In today’s fast-paced product marketplace, old approaches to aligning supply chains, products, and packaging are no longer sufficient. Cambashi’s US president Julie Fraser envisions the modern product chain.
By Julie Fraser
For many manufacturers, the package is something you put together once the product design has been completed—and neither activity takes very much notice of what is going on in the supply chain. Conversely, the team designing the supply chain inevitably makes decisions based on what it knows—which is usually limited to the products currently in production. Dealing with these three “design” issues in a sequential or, even worse, an iterative fashion may have made sense a few years ago, but is not acceptable today. In the ultra-competitive markets of the 21st century, failure to integrate, or at least align, these activities means missing out on two things—the opportunity to increase revenue from differentiation and the possibility to save money—either through direct cost reductions or by increased efficiency.
Twenty-first century consumers are informed, demanding and fickle—products are discarded long before they reach the end of their life. Brand loyalty, where it exists at all, is more transient. In terms of brand relationships, yesterday’s lifelong marriage is today’s one-night stand. In many product categories differentiating between one product and the competitors in functional terms has become almost meaningless while style or fashion criteria have assumed greater importance. Cambashi and others believe there is a “new normal” for the economy, driven by rapidly changing consumer demand. This new normal is more tightly connected and volatile, shaped by the instant, unlimited access to information and opinion—and delivered by multiple, parallel media channels.
In many categories, the design of the package and the supply chain are as important as the design of the product in terms of delivering an attractive “offer” to the target customer at the point of sale—getting the price, the place and the time right! Consider the situation of a laptop computer being sold through a major retailer—Wal-Mart or Tesco—ready for the “back to school” sales campaign. For many, it will be an impulse purchase—so the package could make all the difference. Capturing the expected demand will require serious supply chain design effort. In the new economy, these issues have serious implications for production companies:
- Increased volatility puts more pressure on supply chains
- Life cycle compression means reducing new product lead times
- Shifting patterns of demand force supply chain operations to cover new markets
And all of this is against a backdrop of increased environmental regulation and relentless pressure to reduce costs and improve margins.
You get the results in areas you measure. Inevitably, the things which come under the closest scrutiny, like direct costs or overheads, are the elements where we already have good systems of measurement in place. Many companies direct their energy into refining their core business models to reduce cost and improve productivity—but the work becomes progressively harder while the returns dwindle. Understanding what to measure in cross-disciplinary process areas is more difficult because processes may operate sequentially, or in parallel, yet interact in complex ways. Yet, the returns may be considerably greater—we should be striving to be more “effective” rather than slavishly working towards being more “efficient”—“doing the right things rather than doing things right.” Insight and effort is needed to ensure the success of these approaches.
Some of the common core tenets guiding the business model transformation are:
- Understanding and increasing value added from a customer’s perspective
- Take an holistic view, from supplier to point of sale, and look for latencies that result from poorly aligned cross-disciplinary processes
- Measure results on customer outcomes, or even customer’s customer outcomes
- Deliver “solutions” for each group of customers, whether geographic or industry segment
- Encourage, motivate and empower staff to be part of the change process
Examples of this business model transformation reach across industries. The success of private-label goods for major retailers is an extreme, but nonetheless potent, example of the way packaging can make all the difference. Creating a whole family of products with essentially a single livery for packaging has enormous cost saving implications. Dow and others have moved strongly into make-to-order specialty chemicals as a parallel business to its foundation commodity bulk businesses. Zara transformed the apparel business by making and selling its own goods based on immediate feedback on consumer buying patterns from the point of sales. High tech products like phones, cameras and music players have in one sense actually become the “package” by which a whole new stream of revenue can be delivered, creating a new mobile “point of sale” for repeat business. Regulations are forcing any company using electronics to consider end-of-life to ensure safe recycling of the hazardous materials included.
Delivering true innovation means getting close to the consumer and understanding what they value—and how best to deliver this value. In this framework, companies must move to ensure that those designing products and packaging begin with a foundational understanding of how the current supply chain (or total value network) works. What are the capabilities and capacities for the players from raw materials through production through distribution? What product and packaging elements might help them improve effectiveness?
Similarly, those developing supply chain strategies and making decisions such as from whom to purchase materials, what to outsource, where to produce, and appropriate partners for distribution and logistics must understand the design intents and implications of changes they might make to the overall success of a product. Both product development and supply chain or value network operations will need to work together to fully answer some key questions such as:
What enables additional value to a customer? This could lie in:
- Product features
- Packaging options
- Service, support or process operation
What enables a rapid innovation process that reaches from ideation through market success?
- Clearly products and packaging design and development speed
- Design for manufacturability and supply chain to enable effective ramp up of the commercial process
- Supply chain adaptation for new product and offering variations
- Sourcing of differentiated or region-specific materials
- Planning to accommodate material and production capacities and lead times
- Materials handling as components, products, and packaging change
What enables the customer to succeed?
- Solving a more difficult problem for themselves or their customers?
- Specific packaging options for their environment or situation?
- Increasing the availability?
- Offering complementary products in a single customer order?
- Providing services along with the product itself?
What does each customer segment need to see our value?
- “Solutions” for a geographic region?
- Industry-specific niche offerings?
- A combination of offerings
What partners will enable our success in delivering increased value in rapid cycle to each customer segment?
- Who is increasing value add from a customer’s perspective?
- Short cycle, more constant innovation in offerings
- Measuring results on customer outcomes, or even customer’s customer outcomes
- Delivering “solutions” for each group of customers, whether geographic or industry segment
- Partnering with others in an industry network to deliver value
It’s not just thinking outside the box, but about seeing the box in a whole new way. §
Julie Fraser is Principal Industry Analyst & President, Cambashi, Inc. She has 25 years experience as a manufacturing systems industry advisor. She is one of the world’s leading authorities on production plant software or MES. For more information, contact Cambashi at www.cambashi.com.