Executive Briefings

Using Supply-Chain Excellence to Build Brand Reputation

Brand awareness isn't just about product quality and saturation advertising. A smoothly functioning supply chain is a crucial element in winning customer loyalty.

That's in a brand? The obvious things, to be sure: product quality, reliability, customer awareness. But when it comes to crafting successful brands, the first real test comes at point of purchase. And that's a function of the supply chain.

For many companies, there is still a disconnect between marketing and core supply-chain processes. Too few executives realize how the everyday grind of getting product to market and on the shelves impacts brand awareness. "The buying experience is the first moment of truth in most customer relationships," says Bret Kinsella, a director in the consumer and transportation practice of Sapient Corp. in Cambridge, Mass.

Users of a superior brand take it for granted that product will always be available. Wal-Mart Stores is best known for its low prices, but the retailer's success is equally the result of a deep aversion to stockouts. Daily store deliveries might seem inefficient, but they have largely eliminated the concept of the rain check at Wal-Mart, says Bob Belshaw, chief operating officer of Insight Inc. in Manassas, Va.

Wal-Mart's brand protection extends far up the distribution chain. It was a pioneer of cross-docking, where standing inventories are kept to a minimum and product is rushed through warehouses to retail shelves. Suppliers are held to precise delivery windows in order to maintain tight coordination between inbound and outbound. "It takes all that to make a cross-dock work well," says Bill McBeath, chief research officer of ChainLink Research in Cambridge, Mass. At the same time, Wal-Mart shares point-of-sale data with its suppliers and expects them to make use of it, by way of accurate forecasting and rapid replenishment.

The program benefits Wal-Mart internally, by slashing inventory cost and stripping out distribution inefficiencies. But it also ensures that product is always available to be purchased at the retailer's legendary low prices. Companies can devise brilliant marketing and promotional campaigns in support of their brands, says Belshaw, but if the goods aren't available, "it tarnishes everything."

Kmart Corp. learned the hard way. The troubled retailer had built a strategy around circulars, highlighting sale items. Too often, however, the goods were out of stock when shoppers came looking for them. After awhile, says Kinsella, customers started ignoring the circulars altogether.

"Branding is a promise to add value to a customer," he says. "One of the biggest risks you have is to make a promise that you can't fulfill."

The quest for the perfect order, one that's accurate, on time and damage-free, is at heart a means of protecting the brand. In many cases, says Belshaw, it's the secret to avoiding commoditization. Nothing is more basic than water, but one of the world's largest sellers of premium spring water has sustained its position with retailers and consumers through an efficient supply chain. "It allows the retailer to position product properly," says Belshaw. "And it keeps reinforcing the value of the brand."

Such efforts are becoming even more critical with the rise of private brands. According to ChainLink, sales of store-branded goods rose 8.6 percent over the last two years, versus 1.5 percent for national brands. Today, low-cost private brands account for 20 percent of U.S. retail sales, and 40 percent in Europe. "Manufacturers are going to have to really hustle if they want to avoid the dismal fate of becoming merely marginless contract manufacturers for the retailers," McBeath says in a recent paper.

Even as they undercut their suppliers with private brands, retailers place high value on traditional brand identity. In a recent ChainLink survey, they named brand strength and supply-chain execution as the second- and third-most important factors in choosing manufacturers as category managers. And one could argue that the top criterion, trust in the relationship, is at least partly the result of supply-chain excellence as well.

Fashionably Flexible
Branding is equally important in the fashion industry, where fast-changing trends demand a flexible supply chain. McBeath cites the Hot Topic chain, which caters to fickle teenagers. To ensure that it has the latest fashions, the company sources much of its product locally. The resultant higher cost is offset by less obsolete merchandise when a particular trend cools. And it means that Hot Topic can get new items into stores faster than the competition.

The buying experience includes good product packaging and customer help, says Kinsella. The best packaging - supported by a supply chain that coordinates the movement of all materials - will make a product easy to find on the shelf, and contain vital information such as caloric content for food, and operating-system requirements for software. In the business-to-business world, companies might offer personalized expert consultation on choosing the right product. Staples, Inc. has trained staff who can talk through the features of various items, Kinsella says. Similar brand-promoting services are available for sales over the internet.

