mq 1997 2 serving your customers customer

8/2/2019 MQ 1997 2 Serving Your Customers Customer

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BUSINESS-TO-BUSINESS MARKETING


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SERVINGYOURCUSTOMER'SCUSTOMER:Marc Fischer

Heiner FrankemoUeLutz-Peter Pape

Karsten Schween

The concept is simple: help20 to 30 customers servetheir customers betterMost ofthe improvement

potential is not in sales(or pricing) but in logistics

and technologyBy focusing on innovation

A STRATEGYFO RMATUREINDUSTRIES

AMAJOR CHANGE IS BREWING inthe basic materials industryin Germany. Over the past de-cade, most suppliers of basic indus-

trial products - metal, chemicals, wood,paper - have focused their strategieson cutting costs and improving qual-ity. However, faced with flatteningcost curves and virtually identicalproduct quality, leading companieshave started to take a fresh look athow best to compete. They have turnedtheir attention to their customers -and to their customers' customers.The new approach reflects a radicalchange in mentality Manufacturers ofbasic materials used to see themselvesas selling commodities by the ton tobuyers on the opposite side of the


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SERVING YOUR CUSTOMER'S CUSTOMER

and their customers. The new watchword is customer integration: viewingsupplier and customer as a single entity and working closely together in ordeto minimize transaction costs and maximize value to the next customer inthe chain. In a sense, customer integration is the process industry's smarversion of business-to-business marketing.Customer integration does not come easy. Developing a genuine partnershipwith customers takes time and resources. Yet this is precisely the reason whythe approach works so well in the basic materials industry. Most of itmanufacturers serve a limited number of large customers. By targetingperhaps 20 to 30 key customers for this new kind of close, crossfunctionacollaboration, a manufacturer can reap enormous benefits while keepingefforts at a managable level.What are the benefits?In this commoditized market, where lasting differentiation is generallythought impossible to achieve, customer integration can lead to a sustainablcompetitive advantage. Suppliers following this approach have been ableboth to boost profits and to promote innovation.One medium-sized chemical producer in Germany increased its return onsales by 5 percent in two years. It approached 20 actual and potential keycustomers and developed 20 to 30 measures for optimizing the way busineswas transacted with each one. The result: the company's total turnover rosby 20 percent.With one customer, logistics processes were completely reorgan ized: thechemical producer switched from sack to more cost-efficient silo delivery andeliminated redundant quality control on the customer's part. Sales with thacustomer went up by 50 percent. Another buyer increased its order volumby 20 percent after the producer changed a product formula to suit its needsJoint R&D projects and joint efforts topenetrate new m arkets also helpedcement the relationship between the two companies.


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SERVING YOUR CUSTOMER S CUSTOMER

another to improve the quality of its own products and to reduce waste. Thejoint efforts in penetrating new markets not only saved this customer money,but also opened up additional sales opportunities.How deep the cooperation can go and how beneficial the approach can befor both sides is illustrated by another example. An aluminum producerand its key customer completely redesigned the way they do businesstogether. Before the redesign, aluminum casting alloys were producedas ingots by the supplier. These ingots werethen transported to the customer, where they ~Z TTT. 7~. ~ 7^1 ^ - u u 1 J A ^ I. "y shi t t ing Its iocu s t ro m cu t t inghad to be me lted down agam m or de r to be . . i -.- ., . , ^. co s ts to exp loi t ing inno vat io n,proc essed into castings. . ia company can develop a^ , , , . . ^ * J . *u much m ore positive iden tityloday, the aluminum is transpo rted to the -customer in molten form in specially design-ed con tainers. The result: entire process steps have been eliminated for thesupplier as well as the buyer, and transaction costs have been axed. Sincealuminum can be kept liquid for only a short time, the two companies nowcoordinate their respective production processes very closely - the ideal basisfor a long-term trust-based partnership.Close collaboration with customers can not only improve profits, but alsodrive innovation. Searching for ways to expand its business, a small Germanproducer of sheet zinc for the building trade took a close look at potentialuser needs by talking to architects, roofers, and final customers. On the basisof these interviews, it developed a new alloy for products such as roofingsheets and d rainpipes that boasts considerable com petitive advantages. Thealloy is more durable than before and, thanks to pre-weathering, its color is aneven dark gray that will not change - unlike traditional zinc products, whichacquire a patina over time.In addition, the zinc producer introduced special services for intermediateand end customers, including information materials and videos that not onlydescribe the advantages ofthe new product but also give detailed instructionson its application. Since the launch ofthe new alloy, sales have soared and


