Meeting Customers’ Real
Needs: The Nature of
Service System Design
MEETING CUSTOMERS’ REAL NEEDS
“There is only one valid definition of business purpose: to create a
customer. What the customer buys and considers value is never just
a product. It is always a utility, that is, what a product or service does
for him.”
—Peter Drucker
Without customers, your company cannot earn a profit, create jobs,
or be a responsible corporate citizen.
Creating customer value must be at the core of your business model
design as well as your day-to-day decision making.
MEETING CUSTOMERS’ REAL NEEDS
This fact brings two vital questions to the forefront:
1. Who are your customers?
2. How well do you know your customers and their needs?
Today’s Dual Customer Challenge –
Understanding Customer needs
Seeing Downstream
Figure 1-1 Understanding customer needs 4
Today’s Dual Customer Challenge
Case Study
Walmart’s efforts to help suppliers understand customer needs do not end with Retail Link. Walmart uses its
channel position and day-to-day interaction with customers to become a sensor for its entire supply chain. As
Walmart entered the China retail market, store managers noticed that laundry detergent was not selling—at
least not in the expected quantities. Upon investigation, Walmart discovered that few Chinese households
owned washing machines. Walmart turned to Procter & Gamble (P&G), asking it to develop a new detergent
specially designed for hand washing. Tide White’s launch was a huge hit, selling 35,000 units in 15 stores in
two weeks. Acting as P&G’s eyes and ears, Walmart spotted an unmet need. Working together kept
Walmart’s shelves stocked with the products its customers want while improving P&G’s research and
development effectiveness.3 The two are partners in profit. Moreover, the entire supply chain wins when
these collaborative efforts bring more customers to Walmart’s stores.
Understanding customer needs 4
Today’s Dual Customer Challenge
You should take the following three learning points away from this discussion:
1. If your company does not meet the needs of your immediate customers, they will buy from
someone else—a supplier that helps them succeed. If P&G had been unwilling or unable to
develop a new laundry detergent, Walmart would have certainly turned to one of P&G’s
rivals—perhaps Unilever. This process is called disintermediation.
2. The end customer takes center stage in well-designed and well-managed supply chains. The
end customer is the only customer who really puts money into the chain. Everyone else
simply recycles it. Every organization in a supply chain should seek to improve its ability to
contribute to satisfying the end customer’s needs and wants.
3. Companies win when they participate as members of a winning supply chain team. If you
don’t understand downstream competitive dynamics, including customer requirements, you
will find it difficult to allocate the resources needed to be a supplier of choice in these
winning supply chains.
Understanding customer needs 4
Today’s Dual Customer Challenge -
Understanding Technology Empowerment
Consider the following four Business to Consumer (B2C) examples to see how the Internet is a game
changer
1. Information acquisition
2. The buying experience
3. Comparison shopping (on steroids)
4. Post purchase evaluation
best customers, who behave as “high-service sponges,” will no longer settle for average service.
You need to understand how your customers define value and determine satisfaction.
Understanding Technology Empowerment
1.Information Acquisition: Customers now have easy access to vast amounts of information through
the internet. They can research products, services, and companies thoroughly before making a
decision.
2.The Buying Experience: The internet has reshaped how customers purchase goods. Convenience,
speed, and seamless online transactions are now integral parts of the buying experience.
3.Comparison Shopping (on Steroids):Technology enables customers to compare prices, features,
and reviews across various platforms and sellers effortlessly. This amplifies their ability to make
informed purchasing decisions.
4.Post-Purchase Evaluation:After buying a product, customers often review and share their
experiences online. This feedback loop influences future buyers and holds businesses accountable.
CREATING CUSTOMER VALUE
How your customers define value?
First, customers make purchase decisions based on the value they expect to
obtain
Does the value justify the cost?
Second, customers employ similar criteria to evaluate supplier performance as
they used to select suppliers in the first place.
If your quest is to drive revenue growth—that is, obtain and retain customers—
you need to deeply understand what customers value.