Even product design and development has its roots in the supply chain. In the automotive and high-tech industries, product engineering is increasingly dispersed among multiple partners, many of them independent of the original manufacturer. That calls for an unprecedented level of collaboration. "So the quality of product is largely determined by your supply chain," says McBeath.

The same goes for after-sales service, where tightly linked processes can speed up repair or replacement of defective parts, and cement customer loyalty to the brand. W.W. Grainger, Inc., the big distributor of industrial products, expanded from three to a dozen distribution centers, boosting inventory levels and logistics in the process, in order to respond more quickly to customer calls for service parts.

Procurement Opportunities
Most brand-support programs are in areas visible to the customer, but opportunities exist on the procurement end as well. Pharmaceutical companies seek better relationships with vendors, to improve product-development cycles and trigger downstream efficiencies, says Min Chang, a partner in the supply-chain practice of Accenture in Philadelphia, Pa. The effort creates a ripple effect through multiple channels, including wholesale and direct shipment to pharmacies as well as end users. When it comes to brand identity, says Chang, all are of equal importance.

Accenture has defined six steps for creating a "high-performance business," the first of which is to incorporate the supply chain into the overall business strategy. That means bringing supply-chain managers together with representatives of sales and marketing, human resources, and other traditional "silos." Other steps include development of an end-to-end operating model, outsourcing where appropriate, tight linkages with trading partners, leading-edge practices and technologies, and the effective use of metrics.

Two of those steps raise important issues of brand maintenance. Outsourcing may help an organization to focus on its core competencies, but it also places the brand's reputation partly in the hands of outsiders, Chang acknowledges. Companies must therefore keep a close watch on outsourcing partners. And, in the area of metrics, managers might rely too heavily on indicators of internal performance, such as inventory levels and cost savings. Chang urges the adoption of metrics that are visible to the customer, such as on-time delivery and overall customer satisfaction.

Speed and flexibility are the hallmarks of any company with a strong brand. Both were targets of Dallas-based Siemens Subscriber Networks Inc. (SSN), when it sought to overhaul a sick supply chain. Formerly known as Efficient Networks, Inc., the seller of telecommunications equipment was burdened with excess inventory and other supply-chain inefficiencies (see "Brash High-Tech Start-up Matures Into a Profitable Unit of Siemens," GL&SCS, Sept. 2003). Just as important, however, was the need to polish the brand, especially with the acquisition of Efficient by Siemens AG. So SSN launched two customer-focused projects: postponement, through which it could customize product with software installations at the last possible moment, and direct shipment to end-users, bypassing the warehouses of its telecom customers.

The first effort created what some observers call "mass-market scalability," or the large-scale tailoring of product to customers' unique needs. The second eliminated multiple steps of the distribution process, including the receipt, storage, pick/pack and shipment of product by SSN's customers to its end subscribers. The company ended up removing a huge inventory burden from its customers' shoulders, says vice president Craig Clark. And it was able to respond to orders in as little as 24 hours.

To make it all work, SSN outsourced its fulfillment and logistics activities to Redwood City, Calif.-based Menlo Worldwide Logistics. John Beckett, Menlo's vice president of operations, compares the linkage between supply chains and brand success to a delicatessen, where sandwiches are customized out of the same basic materials. Postponement allows a generic product to be quickly modified to meet true customer needs, he says. The alternative is to carry high stocks of finished goods, in hopes of having every possible configuration on hand. What actually happens, says Beckett, is that the company ends up with too much inventory of the wrong type of product. "And the customer goes away unsatisfied."

Menlo had previously undertaken a postponement service for printers sold by Hewlett-Packard Co., which pioneered the concept in the high-tech sector. HP shipped basic printers to a distribution center, where they were equipped with suitable power supplies, manuals and other region-specific features. In the process, the company created the world's premier brand for home and office printers.

A New Philosophy
The most often-cited example of supply-chain efficiency - and one of high-tech's strongest brands - is Dell Computer. The company has perfected the practice of customizing phone and internet orders for its personal computers, then assembling and shipping within days. Dan Stimson, director of marketing with SAP AG, calls the Dell model a prime example of how supply chains and brands are inextricably linked. Yet for most companies, such a step requires a whole new philosophy of doing business.

