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Demand Driven For Configurable Products
Lane Strategy
It amazes me how sophisticated companies are getting with their supply chains. The recession has forced even more sophistication. As a way to weather the storm, companies are segmenting their supply chains to manage demand volatility better. I was talking to Jack Becker, VP of Supply chain for an electrical goods company, who described this as “3 lanes on the highway”. We just call it the “Lane Strategy”.
The fastest lane is the stuff that customers buy a lot of, and we build often. The middle lane is slower stuff, tends to be more configurations. The slow lane is the one-offs and custom builds. The key thing to remember is that the segmentation is demand driven, based on what customers are buying, and what is moving through the supply chain.
The key success factor for the lane strategy is to have a method to convey the lanes to the sales reps and distributors. Sales is the “mouth of the beast”, and it drives volatility and cost through the supply chain.
“We have had numerous attempts at trying to create a segmented supply chain ”, Jack said. “However, the sales guys will sell whatever is easiest to sell, and what they know to sell. So we had to device a way to make it easy on them to sell what we wanted the customers to buy.” Success finally came when Jack implemented a sales tool that would recommend configurations to the sales reps, and color code based on availability and the Lane Strategy.
“We offer a configurable product. Our biggest opportunity is that customers do not fully specify what they want. They just specify a few features they want, and leave the rest to the sales rep. They want the sales rep to recommend a good choice. Like we see on Amazon e-store…. But we are not selling simple stuff like books. Everyone on our team talked and agreed about an “Amazon like strategy”, and we knew that we needed sophisticated tools to accomplish that for our products, which are highly configurable. However – if our sales reps could recommend a few configurations at the point of sale, it is a win-win”.
“Supply chain folks typically think about the supply side of the equation. The key to success for a demand driven supply chain is managing the demand at the point of sale. Recognizing this opportunity and leveraging it has been the biggest key to our success!”
Emcien offers a product mix optimization solution that is a sustainable solution and process for the lane strategy.
More details on the execution of this strategy in the next blog….
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Help the sales team help the customer
This morning I was talking to the VP of business process improvement for a company that sells industrial machinery. Their products are highly configurable. She told me that every year they have 50% new configurations they have never seen before. The number of choices on their products has grown over time. ”A salesperson can’t know everything about the product,” she said. “Customers want a few choices, and before you know it, the quote has crept into a configuration that’s bad for the customer and bad for us. “
As the VP explained, the biggest opportunity for complexity management is at the point of taking an order. A customer wants to be guided to complete their order. This concept is called Demand Shaping. There are myriad ways a configurable product can be ordered. However, each customer cares only about a few features that are of high importance to him or her.
Key Concepts To understanding Product Variety
1. Product
A product is something offered for sale to customers. This is deliberately vague, because we want to encompass services as well as tangible products. Most of our discussion and examples involve manufactured products, but our framework also applies to services with many variants like insurance policies and cell phone calling plans.
2. Instance
An instance of a product is a specific unit of the product: the car that Joe buys, which has a specific VIN (Vehicle Identification Number).
3. Configurable Product
A configurable product is a product where the instances are not all identical. No. 2 pencils are not configurable. Computers, cars, tractors, refrigerators and cell phones are configurable.