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By Louis Columbus

In the face of economic uncertainty, the inherently unquantifiable areas of a company get a higher level of attention than ever before. The center of attention for many companies today is the integration of marketing strategies and programs to supply chain planning, management and optimization. The extent to which marketing and supply chain management teams are synchronizing their plans together is directly proportional to the ROI both attain together to create a customer-driven supply chain. This has to go beyond collaborative forecasting, planning and replenishment (CPFR) and encompass supply chain management as part of the new product development and introduction (NPDI) process. Companies taking this approach must define dashboards and scorecards that go beyond just measuring their own activity and contributions. To drive the greatest value, companies must instead focus on measuring the accuracy, speed and permanency of change they bring to each other through collaboration.

The Perfect Order as a Barometer of Customer Expectations

The Perfect Order Index (POI) is one metric that captures the effects of collaboration on supply chain execution and fulfillment. What's needed are links to the four main components of the POI that measure how effective demand generation strategies in general — and marketing specifically — are in ensuring on-time, complete, damage-free orders that have been accurately invoiced. At first glance many would argue that the four metrics that comprise the POI — (on-time delivery percentage) x (percentage of orders shipped complete) x (damage-free order percentage) x (accurate invoicing) — are only relevant within supply chains.

Figure 1: Defining the Perfect Order Index

In fact, all forms of demand generation strategies have a direct effect on these measures, because the initial market direction and expectations created by a company through its marketing and selling strategies define, in customers' minds, the minimum level of performance of each of these measures. Perceptions don't lend themselves well to the metrics that drive POI calculations, yet they are just as, if not more, powerful. Consider the launch of the Apple iPhone to see how the perception of perfect order performance affects the calculation of the POI for a new product that relies on a significantly different supply chain. Apple and its intensely loyal customer base have very high expectations that any new product will be intuitively designed, cool in ergonomics and navigation, and, most of all, integrated. Apple has also created the expectation over the years of having their products come out of the box and work immediately. All these factors together set the POI bar very high for Apple, and having demand generation be an integral part of supply chain planning, management and fulfillment was critical for the launch of the product.

Customers don't think in terms of POI scores, but, given the chance, they definitely can quantify their expectations of a company's performance. At the intersection of customer expectations, demand generation strategies that create expectations, and supply chains and fulfillment delivering on them, is the customer's perception of performance. Demand generation, supply chain performance, fulfillment and customers' expectations all are interlinked. Given the pervasive adoption of Web 2.0 technologies, it's possible to overlap POI data on a per product basis to customers' attitudinal scores, creating a barometer of how effectively a company is meeting or exceeding their customers' expectations. In the vernacular of Web 2.0, this would be called a "mash-up," combining structured financial data with unstructured attitudinal data captured through surveys or through comments from customers analyzed through text mining, for example. Forward-thinking companies could actually "trend line" this and see the effects of bringing supply chain planning, management and fulfillment into the new product development and introduction (NPDI) process over time. The goal of having a metric for the impact of collaboration and synchronization between demand generation strategies and supply chain performance would be achieved. Taking this one step further, publishing these measures of performance for customers to see would bring entirely new levels of accountability and collaboration into any company's daily culture and no doubt bring collaborative efforts to the forefront of any project.

Driving Up Lifetime Customer Value in Tough Economic Times

The saying "no one ever cost-reduced their way to market leadership" takes on an entirely new meaning given the current economic uncertainty, which has led many companies to cut back on investments in integrating demand generation and supply chains, production and fulfillment with each other. Arguably, the level of sales a company attains is driven by the continual meeting and exceeding of customers' expectations, and so it is essential that supply chain and demand generation continue to be synchronized for a company to continue growing. As customers' expectations are the future of any company, it's critical to keep demand generation and supply chain, production and fulfillment integrated together.

It's extremely difficult, however, for companies in the middle of tough economic times to look at becoming demand-driven or, once committed to this strategy, to remain on the path to its fulfillment. Measuring the total cost of ownership (TCO) for supply chains that don't invest in becoming demand-driven is like only measuring half the factors that go into calculating perfect order performance. It simply does not make sense and is short-term in result. Cost-reduce any series of systems and processes long enough and there will be a positive ROI and low TCO, yet the far greater and quantifiable gains of exceeding customers' expectations through exceptional performance have a far greater financial impact. When the ability to consistently meet or exceed customers' expectations are taken into account as part of perfect order performance, the ROI and TCO of demand-driven supply chains shift from cost reduction to top-line revenue growth. Instead of worrying about the pennies saved by not connecting one process or system to another, the concern needs to be how to bring in more dollars using demand generation and fueling new business growth.