On the retail side, Stimson says, companies must acknowledge two "moments of truth": customers using the product, and buying it. The latter must be supported by a steady supply of product. Yet 6 percent to 12 percent of retail goods are out of stock at any given moment, and the number rises to 20 percent during promotions.

Trade promotions management is especially difficult, given that manufacturers and retailers can't rely on historical data to gauge demand. They must have in place a supply chain that is flexible enough to sustain the sales spikes that are typical of major promotions.

One key to ensuring in-stocks, Stimson says, lies in close monitoring of goods all the way to the shelf. Poor performers may forsake responsibility after shipment to a retail distribution center, "assuming that is the KPI [key performance indicator]." Instead, they should be monitoring shelf stocks on a regular basis, even hourly, to gauge the need for replenishment. And for that, they need point-of-sale data, something not every retailer can easily provide, Wal-Mart notwithstanding.

Solutions come in two areas, planning and technology. In the first, Stimson says, retailers must share up-to-the-minute sales data with suppliers. Only then can they keep shelves fully stocked, and craft accurate forecasts. In the second, a panoply of new systems and techniques, including radio-frequency identification (RFID) and collaborative planning, forecasting and replenishment (CPFR) exist to help companies push for brand excellence through efficient supply chains.

Efforts to boost responsiveness reach back up the supply chain to manufacturing, where lean or adaptive principles allow a company to change product runs according to actual need, says Richard Howells, SAP's director of solutions marketing for supply-chain management. The technique also lets manufacturers turn out a greater variety of product, a vital skill in the age of SKU proliferation and mass customization.

The Total Experience
But brand awareness in retail is about more than just having product on hand. Mike Giandinetti, senior vice president and chief marketing officer of Yantra Corp. in Tewksbury, Mass., talks of creating an overall "rewarding experience" for shoppers.

Best Buy Co., Inc., the consumer electronics retailer and a user of Yantra's software, is a prime example. Its goal, says Giandinetti, "is to make it as easy as possible for customers to do business with them." Once again, the supply chain becomes a key player. During Super Bowl season, Best Buy must have enough product and support to deliver and install large-format plasma screens. For all its products, the retailer offers a variety of means, including the internet, in-store kiosks and a call center-to determine whether it can fill an order, then deliver within the specified span of time.

The whole experience "determines whether the customer ever goes back to Best Buy," says Giandinetti. Yet most aspects of the process, including delivery and installation, are outsourced. That creates a significant challenge for the retailer, which must oversee a team of providers who, from the customer's point of view, are as much a part of Best Buy as any store clerk.

A similar situation exists at Sears, Roebuck & Co., which has long outsourced the delivery of large appliances. But customers today have higher expectations of service, says Steve Gundlach, general manager of fast-moving consumer goods with TNT Logistics North America in Indianapolis, Ind. Few will tolerate imprecise estimates of delivery, or vendors that require them to wait at home for half a day to receive their goods.

Visibility is all-important, Gundlach says. Like Best Buy, Sears offers order-status information over the internet. Customers can call the evening before a scheduled delivery to receive a two-hour window within which the truck will show up. And they can call anytime during the day of delivery to learn where the truck is.

TNT, which arranges for labor and equipment to carry out deliveries on Sears's behalf, is in constant contact both with the retailer and the independent operators with whom it contracts to make the actual delivery. Again, the multiple levels of service providers makes for a daunting task. TNT coordinates the whole process, including driver recruitment, uniforms, vehicle inspection, training on installation, and reverse logistics for the disposal of old appliances. (TNT also performs cross-docking and limited stocking for some of Sears's high-volume items.) But as far as the end-customer is concerned, it's all one brand. If any partner in the chain makes a mistake, Sears takes the hit.

The system demands constant monitoring. TNT maintains a series of KPIs, including cost-effectiveness and miles per stop for each delivery. But it also goes beyond internal measurements. Followup surveys, usually conducted by phone with a select number of buyers, help Sears to learn whether it's doing a good job, and garnering customer loyalty for future purchases.

Outsourcing can be a vital part of any supply chain, especially one designed to boost brand identity. But the more partners that are involved, the more vigilant they must be. Beckett speaks of a "cascading effect" that results from mistakes by one or more participants in the chain.

