Order qualifiers and order winners
- Category: Supply Chain Management
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In section 2 we discussed what could look like very many confusing choices to make in finding suitable customer opportunities and framing an effective value proposition to provide the opportunity for customer satisfaction. We need to find a way to simplify these choices and in this section we do this by the use of the concepts of order qualifiers and order winners.
Order Qualifiers and Order Winners
Working back from the identified customer groupings and some understanding of what they value gives the possibility to define two sets of criteria. The first is the qualifier. Here the idea is that these are things that must be provided by any supplier to this customer group for them to even consider buying from them. However it is likely that there will be a number of suppliers who meet these requirements for otherwise there is no market but instead a supplier monopoly.
These qualifiers are necessary but not sufficient to win the business. It is like athletes trying to get to the Olympic Games. They have to produce the qualifying standards to even be allowed to compete but qualifying gets them into the competition it does not guarantee that they will win any medals. In the business competition the customers consider the offers from all those qualified to be in the competition but only the customers determine which supplier has the correct combination of features which makes them the chosen one for that particular customer. These features become the Order Winners in that marketplace.
For those suppliers trying to satisfy groups rather than individual customers the attempt is then made to identify a group of customers with similar perceptions of Order Winners and then design a supply system capable of delivering these reliably.
The order qualifiers cannot be ignored however for some of these are also order losing sensitive. This means that any small failure to meet the qualifying standard means that the ‘permission’ from the customers to be in the competition can be removed very quickly. Examples of this would include food or travel safety.
This kind of qualifier tends to remain important almost irrespective of what else is happening but others are more dynamic.
For a supplier there can be the choice of taking the expectations of the customer as a given and responding to them or trying to influence the customer to change the balance of qualifiers and order winners to be more supportive of the supplier’s most economically advantageous approaches. Thus, if most of the competitors are competing with much the same unit price for the product it might be an order winner to offer better delivery service. The service dimension then becomes the new order winner. Of course if customers move in this direction then so can the competitors and a new order qualifier, around the service dimension, is created. Here again the competition dynamics ebb and flow as customers and suppliers try different combinations of product and service features.
The further significance of the concepts of qualifiers and winners is as an aid to cross functional coordination, consistent marketing messages and corporate behaviours.
The supply side has to support the competitive approach adopted by strategic and marketing choices and has to find ways to effectively deliver on these messages in a cost effective way. Similarly there is no point in a sales person making a promise to a customer to close a sale if it is different from the agreed priorities and current capabilities of the supply system to deliver.
A promise made that cannot be delivered is no way to provide customer satisfaction.
Promises have to be properly evaluated and capability properly assigned to ensure that they can and are performed but this is a whole company responsibility and any tendency to see sales as unconnected to supply chain capability is the route to difficulties and potential disasters.
Possible Order winners and qualifiers
Recognizing that order winners and qualifiers can change as a result of different perceptions of customers or differentiated behaviours from competitors, we can now consider some of the features on which we can choose to compete in a given market place.
Above all else there needs to be some core capability or competence which is offered by the supplier to the customer group. This may be an existing product or service capability, which is recognized as being of value to the customer. Of course incremental changes are always possible in these areas so the challenge to the supplier is to make sure that they are at least as capable in these areas as their competitors. After this there are others which can be added into the mix.
The unit price of the product or service will always be an important consideration for customers but it will seldom be the single most important factor. All other things being equal then unit price can be the differentiator or order winner but the challenge for suppliers is often to persuade their customers that the other features should be weighted more strongly so that a higher price is nevertheless seen as contributing value, as part of the overall, more attractive, package.
In many situations the unit price to buy the product becomes of reduced significance when the costs of operating, maintaining and updating the product over its extended lifetime are fully recognized and accounted for. This measure of total cost of ownership can change the balance of the economic argument for a customer as we discussed in the market imperatives section so that they move from considering value in transfer to value in use through a leasing contract rather than a purchase one.
Price can however also be difficult to fully account for since there are often inbound or purchasing and sourcing costs to allow for. The total cost of purchasing therefore should consider the extended sourcing and logistics costs of extended global supply chains, perhaps with a recognition, and financial accounting calculation, of the risk elements that might be represented by the geographical distance and boundary crossing issues.
