which greatly supported other components in Supply Chain management. CRM will be the first component to improve if a company wants to enhance its supply chain management.

Toyota, the master of ISCM of lean manufacturing

Figure 4. Toyota's logo 

Toyota is not only famous corporation which manufacture a lot of safe, efficient and modern car, but also masterful of lean manufacturing that became a successful culture of Toyota. There are a lot of companies had tried to imitate and implement the same model of manufacturing but not successfully because of many factors that only Toyota can do. Toyota has the one of the best ISCM systems in over the world. It called Toyota Production System which can be summarized as figure below.
Figure 5. Toyota Production System

Not only People, JIT, Waste Reduction, Jkoda, Continuous Improvements components, there are many other components to build a “House of Lean” by Taiichi Ohno, such as Leveled production, Stable and Standardized Process, Visual Management and Toyota Way Philosophy. However, the four supporting pillars JIT, Waste Reduction, Jidoka, Continuous Improvement and the core pillar People has described mostly of the artistic picture of Toyota’s ISCM.
  • Just-in-times means “Right part, right amount at right time”. It also includes Takt time planning, Continuous flow, Pull system, Quick Changeover and Integrated logistics. JIT helps to reduce cost for inventory stocking and reflex quickly with demand changes.
  • Waste Reduction includes Genchi Genbutsu which means “Go and see”, Eyes for Waste, 5 Why’s and Problem Solving. All the key concepts together increase efficiency of manufacturing process.
  • Jikoda which means In-station quality is implemented to make problems visible, in order to solve any problem occurred. Some of its key concepts are Automatic Stops, Andon, Person-machine separation, Error proofing, Quality control, Solve the root cause of problem.
  • Continuous improvement is the sequence of other three components when they work together. It helps Toyota always catch up with the shift of trend, business environment changes and competitiveness with rivals.
  • People are defined according to TPS as the core of all key concepts. It is treated as most valuable resource and also the first priority of customer.
By mastering the lean manufacture, Toyota has achieved a cut of $2.6 billion out of 113 billion in manufacturing costs without plant closures or layoffs in 2002; $2 billion in 2003 an become one of the most successful car manufacturer of all times.

Lesson Leant: SCIM will help a company to improve the efficiency while cutting the cost. However, the quality is also improved thus directly support CRM.

Herman Miller, passion to influence SRM

 Figure 6. Herman Miller's logo

Herman Miller was founded in 1905. Its sales grew from $25 million in 1970, when it first became a publicly traded company, to $1.5 billion in 2002. The company has not only impressed me by its wonderful success, but also its passion to make a sustainable and better world through “Cradle-to-Cradle Protocol” (C2C). One of important steps contributed to the achievement of the company was to work closely with its supplier and persuade them to switch to environment-friendly materials.
The company launched the Design for Environment (DfE) team to worked with each supplier (over 200 suppliers in the first six months alone) to introduce the supplier to the DfE program, and explain how the materials assessment process fit into the new design protocol.
It also graded suppliers and classified them as new product development partners or preferred suppliers. If they do not fall into either of these categories, they get downgraded to transactional suppliers and have to earn their way back.

Figure 7. Herman Miller's suppliers are graded by DfE score

As observed by W. Drew Schramn, SVP of Global Supply and Quality:
“If we hit a C2C hurdle, we don’t just give up. We continue to work on it until we find a solution that’s good for our business, our supplier’s business, and the environment”
Lesson Learnt: Enhancing SRM is as important as improving CRM or ISCM. However, considering controlling the power of suppliers, it is still important to make sure that the position of the business is sustainable.

By Phong Nguyen

Case Study: “ Developing a supply chain to deliver WOW!” from Stanford Graduate School of Business.
 Lecture Notes- Week 4: “Lean Manufacturing and Total Quality Management” prepared by Professor Tim Zak.
Article: “Decoding the DNA of the Toyota Production System” (Spear and Bowen, HBR, September 1999)
Case study: “Cradle-to-Cradle Design at Herman Miller: Moving Toward Environmental Sustainability” from Harvard Business School by Deishin Lee and Lionel Bony.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.