"It's fairly black and white," he says. "The supply chain either executes or it doesn't. If it doesn't, you're not competitive."

That's in a brand? The obvious things, to be sure: product quality, reliability, customer awareness. But when it comes to crafting successful brands, the first real test comes at point of purchase. And that's a function of the supply chain.

For many companies, there is still a disconnect between marketing and core supply-chain processes. Too few executives realize how the everyday grind of getting product to market and on the shelves impacts brand awareness. "The buying experience is the first moment of truth in most customer relationships," says Bret Kinsella, a director in the consumer and transportation practice of Sapient Corp. in Cambridge, Mass.

Users of a superior brand take it for granted that product will always be available. Wal-Mart Stores is best known for its low prices, but the retailer's success is equally the result of a deep aversion to stockouts. Daily store deliveries might seem inefficient, but they have largely eliminated the concept of the rain check at Wal-Mart, says Bob Belshaw, chief operating officer of Insight Inc. in Manassas, Va.

Wal-Mart's brand protection extends far up the distribution chain. It was a pioneer of cross-docking, where standing inventories are kept to a minimum and product is rushed through warehouses to retail shelves. Suppliers are held to precise delivery windows in order to maintain tight coordination between inbound and outbound. "It takes all that to make a cross-dock work well," says Bill McBeath, chief research officer of ChainLink Research in Cambridge, Mass. At the same time, Wal-Mart shares point-of-sale data with its suppliers and expects them to make use of it, by way of accurate forecasting and rapid replenishment.

The program benefits Wal-Mart internally, by slashing inventory cost and stripping out distribution inefficiencies. But it also ensures that product is always available to be purchased at the retailer's legendary low prices. Companies can devise brilliant marketing and promotional campaigns in support of their brands, says Belshaw, but if the goods aren't available, "it tarnishes everything."

Kmart Corp. learned the hard way. The troubled retailer had built a strategy around circulars, highlighting sale items. Too often, however, the goods were out of stock when shoppers came looking for them. After awhile, says Kinsella, customers started ignoring the circulars altogether.

"Branding is a promise to add value to a customer," he says. "One of the biggest risks you have is to make a promise that you can't fulfill."

The quest for the perfect order, one that's accurate, on time and damage-free, is at heart a means of protecting the brand. In many cases, says Belshaw, it's the secret to avoiding commoditization. Nothing is more basic than water, but one of the world's largest sellers of premium spring water has sustained its position with retailers and consumers through an efficient supply chain. "It allows the retailer to position product properly," says Belshaw. "And it keeps reinforcing the value of the brand."

Such efforts are becoming even more critical with the rise of private brands. According to ChainLink, sales of store-branded goods rose 8.6 percent over the last two years, versus 1.5 percent for national brands. Today, low-cost private brands account for 20 percent of U.S. retail sales, and 40 percent in Europe. "Manufacturers are going to have to really hustle if they want to avoid the dismal fate of becoming merely marginless contract manufacturers for the retailers," McBeath says in a recent paper.

Even as they undercut their suppliers with private brands, retailers place high value on traditional brand identity. In a recent ChainLink survey, they named brand strength and supply-chain execution as the second- and third-most important factors in choosing manufacturers as category managers. And one could argue that the top criterion, trust in the relationship, is at least partly the result of supply-chain excellence as well.

Fashionably Flexible
Branding is equally important in the fashion industry, where fast-changing trends demand a flexible supply chain. McBeath cites the Hot Topic chain, which caters to fickle teenagers. To ensure that it has the latest fashions, the company sources much of its product locally. The resultant higher cost is offset by less obsolete merchandise when a particular trend cools. And it means that Hot Topic can get new items into stores faster than the competition.

The buying experience includes good product packaging and customer help, says Kinsella. The best packaging - supported by a supply chain that coordinates the movement of all materials - will make a product easy to find on the shelf, and contain vital information such as caloric content for food, and operating-system requirements for software. In the business-to-business world, companies might offer personalized expert consultation on choosing the right product. Staples, Inc. has trained staff who can talk through the features of various items, Kinsella says. Similar brand-promoting services are available for sales over the internet.