CREATING CUSTOMER VALUE
Economists often discuss value in terms of utilities. As Peter Drucker noted, utility is what a
“product or service does” for the customer. Four core utilities are often discussed:
1. Form utility is the primary responsibility of purchasing and operations managers who
acquire inputs and transform them into products or services of greater customer value.
2. Possession utility falls within marketing’s domain and consists of efforts to communicate
(i.e., promote) a product’s value and then facilitate the exchange process.
3. Time utility emerges from effective management of all value-added processes that
influence when a product is available for purchase. Logistics managers make the inventory
and transportation decisions that ultimately determine availability’s time dimension.
4. Place utility is primarily the charge of supply chain managers who ensure that products and
services are where customers expect to find them—when they are needed.7
Understanding Technology Empowerment
CREATING CUSTOMER VALUE
To win tomorrow’s
competitive battles,
you must grasp the
nature of these value
dimensions and build
the systems to create
and deliver them.
Figure 1-2 Dimensions of value creation
Cost Reducing Strategies
To reduce costs, companies pursue a combination of four strategies:
➢ Productivity enhancement—The key to improving productivity is to promote learning. The goal is to
empower workers to find and implement better ways to do things.
➢ Automation— Many tasks that have been performed manually can now be automated.
➢Global network design—Improved logistics have reduced the total landed costs of products made in
distant lands. Companies are taking advantage of this by locating facilities in far-flung countries with
low-cost inputs.
➢ Outsourcing—Outsourcing enables companies to do what they do best, relying on supply partners
for complementary value creation.
Effective cost reduction can initiate a powerful cycle of competitiveness. As they expand market
share, companies can improve scale economies and raise profitability. The added funds can then be
reinvested in future capabilities.
Make OR Buy
Decisions
Why would we buy something
(items, components, services)
when we could provide it ourselves?
Reasons to buy:
The unit cost is cheaper,
We don't use it enough,
We don't have space,
We don't understand the technology,
We don't have the skill,
It's not our core business/expertise,
It's expensive to set up the process,
Reasons to provide in-house:
The unit cost is cheaper,
It's critical to the business,
Retain specialist knowledge/skills,
We have control over the supply,
Quality issues are critical,
No suitable supplier,
It's part of our core business/expertise
Quality - Dimensions
Quality is often defined as conformance to specs. A customer focus, however, means that quality is
nothing more or less than meeting customer expectations.
David Garvin, a Harvard professor, identified eight factors that customers use to assess quality:
➢ Performance—A product’s operating characteristics
➢ Features—The unique characteristics that distinguish a product from rivals’ products
➢ Reliability—The user’s ability to count on the product not to fail
➢ Conformance—How well a product conforms to design specifications
➢ Durability—A product’s life expectancy (also, mean time between failure)
➢ Serviceability—The speed and ease of repair when problems occur
➢ Aesthetics—The perceptions of fit and finish (also, artistic value)
➢ Perceived quality—A product or brand’s quality reputation
Delivery
Customers value speed.
Fast, reliable cycles improve forecast reliability and reduce the need to carry inventories.
Responsiveness
Change is the only constant in today’s business world. The ability to act quickly—that is, to adapt
or respond—as customers make special requests, competitive requirements change, or the
unexpected happens conveys a vital advantage.
“Every minute ahead of the enemy is an advantage.”
Use information systems to monitor operations, link to customers, promote proactive
environmental scanning, and share information on a real-time basis across the network.
➢ Cross-train workers and organize work in multifunctional teams.
➢ Design performance measures to value responsiveness.
➢ Build learning loops into every process throughout the organization.
Responsive vs Efficient Supply Chains
Efiicient Responsive
Many suppliers Few Suppliers
Supplier selection based on cost Supplier selection based on speed and
technology
High priority given to capacity in supplier High priority given to flexibility in supplier
selection selection
Bulk buying discounts Many small shipments
Relationship based on cost reduction Relationship based on supplier market
intelligence
Innovation
To avoid “one-hit-wonder” status, companies need to be able to innovate consistently.
End of Topic
