Understanding the Customer and Supply Chain Uncertainty

To understand the customer, a company must identify the needs of the customer segment being served. Let us compare 7-Eleven Japan and a discounter such as Sam's Club (a part ofWal-Mart). When customers go to 7-Eleven to purchase detergent, they go there for the convenience of a nearby store and are not necessarily looking for the lowest price. In contrast, a low price is very important to a customer going to Sam's Club. This customer may be willing to tolerate less variety and even purchase very large package sizes as long as the price is low.

Even though customers purchase detergent at both places, the demand varies along certain attributes. In the case of 7-Eleven, customers are in a hurry and want convenience. In the case of Sam's Club, they want a low price and are willing to spend time getting it. In general, customer demand from different segments may vary along several attributes as follows: ?? The quantity of the product needed in each lot: An emergency order for material needed to repair a production line is likely to be small.

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An order for material to construct a new production line is likely to be large.

The response time that customers are willing to tolerate: The tolerable response time for the emergency order is likely to be short, whereas the allowable response time for the construction order is apt to be long. ?? The variety of products needed: A customer may place a high premium on the availability of all parts of an emergency repair order from a single supplier.

This may not be the case for the construction order. ?? The service level required: A customer placing an emergency order expects a high level of product availability.

This customer may go elsewhere if all parts of the order are not immediately available. This is not apt to happen in the case of the construction order where a long lead time is likely. ?? The price of the product: The customer placing the emergency order is apt to be much less sensitive to price than the customer placing the construction order. ?? The desired rate of innovation in the product: Customers at a high-end department store expect a lot of innovation and new designs in the store's apparel.

Customers at Wal-Mart may be less sensitive to new product innovation. Each customer in a particular segment will tend to have similar needs, whereas customers in a different segment can have very different needs. Although we have described the many attributes along which customer demand varies, our goal is to identify one key measure for combining all of these attributes. This single measure then helps define what the supply chain should do particularly well.