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The Customer Driven Supply Chain Concept

Posted by: Laura Morroll

It’s clear that, in order to be successful in this constantly evolving environment, retailers need to understand their customers deeply and put customer needs right at the heart of their proposition.

Winning retailers are going one step further than this: they are integrating and shaping their supply chain to service customers’ needs profitably.

It’s no longer simply a case of supporting online sales and home delivery in spite of their eroding margins compared to in-store sales. Leading retailers are doing much more – they’re further striving to adapt their operating models to engineer out costs.

Integrating delivers tangible benefits

The supporting evidence for doing this is compelling. Retailers who identify as having fully integrated their business and supply chain are not only delivering improved service and customer satisfaction but are realising tangible, bottom-line business benefits such as reduced stockholding and improved availability.

We have identified a number of Pioneers who are taking the time to truly understand their customer (despite the shifting goalposts of expectations) and integrate their business to deliver their proposition effectively and profitably. We believe these businesses will continue to win, and they’ll win on multiple levels – as delighting the customer has been directly linked with driving profitability.

This theme is true across markets and geographies, and our survey showed that both US (75% of respondents) and UK (78%) retailers now believe that the most successful and profitable businesses are placing the customer at the heart of their business decision making processes.

Retail Framework

The LCP business and operational framework helps retailers re-engineer their business processes, capabilities, and systems to develop the Customer Driven Supply Chain.

Bolting-on capability erodes omni optimisation

Today, most retailers still operate legacy supply chains that are optimised for store replenishment.

Over time, capability has been bolted on to enable online fulfilment, but relatively few have restructured to enable true omnichannel back end operations that can efficiently service the needs of the customer in this environment.

This legacy often also extends to systems, data and information, and additionally to staying tied to historical approaches for measuring and managing business performance. The result? Few retailers have current and deep visibility of their true channel economics.

This is concerning, given that the trend in sales moving away from store towards omnichannel brings with it an inevitable margin erosion – as the cost of servicing an online customer for home delivery is higher than that to service a store customer.

The LCP business and operational framework helps retailers re-engineer their business processes, capabilities, and systems to develop the Customer Driven Supply Chain.

Retailer Attitudes 2016

Re-engineer business process to win

Most retailers have accepted that they have to adopt the service demands of the customer in order to survive, but doing this profitably is a challenge. The winning archetypes in this year’s survey are recognising that it is not just about changing the business to service the needs of the customer, but re-engineering their business processes and systems to service the customer in a sustainable and profitable way. This is the customer driven supply chain.

"Responding to ever increasing customer service expectations doesn’t have to mean increased costs and reduced profitability. Those retailers who adopt the Customer Driven Supply Chain concept are driving service and loyalty whilst at the same time reducing complexity and cost."

Stuart Higgins, Director - Retail, LCP Consulting

Delighting the customer to improve profitability

An impressive 77% of respondents agree the most successful businesses focus on delighting the customer first to drive profitability. But delighting the customer is no mean feat and many retailers who over-promised in their offer have under-delivered in execution.

Others who invested in the glossy front end have found the back end operational workarounds to be unsustainable. For the winners, the principles of the customer driven supply chain are simple:

  1. Understand the needs of your customer and position your business to service those needs.
  2. Focus on enhancing customer service to drive sales.
  3. Don’t add in unnecessary cost by over-delivering against your customer needs.
  4. Integrate the business end-to-end in order to satisfy the needs of the customer and root out and remove inefficiency.

In our experience, adhering to these principles pays off in many ways; integration leads to improved agility, lower operating costs and a higher net margin; we have observed a 3-5 margin point improvement.

The future

The world is going to keep changing and retailers must remain agile, optimising their end-to-end supply chains to deliver their customer proposition profitably. Given the ongoing changes that continue to have an impact on the sector, the question is no longer whether retailers know they need to put customers first and align their business operating model accordingly. It’s whether they have the capacity and motivation to change their business operating model and shape their supply chain to service their clients’ needs profitably.


Contact Stuart and Laura to find out how LCP can help you

Download the full 2017 Retail Report


Customer expectations have been evolving at a rapid pace and you must keep up with these changes. It is important for retailers to genuinely understand their customer expectations, or the customers they are trying to capture. At FatFace, we are just as interested in the 85% who don’t buy from us.

Simon Ratcliffe, Infrastructure Director, Fatface







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