All services are more or less designed as a coproduction of value since the supplier is never quite sure what their client might actually want until it is articulated. The process is therefore much more integrated and ideas are offered and acceptances made and modifications all flow backwards and forwards until the customer is prepared to agree with what has been coproduced and pays the acceptable fee.
Supply Chain Design
All services need to be designed and the service delivery system is a supply chain design issue however the role of design in products has more possible variations. Of course the service based example above can also apply to a physical product which goes through similar interactive processes to design and manufacture a bespoke dress or suit of clothes. Other possibilities are also feasible where there is no involvement of the customer with the product design at all. In this case they simply decide if they like the finished product and accept the price as offering acceptable value.
As we move from the make to stock end of the spectrum to the make to order end then the customer involvement increases.
These are examples of design for function but we can also be required to design for other things. For example a similar product might need to operate in extreme conditions or with particular features to allow for easy maintenance or extended reliability. Here the customer requirement will need to be more explicitly stated and understood and these features will suggest that the unit price is likely to increase to cover the extra resources involved in providing the new solution. The capability to be flexible and creative in solving these problems might well be the order winner for this section of the market place.
Design processes often embody much of the intellectual property (IP) of a business and so they need to be carefully considered and protected. For this reason great care must be exercised in outsourcing which involves the use of design knowledge to avoid leakage of the IP to another potential competitor. We will discuss this later when we talk about the issue of Offset.
Quality and value
Both of these are very important and share the same characteristic which is completely dependent on a perception which is unique to every customer. This perception can be influenced by marketing, personal interactions with supplier personnel and experience in use but they are not controllable. This is very difficult for the supply side. If we are struggling to understand what a customer values and have no independent and standard way to measure what they perceive they have received from a supplier then it is no wonder if there is a mismatch from time to time.
The more interaction between the customer and the suppliers to clarify all of this the better the fit and hopefully the higher the level of satisfaction experienced by the customer. Quality is one of the features that a supplier can use as a differentiator until all the competitors are delivering the same perceived quality levels. At that point it is simply a qualifier at that level and the competitive pressure moves to either a higher quality level or to some other factor as discussed above.
Quality is more of a process or journey towards perfection rather than a destination. The level is always increasing so the dynamic matching of expectation to capability is key here as well.
Product quality can in some cases be easier to measure with more physical measurements possible. For services, where the service delivery person represents all of the supply capability, then measurement can be more difficult and the perception of service recognized by the customer at the crucial moment of truth when they interact with the supply system, is again the critical and uncontrollable factor.
There is another potential problem however. If the supplier offers a level much higher than expected or required by a customer they simply might not value it and in fact consider that they might be being charged too much for a level of quality they did not demand. Suppliers therefore cannot afford to be too far ahead of the changing requirements of their customers.
Much juggling of requirements and performance is observed in this area.
Value is even more difficult to define for the supplier and might only be recognized after the customer has decided to buy the product or the service. Here again the more customer to supplier interaction before, during and after the transfer process, the more likely it is that satisfaction can be achieved.
Even in the ‘value in use’ scenario there is a still the requirement for the supplier to understand the customer’s requirement to tailor a solution to satisfy their needs. There may not be a transfer of ownership but still the customer has to use what has been provided and gain their own satisfaction from using a properly defined and delivered product/service package.
Delivery against a customer requirement has two dimensions and a preferred sequence. The dimensions are reliability and speed in that order.
If we accept the image of chains of interdependent companies all interacting against the ultimate customer’s requirements then we are also describing an interdependent set of delivery promises. Here, the immediate supplier’s promise of a certain delivery date and time allows the subsequent customer (acting as the supplier to the next in line along the chain), to make their plans so that by the time all of the promises have been made and achieved then the final customer gets their order at the time they expected and planned. For this reason reliability of promises made (assuming, as discussed before, they were actually achievable) is the most important performance requirement and indicator of success.