Even product design and development has its roots in the supply chain. In the automotive and high-tech industries, product engineering is increasingly dispersed among multiple partners, many of them independent of the original manufacturer. That calls for an unprecedented level of collaboration. "So the quality of product is largely determined by your supply chain," says McBeath.

The same goes for after-sales service, where tightly linked processes can speed up repair or replacement of defective parts, and cement customer loyalty to the brand. W.W. Grainger, Inc., the big distributor of industrial products, expanded from three to a dozen distribution centers, boosting inventory levels and logistics in the process, in order to respond more quickly to customer calls for service parts.

Procurement Opportunities
Most brand-support programs are in areas visible to the customer, but opportunities exist on the procurement end as well. Pharmaceutical companies seek better relationships with vendors, to improve product-development cycles and trigger downstream efficiencies, says Min Chang, a partner in the supply-chain practice of Accenture in Philadelphia, Pa. The effort creates a ripple effect through multiple channels, including wholesale and direct shipment to pharmacies as well as end users. When it comes to brand identity, says Chang, all are of equal importance.

Accenture has defined six steps for creating a "high-performance business," the first of which is to incorporate the supply chain into the overall business strategy. That means bringing supply-chain managers together with representatives of sales and marketing, human resources, and other traditional "silos." Other steps include development of an end-to-end operating model, outsourcing where appropriate, tight linkages with trading partners, leading-edge practices and technologies, and the effective use of metrics.

Two of those steps raise important issues of brand maintenance. Outsourcing may help an organization to focus on its core competencies, but it also places the brand's reputation partly in the hands of outsiders, Chang acknowledges. Companies must therefore keep a close watch on outsourcing partners. And, in the area of metrics, managers might rely too heavily on indicators of internal performance, such as inventory levels and cost savings. Chang urges the adoption of metrics that are visible to the customer, such as on-time delivery and overall customer satisfaction.

Speed and flexibility are the hallmarks of any company with a strong brand. Both were targets of Dallas-based Siemens Subscriber Networks Inc. (SSN), when it sought to overhaul a sick supply chain. Formerly known as Efficient Networks, Inc., the seller of telecommunications equipment was burdened with excess inventory and other supply-chain inefficiencies (see "Brash High-Tech Start-up Matures Into a Profitable Unit of Siemens," GL&SCS, Sept. 2003). Just as important, however, was the need to polish the brand, especially with the acquisition of Efficient by Siemens AG. So SSN launched two customer-focused projects: postponement, through which it could customize product with software installations at the last possible moment, and direct shipment to end-users, bypassing the warehouses of its telecom customers.

The first effort created what some observers call "mass-market scalability," or the large-scale tailoring of product to customers' unique needs. The second eliminated multiple steps of the distribution process, including the receipt, storage, pick/pack and shipment of product by SSN's customers to its end subscribers. The company ended up removing a huge inventory burden from its customers' shoulders, says vice president Craig Clark. And it was able to respond to orders in as little as 24 hours.

To make it all work, SSN outsourced its fulfillment and logistics activities to Redwood City, Calif.-based Menlo Worldwide Logistics. John Beckett, Menlo's vice president of operations, compares the linkage between supply chains and brand success to a delicatessen, where sandwiches are customized out of the same basic materials. Postponement allows a generic product to be quickly modified to meet true customer needs, he says. The alternative is to carry high stocks of finished goods, in hopes of having every possible configuration on hand. What actually happens, says Beckett, is that the company ends up with too much inventory of the wrong type of product. "And the customer goes away unsatisfied."

Menlo had previously undertaken a postponement service for printers sold by Hewlett-Packard Co., which pioneered the concept in the high-tech sector. HP shipped basic printers to a distribution center, where they were equipped with suitable power supplies, manuals and other region-specific features. In the process, the company created the world's premier brand for home and office printers.

A New Philosophy
The most often-cited example of supply-chain efficiency - and one of high-tech's strongest brands - is Dell Computer. The company has perfected the practice of customizing phone and internet orders for its personal computers, then assembling and shipping within days. Dan Stimson, director of marketing with SAP AG, calls the Dell model a prime example of how supply chains and brands are inextricably linked. Yet for most companies, such a step requires a whole new philosophy of doing business.