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that will eventually translate into an attractive and distinctive corporatimage. Amid the increasingly fierce competition to lure the best talent, sucan image may turn out to be an important asset.In any attempt to realize the potential ofthe new market approach, time iof utmost importance. Only the company that moves first will be able tdefine the rules of the new game and establish a special relationship withcustomers. For others, the risk is high. Once

^ , ., ,, . competitor has moved, the strategic windowOnly the comp any that n L i .a * -11 u Ul * will b e clo^scd.moves t irs t wil l be able todef ine th e ru les of th e ne w ^ , , , _, cgam e and e s tab l is h a s pec i al ^ '" ^ ' ' ' '^^^' happened m the case of tw, - , ., , ^ G er m an com pan ies in a highly com petitivre la t ionship wi th cu s to m ers , ^. y ^^ c ^market. Several years ago, the smaller ofthtwo introduced a new way of dealing withcustomers. It invested a great deal of time and money in talking andlistening not only to potential key customers but also to the next customerin line - the end users, in this case. Detailed questionnaires were used tfind out what type of product with what kind of specification the buyerreally needed. The company then tailored its products accordingly.Within six months, market share started to climb. So the bigger competitotried the same appro ach - and failed. Why? Custom ers w ere just nointerested any more. They had already been locked in by the supplier thaacted first. Even now, years later, this supplier is still holding on to ithigh market share.Approaching a customer proactively might be prudent for another reasonIf the customer were to move first, it could opt for a totally different gameplaying suppliers off'against each other and forcing them to cut their priceand accept lower margins. While this Lopez game has clear winners andlosers, the customer integration concept aims to build real partnerships bycreating a genuine win -win situation.


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reveal that salesforces typically overrate price while underrating other keybuying factors, such as commercial and technical support, logistics, and wastedisposal. What specific product and service elements create value for theimmediate customer and for the next customer? W here are the "break points"in delivering these elements that will make the difference for the cus tomer?Steps can then be taken to develop optimum ways of satisfying customerrequirements . "Opt imum" means not just trying to be as good as the bestcompetitor, but trying to close the gap between the current level of meetingcustomer needs and the ideal level - 100 percent customer satisfaction.Order processing offers a simple exam ple. One steel supplier regularly tooktwo days to respond to customer requests . Competi tors were much faster,sending their response out within a day. Instead of merely trying to reachthis benchmark, the supplier aimed for 100 percent customer satisfaction.It reduced the number of process steps by more than half and introduced anew production planning system with an interface to the sales department.Almost all customer requests can now be answered on line, and it is evenpossible to give the exact time of delivery. Interviews conducted with buyersbeforehand had shown that such a rapid response was a real break point,since it enabled them to react much more quickly to requests from theirown customers.In a further case, insufficient coo rdina tion betw een the steel supplier andanoth er buyer sometimes led to material shortages at the latter's p lant. Withcompetitors guaranteeing delivery within 24hours , the suppl ier decided to go a step ^, , . ^ ,.,. ,. , , , V ,. . . . , . , ,, ^ The cus tomer i n t eg ra t i onfurther. It took over the responsibi l i ty tor * * u -u i, . . . , VI .. u J . c o n c e p t a i m s to bui ld reallogistics entirely. Now, a gauge at tached to * u- u.. * . , ... , , .. p a r t n e r s h i p s by c rea t i ng athe cus tomers s i lo regular ly measures the ^ . r '. 9

^ C-- * J -Tu- J * genuine win-wm situationamount ot inventory carried. This data is transmitted via modem directly to the sup-plier, which can then plan delivery accordingly. If this break point - offering


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Customer integration takes a different approach. It looks at a supplier'penetration of its core customers. The questions to be answered include: Howmany customers does the supplier serve? Which customers are the importanones, and what percentage of sales do they generate? How much is knownabout the customer's customer? What share of the relevant purchases of akey customer has the supplier managed to secure?Only this concentration on key customers will allow a supplier to invest thenecessary resources to develop true customer integration. Moreover, such afocus is in line with the tendency of many companies in the automotiveindustry and elsewhere drastically to reduce the number of their suppliers.Intensity instead of frequency of customer contact. The breadth anddepth of customer contacts indicate how intense and thus how serious acollaboration is.Breadth of customer contact. In the basic materials industries, contacbetween suppliers and custom ers have normally been limited to day-to-daybusiness such as order acceptance and delivery. Indeed, quite a few manufacturers still possess an R&D department that has never met a real customerCustom er integration entails radically expanding and intensifying customecontacts. A supplier should evaluate, among other things, how many differencontacts it has with a customer, how regular these contacts are, which levels othe organization are involved, and what subjects are covered. In companiestriving for excellent custom er care, top managem ent will visit customers onregular basis to talk about their needs face to face. Technology and quality issueare discussed in joint crossfunctional workshops held at least twice a year.Depth of customer contact. The quality of customer contacts is anotheindication ofthe extent of customer integration. Do the R&D departments oboth companies merely share information, or do they actually develop newproducts and applications together? Do supplier and customer discuss thpros and cons of delivering goods by train or truck, or do they talk aboureengineering the entire logistics process to benefit both sides?