In some cases the speed of delivery can also be important and might be an order winner on that occasion but often speed on one order means that another has to be delayed so promises of unusual speed are other examples where these promises should not be made without a clear capability to achieve them. Even here the reliability of the promise is more important because of all of the other plans that will be built on it.
Integration across boundaries
When customers require product and or services to operate together but which are sourced from different suppliers they have to perform the integration.. .or do they? A further opportunity for a supply chain solution is to act as the ‘one-stop shop’ for their customer by sourcing, delivering and installing all of the products and services needs to fulfill the higher order demand from their customers. They become system integrators for their customer.
In the manufacturing world this is often the solution provided by the first tier suppliers to companies like Apple for example where Foxconn manages just about everything to do with Apple’s products for them. As consumers we often do not know about these arrangements until something goes wrong in the supply chain and issues become very visible around the world. When this happens there is no point in the brand company (Apple in this case) trying to say it was not their fault and point a finger of blame at their supplier. Consumers buy brands and assume that the brand company will take responsibility for all that happens in their name. In this example, the outsourcing process which is presumably economically advantageous also runs a high reputational risk if the chain is not properly managed or overseen.
With complex products, complimentary products and support services all in the customer requirement mix, then the capability to perform the integration and remove that stress from the customer might be the order winner but it can change fundamentally the skill sets and systems that the supplier has to have the capability to support and use effectively. Doing this across global supply chains increases all of these complexities.
Corporate Social Responsibility (CSR)
A feature which might be regarded as additional to other considerations covered so far, is CSR. This represents what are called the triple bottom line of People, Planet and Profit. The essence of this argument is that the current generation owes a duty of care to later generations to look after the common birthright of our planet and its resources, many of which we seem to be very successfully squandering.
If the costs of thinking and behaving in this more considerate way is seen as an extra then this might be a feature that customers do not see as something they demanded or are prepared to pay for. Alternatively, if one believes the core concept of responsibility to future customers then perhaps the Marks and Spencer approach to have a CSR based Plan A, where there is no Plan B, is the only way forward.
The ultimate ambition must surely be to get to the position where a supply system incorporating the CSR dimensions can produce at apparently equal cost compared to a competitor who focuses only on the more immediate customer requirement. For many organizations this is still a number of innovations away from reality. For the time being the business model of the Fairtrade approach, which tries to put more of the supply chain value back in the hands of the core produce producers for tea, coffee, cocoa etc., is that customers have to buy into the principle economically by paying a higher price at the retail outlet.
If the customer market place has groups with different views on this then there might need to be customer segmentation and dedicated supply chains providing different end results.
This last realization leads us to the final potential order winner.
Data and analytics
In all of the discussion so far we have been describing a complex and dynamically fast flowing situation trying to match changing customer requirements to appropriate supply chain capabilities and solutions. As the volume of data increases exponentially there is an increasing demand for people and computer systems that can make sense out of the data noise. This so called big data issue is critical in the global supply chains we have been discussing.
Understanding, anticipating, influencing and responding to changing market opportunities needs to be matched with extensive, cross company information on the supply side. Much of this is becoming more and more real time and driven by the internet of things applications where real world items can communicate information which will allow for the closer coordination of the physical distribution of products and people.
The ability to recognize and respond quickly, reliably and economically to these changing situations might well be the most important order winner of all. However, many organizations are still struggling with the need to properly manage their current supply chain capabilities so perhaps only the really farsighted and investment driven organizations will be the leaders in these developments. We have however indicated that if this is the order winner for the near future it will become the order qualifier not long after that.
In this section we have discussed how order qualifiers allow you to compete but only the order winners (as defined by the customers) produce market success. This is highly dynamic and also affected by the behavior of the other players in the market place, which can include regulators and government legislators (perhaps imposing some CSR requirements).
Many things can act as qualifiers and order winners and these will change over time so here again highly strategic decisions need to be made. These need to consider not just the capabilities of the focal company but allow for all of the capabilities which can be accessed through effective supply chain relationships with other resource and capability providers.
Having now considered the complications on the market side of the business relationship we will now move to consider the supply side choices, which have to be made to allocate the needed capability to the required customer expectation.