DELIVERING SOLUTIONS

History indicates that delivering innovative solutions provides a critical foundation for growth out of a economic disruption. Developing solutions to differentiate a firm’s goods begins with working with customers to create better insight to solve the customer’s challenges.

By David J. Closs

Michigan State University and LQ Executive Editor

A review of my LQ comments over the past couple of years reminded me that while I have mentioned this topic in numerous previous editorials, I had not specifically addressed it.  This is at the same time that the topic is consuming more time as more practitioners and academics are realizing the cross-functional role that supply chain management must play in enhancing the efficiency and effectiveness of commercial and public sector organizations. 

The specific topic concerns the steady shift from focusing primarily on the delivery of goods, to the delivery of solutions.  Historically, supply chain management has focused on the acquisition, value-added processing, storage, and delivery of goods, including food, appliances, clothing, and other supplies.  This caused many of the industry’s educational and training efforts to focus on the movement of goods.  Specifically, the examples in our training rooms and materials emphasize the processes relevant for procurement of raw material commodities, manufacturing processes dedicated to achieving economies of scale, followed by the ultimate delivery of the goods, again trying to take advantage of the economies of scale.  The result of this focus is a supply chain system that delivers goods to customers both domestically and globally for a declining percentage of the consumer dollar. 

However, the downside of such a system is that the goods themselves have increasingly become commodities.  Specifically, while branding is still important, the increase of store brands has reduced the value of national brands in the eyes of the consumer.  The consumer now has many choices for food, clothing, electronics, medical supplies, and most other goods, so it is increasingly difficult for firms to compete just on the availability of goods themselves.  This is even truer in an economy where demand is relatively flat.

In an environment where firms are seeking to enhance or at least maintain revenue, firms are looking for ways to differentiate their goods.  One way that firms are developing this differentiation is by extending their offering to be more solution- rather than just product-focused.  Marketers made this transition long ago, as there are numerous courses and materials that discuss services marketing.  However, the implications regarding delivering solutions are not as well developed for supply chain managers. The remainder of this discussion characterizes the concept of delivering solutions, and then discusses some of the implications for supply chain managers.

Delivering a solution for a customer extends beyond just getting the product to the location where it is needed, to include having the expertise to install and use the product, removing packaging and product being replaced, working with the customer to provide better insight regarding how the firm’s offering can be used to solve the customer’s challenges, and what changes in the solution might be useful to better meet future customer requirements.  Providing a solution requires that supply chain managers must evaluate the customer delivery process from a much broader perspective and design processes that effectively deliver an integrated solution.  For supply chain managers, this shift toward a solution perspective has a number of implications.

First, supply chain managers must understand their relative role in the delivery of solutions as well as the delivery of goods.  Solution delivery often requires significantly more expertise, scheduling, and customization.  While it is often difficult to coordinate the material and value-added flow to make sure that the goods arrive on time, it is even more difficult to make sure that the appropriate expertise is also available.  This is particularly true when expertise is often the most constrained resource when a firm is attempting to deliver a solution.  This expertise may be in the form of installation, training, application or maintenance.  In some cases, the customer may be satisfied with the delivery of the product alone, but in an increasing number of cases, the solution delivery is more demanding and often becomes the greater challenge.

Second, a solution perspective opens many opportunities for supply chain management to work with other functions and organizations to design and deliver desirable solutions.  With the traditional focus on goods value-add and delivery, the scope of supply chain remained within the functional areas of procurement, production, and logistics.  However, solution delivery requires a much broader perspective incorporating much stronger considerations from marketing, innovation, packaging and terms of sale, as well as social trends.  While this shift can open up many opportunities, it also challenges supply chain management to identify and evaluate a broader set of trade-offs.

Third, a solution perspective requires an extended set of performance measures.  The measures must be much broader than just fill rates and arrival times.  Measures such as the time to get the solution installed, total resource (expertise and asset) utilization, and ability to deliver a solution become the critical measures.

Since 1890, there have been six major economic disruptions in North America.  A review of business history investigating these disruptions suggests some common themes that firms should use to survive to the next boom.  While the complete list will be the subject of a future editorial, one common characteristic of successful firms is the shift toward designing and delivering innovative solutions.  History indicates that delivering innovative solutions provides a critical foundation for growth out of an economic disruption.  While cost reduction initiatives should not be ignored in the current environment, history suggests that the differential focus is to enhance revenue by delivering solutions.