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SERVING YOUR CUSTO MER'S CUSTOMER

Ap pealing as this appro ach is, m any su ppliers are still hesitating. On e reaso nis the mentality of technolog y-oriented basic m aterials ma nufacturers. T heyshare a deep-seated anxiety about revealing trade secrets such as materialcomposition or process improvements. This fear harks back to the days whena comp any's quality adv antag e had to be pro tected at ail costs. W hile the riskof revealing p rop rietary know ledge may still be real in so m e cases, it is oftenoverest imated.In any case, customer integration is by nature a game of give and take, withadvantag es for both p arties. O nce the seeds of partn ersh ip have been planted,strong roots will quickly grow and intertwine, making it almost impossiblefor competitors to break supplier and customer apart.

Enabling your organizationThis new way of looking at a m arket h as im porta nt co nseq uenc es for m anu -facturers. In order to reap the benefits, they must realign their organizationand processes according to m arket requ ireme nts. Traditionally, basic materialsma nufacturers have been organized along functional lines. In the most extrem ecases, production units are st i l l total ly isolated from the market , whileindep end ent wholesalers and retailers are responsible for handling marketing.Implementing the new approach will involve creating customer service teamsthat are dedicated to individual custom ers and that com prise representativesfrom sales, R& D, produ ction planning, quality assu rance, and logistics. Th eseteams can compile technical and commercialinformation on customers and generate many r^ . . .. i. , ^ . ^ * * . u C us to m er integ ra t io n is bymo re ideas to improve cus tom er con tact than ^ 5 . , ^',, , r.^ , . - na tu re a ga m e of give an d take ,would emerge Irom a m arketing perspective vi. J . c \. .\,


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Teams should hold regular workshops with individual customers, representedby their own crossfunctional teams. The goal of theseworkshops is to identifycustomer wishes, to generate and discuss ideas for improvement along thevalue chain, to monitor the implementation of ideas, and to measure thebenefits. This latter activity is vital, helping to prevent a situation where asupplier increases its complexity without adding any real value to the chainAlthough the membership of these joint teams will vary according to thecustomer and subject under discussion, intermediate and end customershould generally be included.System support is a prerequisite if customer service teams are to succeed. Amarket/customer database should systematically capture and process all theinformation needed to create transparency across the whole value chain. Ishould also incorporate customer-specific information such as terms andconditions. Team mem bers must be granted easy access to this informationA sales planning/management system should establish qualitative andquantitative sales objectives and strategies. Finally, success in implementationmust be monitored.Outlook: From customer integration to chain integration?The transcending of interfaces need not stop at the interface between supplier and buyer. Seeing the enormous benefits of customer integration, buyermight want to use the concept with their own customers too. Eventually, thinew kind of partnership might spread all the way down the value chain tothe end customer. This virtual chain integration, triggered by the supplierswould again make it possible to improve, shorten, or eliminate process stepsand thus to minimize total system costs as well as maximize value to the endcustomer. A similar development has already taken place in the automobileindustry, where it was initiated by the OEMs.Although chain integration in the basic materials industry is still a long wayoff, some companies are moving in this direction. One smelting plant foundeda joint venture with its customer, a further processing company, for thedisposal and recycling of scrap. It collects production scrap from both the


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approaches focused on individual functions, sometimes at the expense ofthewhole business. Nowadays, companies tend to organize themselves aroundcore processes, deliberately cutting across traditional functions.Customer integration could be the starting point in taking this processorientation one step further and abandoning the strict boundaries betweenthe companies that contribute to a value-adding process. Perhaps one day,competition will take place not between individual companies, but betweenvalue chains. A whole new game could be on the horizon for the entireindustry. Q


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mq 1997 2 serving your customers customer

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