You finally landed your first orders from that really important high-potential account. When should you bring in your supply chain managers?
In most companies, the standard progression is for the sales rep to focus on ramping up the sales volume, with a courtesy call from the company’s local supply chain manager only when the account is “safe.” Wrong answer.
This “sales first, supply chain last” way of dealing with account development is an obsolete and counterproductive approach to customer management that stems from the past “Age of Mass Markets.”
For most of the past century, businesses operated in the Age of Mass Markets. In this era, companies sought economies of scale through mass production, and they distributed their products as widely as possible through arm’s-length relationships. Most of our current management processes were developed in this earlier era. During this period, managers correctly focused on aggregate revenues and aggregate costs, and the role of a logistics manager was to move and store products at the lowest possible cost.
Today, all that is changing. We are in a new era, which I call the “Age of Precision Markets.” In this new era, companies form very different relationships with different groups of customers, and these feature very different degrees of supply chain integration and coordination, with vastly different profitability. The big problem is that all too often supply chain managers are not systematically involved in creating and managing these relationships. Instead, many are still primarily focused on internal cost control – like the logistics managers of old.
The consequence of this deficiency is a pattern of profitability that I have seen in my research and consulting with leading companies in over a dozen industries over the past two decades. In virtually every company, 30-40% of the company is unprofitable by any measure, and 20-30% provides all the reported profits and subsidizes the losses.
How can a top manager change this? By making supply chain managers essential partners with sales and marketing at every stage of the account development cycle – and even before the sales cycle begins.
The key success factor is to get sales, marketing, and supply chain management on the same page in three key business processes:
Relationship structure. If your sales reps are free to agree to a wide variety of customer requests and demands, it places a huge cost burden on your supply chain. The answer is for sales, marketing, and supply chain management to agree on a set of perhaps 4-8 standard customer relationships – ranging from arm’s length to highly integrated. Each relationship should have measurable value for both parties, and a clear to-do list for each party. Then your supply chain managers can create a streamlined process to support each relationship.
Market mapping. This is the process of matching customers to relationships based on an assessment of where each customer should wind up. This assessment involves both sales and supply chain factors, like buyer behavior and capability to partner. This is very different from simply asking the customers what they want. Your sales process should be focused on moving customers to the right relationships.
Account management. In major account relationships, the account development process must involve both sales reps and supply chain manages from the start. In a well-integrated relationship, your supply chain managers can dramatically lower both your customer’s costs – and your own costs – by influencing your customers’ inventory levels, order patterns, and other key (mostly supply chain) factors. When you increase your customer’s profitability, it almost always drives sales increases of 35% or more, even in highly-penetrated accounts. As a top executive of P&G once noted at MIT, “Our customer is Wal-Mart’s CFO.”
The bottom line is that it is essential to bring your supply chain managers into your earliest sales efforts. They will naturally work with their customer counterparts to identify areas of cost reduction that will come from working together. In the process, your supply chain managers will identify and nurture allies within the customer, and together develop a strong business case for selecting you as the premier supplier-partner. Today, both supplier selection and revenue growth are rooted in the foundation of trust developed between your company’s supply chain managers and their customer counterparts.
In a few days, I’m giving a presentation on “The Coming Revolution in Supply Chain Finance” to a national conference of supply chain management professionals. Here’s my message:
In leading companies today, supply chain integration leads directly to sales increases of 35% or more, even in highly penetrated accounts. Supply chain management is the fastest and surest way to increase revenues.
At the same time, top companies that structure their sales processes to bring in revenues that fit their supply chain’s capabilities see cost reductions of 30-40% or more. All revenues are not equally profitable, and thoughtful sales discipline is the best way to create quantum increases in supply chain productivity and efficiency.
Welcome to the new world: supply chain management driving huge revenue gains; sales discipline creating massive new supply chain efficiencies. In the process, financial performance going through the roof.