STRENGTHEN CUSTOMER AND SUPPLIER INTIMACY

STRENGTHEN CUSTOMER AND SUPPLIER INTIMACY

"Customers grow ever more demanding, and suppliers must change just to keep up."

– Fred Wiersema

Strengthen customer and supplier intimacy, is one of four generic strategies for dealing with competitive forces.The other generic strategies is basic strategies, namely low-cost leadership, product differentiation, and focus on market niche. Each of which often is enabled by using information technology and systems.

1. customer intimacy

Customer intimacy can be defined as the formal or informal set of relationships established between supplier and customer, with a diverse array of partners, from corporate leadership to functional leadership (engineering, marketing, operations, maintenance, or service) and end-users of products or services. These dynamic relationships provide multiple points and frequency of contacts between the company and its customer, as well as multiple points of view about the relationship and its benefits to both parties.

2. The benefits of "customer intimacy"

First, from the supplier side, customer intimacy impacts revenue growth and earnings per share by creating long-term, sustainable competitive advantage through the early identification of unsatisfied needs.

Contrary to the all-too-common syndrome of "if we can make it, they will buy it" that is prevalent in technology-driven companies, customer intimacy allows the adoption of a "customer-need-pull" strategy, as opposed to a "technology-push" strategy.

Second, from the customer side, considerable advantage can be generated when dealing with a vendor who is well aware of the details of the business and operations, its main drivers and constraints, as well as its objectives. If this vendor is willing to listen to issues with existing products and services or to new requirements which may fall outside of their current offering and is willing to invest in finding solutions, each of these situations corresponds to opportunities for reduced costs or increased capacity and obviously leads to improved earnings. Key progressive customers are very willing to partner with strategic suppliers to develop unique solutions to their most tangible, high-impact problems.

3. How to establish or improve "customer intimacy"?

Every business has some level of customer intimacy, loosely exercised by its various customer interactions – Internet, emails, phone calls, sales and service calls, etc. Every customer interaction is an opportunity to improve customer intimacy. It requires the right attitude, and the motivation to ask the right questions.

Attitudes can be developed through communications, training and development. Motivation can be enhanced by the quality of the talent hired by the company and by the compensation and rewarding systems. Employees who clearly understand how their behavior in front of customers can cause increased customer intimacy and how customer intimacy relates to profitability and growth are more likely to pay attention to their attitudes and to strive to bring value to the customers.

4. Example:

General Motors

Although GM had experienced record sales in recent years, the stock underperformed the S&P 500 index by 48 percent, which was an indication to Rick Wagoner (CEO) that something needed to be done. Although GM saw incredible cost savings and improved productivity, they feel that they have not retained any sustained competitive advantage with respect to the competition (Honda and Toyota), in fact, one might say that they have just caught up to the competition. They believe GM is on the right path since they now have the infrastructure needed to succeed in such a competitive market but have a long way to go to excel not just at operations but as a product leader.

1. Value Proposition

Operational Excellence (arguably still not as good as foreign competition)

Product Innovation (very limited to investments in OnStar and XM Satellite Radio)

Customer Intimacy (best of the 3, increase in loyalty and online tools show Customer Intimacy)

2. More in-depth Summary

American Auto industry problems

• GM decides to strengthen and integrate GM’s demand and supply chain systems to build the Digital Loyalty Network (DLN). It addressed 3 components
• “digital” for integrating technology
• “loyalty” for a focus on customers and increasing their lifetime value to GM
• “network” for coordinating and leveraging all supply and distribution chain partners to serve those customers.
• Current supply chain for the US auto industry in the early 2000s was extremely complex, with a global network of suppliers, long development cycles, extensive production and assembly processes, and an expansive sales distribution network of independent dealers.

3. GM’s Problems

• GM is the world’s largest manufacturer. Sold vehicles in over 200 countries, employed 355,500 people, affiliated with 14,000 dealers, and had manufacturing facilities in over 30 countries
• GM had two operating segments. The first was auto-related business for the design, manufacture, and marketing; in-vehicle telematics (OnStar), and financing. The second segment included non-auto related business such as Hughes Electronics Corporation and financial services such as insurance and mortgages.
• GM realized that developing “hot” products wont be enough…they had to understand their customer better. Although the internet allowed GM’s multiple brands and businesses to integrate technology in their daily business processes was integrated with each other. Basically, GM lacked an efficient view of the customer that could lead to cross-selling, up-selling, and increased loyalty and profitability.
• GM wanted to work closely with dealerships to produce a win-win solution instead of going against them simply by investing in new sales channels such as the internet.
• Design engineering used 22 different engineering systems and had 7,000 discrete information systems. (i.e. no collaboration)

4. GM’s Initiatives

• In collaboration with dealers, GM created GM BuyPower, an online portal that offered personalized offline dealer experience, unbiased third-party comparisons, incentive information, dealer’s best price, and application for online financing.
• GM BuyPower was designed to also serve as a link between the customer and supply sides of GM. This helped them reduce costs and time in developing BTO vehicles (from $3600 to $1000)
• GM also created GM Owner Center allowing owners to create personalized profiles of all GM vehicles they owned thus providing vehicle information, maintenance reminders, service history, owner’s manuals, and service center locations
• They strengthened the link between engineering, manufacturing, dealers, and customers to allow GM to work more collaboratively with suppliers.
• GM created SupplyPower, which was a portal between GM and its suppliers allowing them to complete transactions and share information related to purchasing, sourcing of materials, quality and production control, logistics, engineering, and manufacturing.
• The “Big Three” American automakers launched Covisint: an online exchange allowing automakers to cross shop and for suppliers to bid on contracts for supplying parts to the manufacturers.
• GM now had the ability to track raw materials, empty racks, finished vehicles, service parts, and to locate all carriers resulting in improved service to dealers and car buyers.
• GM increased spending on IT and hired more than 200 information officers and business experts that were responsible for design, development, and implementation of major business processes in product development; product production; sales, service, and marketing; business services; and the supply chain to drive common solutions across those units.
• GM increased WAN bandwidth by 300% and increased LAN bandwidth by 3000%. GM began using only 1 CAD system worldwide, installed middleware applications to talk to each other, consolidated 40 call centers into 3, 19 databases into 3 global databases, and installed standardized software and hardware application architectures.

5. Result

Costs of implementing IT was $1.7 billion, savings to the company were $2 billion. 62.5% GM vehicle owners returned to GM making it the most loyal brand 50% reduction in delivery lead times and 32% improvement in delivery reliability over the last 2 years were furthers signal of progress.