On the retail side, Stimson says, companies must acknowledge two "moments of truth": customers using the product, and buying it. The latter must be supported by a steady supply of product. Yet 6 percent to 12 percent of retail goods are out of stock at any given moment, and the number rises to 20 percent during promotions.

Trade promotions management is especially difficult, given that manufacturers and retailers can't rely on historical data to gauge demand. They must have in place a supply chain that is flexible enough to sustain the sales spikes that are typical of major promotions.

One key to ensuring in-stocks, Stimson says, lies in close monitoring of goods all the way to the shelf. Poor performers may forsake responsibility after shipment to a retail distribution center, "assuming that is the KPI [key performance indicator]." Instead, they should be monitoring shelf stocks on a regular basis, even hourly, to gauge the need for replenishment. And for that, they need point-of-sale data, something not every retailer can easily provide, Wal-Mart notwithstanding.

Solutions come in two areas, planning and technology. In the first, Stimson says, retailers must share up-to-the-minute sales data with suppliers. Only then can they keep shelves fully stocked, and craft accurate forecasts. In the second, a panoply of new systems and techniques, including radio-frequency identification (RFID) and collaborative planning, forecasting and replenishment (CPFR) exist to help companies push for brand excellence through efficient supply chains.

Efforts to boost responsiveness reach back up the supply chain to manufacturing, where lean or adaptive principles allow a company to change product runs according to actual need, says Richard Howells, SAP's director of solutions marketing for supply-chain management. The technique also lets manufacturers turn out a greater variety of product, a vital skill in the age of SKU proliferation and mass customization.

The Total Experience
But brand awareness in retail is about more than just having product on hand. Mike Giandinetti, senior vice president and chief marketing officer of Yantra Corp. in Tewksbury, Mass., talks of creating an overall "rewarding experience" for shoppers.

Best Buy Co., Inc., the consumer electronics retailer and a user of Yantra's software, is a prime example. Its goal, says Giandinetti, "is to make it as easy as possible for customers to do business with them." Once again, the supply chain becomes a key player. During Super Bowl season, Best Buy must have enough product and support to deliver and install large-format plasma screens. For all its products, the retailer offers a variety of means, including the internet, in-store kiosks and a call center-to determine whether it can fill an order, then deliver within the specified span of time.

The whole experience "determines whether the customer ever goes back to Best Buy," says Giandinetti. Yet most aspects of the process, including delivery and installation, are outsourced. That creates a significant challenge for the retailer, which must oversee a team of providers who, from the customer's point of view, are as much a part of Best Buy as any store clerk.

A similar situation exists at Sears, Roebuck & Co., which has long outsourced the delivery of large appliances. But customers today have higher expectations of service, says Steve Gundlach, general manager of fast-moving consumer goods with TNT Logistics North America in Indianapolis, Ind. Few will tolerate imprecise estimates of delivery, or vendors that require them to wait at home for half a day to receive their goods.

Visibility is all-important, Gundlach says. Like Best Buy, Sears offers order-status information over the internet. Customers can call the evening before a scheduled delivery to receive a two-hour window within which the truck will show up. And they can call anytime during the day of delivery to learn where the truck is.

TNT, which arranges for labor and equipment to carry out deliveries on Sears's behalf, is in constant contact both with the retailer and the independent operators with whom it contracts to make the actual delivery. Again, the multiple levels of service providers makes for a daunting task. TNT coordinates the whole process, including driver recruitment, uniforms, vehicle inspection, training on installation, and reverse logistics for the disposal of old appliances. (TNT also performs cross-docking and limited stocking for some of Sears's high-volume items.) But as far as the end-customer is concerned, it's all one brand. If any partner in the chain makes a mistake, Sears takes the hit.

The system demands constant monitoring. TNT maintains a series of KPIs, including cost-effectiveness and miles per stop for each delivery. But it also goes beyond internal measurements. Followup surveys, usually conducted by phone with a select number of buyers, help Sears to learn whether it's doing a good job, and garnering customer loyalty for future purchases.

Outsourcing can be a vital part of any supply chain, especially one designed to boost brand identity. But the more partners that are involved, the more vigilant they must be. Beckett speaks of a "cascading effect" that results from mistakes by one or more participants in the chain.

"It's fairly black and white," he says. "The supply chain either executes or it doesn't. If it doesn't, you're not competitive."