In today’s fast-paced and competitive business environment, the ability to predict market trends and anticipate consumer demands is the key to success.
Demand forecasting is an integral part of the procurement process. It’s becoming increasingly important that you take customer expectations into consideration.
In particular, consumers are demanding more transparency from brands on their sourcing and fulfillment processes (e.g., sustainability and fair trade.)
While meeting customer expectations may seem to increase the complexity of the procurement process at first glance, this trend also presents new opportunities for improving operational efficiency, building goodwill in the marketplace, fostering internal collaboration, reinforcing market positioning, and developing a unique brand message.
To take advantage of these opportunities, you need to adopt a customer-centric approach to procurement so you can become more responsive to changes in market demand.
Customer-centricity will also help you lower cost with more efficient inventory management while being the first to introduce a new product and gain more market shares as a first mover.
What’s Customer-Centric Procurement and Why Is It Important?
A customer-centric procurement process focuses on delivering the best experience to your customers.
Why is it important?
By 2020, customer experience (CX) will surpass pricing and product selection as the key brand differentiator. In fact, 86% of customers are willing to pay more for a better experience.
So what makes up “customer experience?”
It involves how customers feel when they use your products and interact with your brand. A positive CX helps attract more customers and increase loyalty.
The procurement process offers many opportunities for you to address customer expectations and discover new ways to surprise and delight your customers.
For example, if your target market is conscious about the environmental impact of the products they purchase, they’ll have a better experience if they can learn about how the ingredients are sourced. They’ll also develop more affinity with your brand when you incorporate sustainability into your brand story.
Traditionally, procurement involves internal management and external suppliers, focusing on cost savings, risk management, supplier adoption, and compliance with very little consideration of the customer.
However, thanks to the Internet, consumers are very well informed about the back-end of any business. If their expectations weren’t taken into account, they’d switch brands without much hesitation.
But what if we turn the table and make procurement’s first priority be the customer? How will it benefit brands and organizations?
The Benefits Of Adopting a Customer-Centric Procurement Process
A customer-centric procurement process has profound impacts across the various functions of an organization, from R&D and product development to supply chain management and marketing to customer understanding.
By putting customers at the center of procurement, you’re shifting the priority of the decision-making process from being cost-driven to demand-driven, with a focus on sales and revenues.
While adopting this new approach will require a fundamental shift in how the entire organization interacts with procurement, the long-term benefits will be well worth the effort:
- Develop strong and mutually beneficial supplier relationships through close collaboration and innovation.
- Provide a common goal that fosters collaboration among various internal departments, breaking down silos and improving overall cost-efficiency.
- Increase the accuracy of demand forecasting so you’ll have the right products in stock in the right place and at the right time while reducing the time-to-market.
- Improve inventory management by reducing the cost of storing excess inventory while avoiding low stock and missed sales.
- Inform product development by anticipating new consumer trends so you can be the first mover and gain more market shares.
- Inform your brand’s marketing message and positioning. For example, by incorporating a storytelling component on how the raw materials are sourced, you can build emotional connections with your audience, distinguish your brand from competitors, and increase brand loyalty.
- Build trust and loyalty with customers by proactively taking their needs and priorities into consideration.
10 tips for Implementing a Customer-Centric Procurement Process
There are many moving parts in sourcing, supply chain management, fulfillment, and demand forecasting. Here’s how to implement a customer-centric procurement process:
- Recognize that customer-centricity isn’t a short-term initiative. Instead, it requires fundamental changes in an organization’s culture, operations, and strategic direction.
- Identify metrics that indicate the successful execution of a customer-centric procurement process. Many of these will likely be related to business performance, such as revenue and profit, brand differentiation, etc.
- Combine these business-performance KPIs with traditional procurement metrics (e.g., cost savings, cost avoidance) to create a balanced procurement scorecard.
- Improve collaboration with suppliers and encourage innovation in the supply chain to stay ahead of changing customer expectations and improve efficiencies.
- Evaluate your supply chain and make improvements so you can become more responsive to customer demands. For example, you may need to reorganize the supply chain, such as using near-shoring, to reduce lead-time.
- Digitize supply chain management to enhance real-time information sharing and use automation to increase efficiency. The elimination of manual and repetitive tasks will allow your employees to focus on strategic and creative efforts that’ll improve the customer experience.
- Obtain first-hand insights from customers through polls, surveys, social listening, and focus groups to predict market trends, inform product development, improve the accuracy of demand forecasting, and explore sourcing options.
- Gather information from customer-facing teams, such as sales and customer care, to gain insight into customer sentiment.
- Leverage real-time data analytics from various sources, such as retail POS, warehouse shipment, return merchandise, eCommerce platform, and big data to gather business intelligence and inform decision-making.
- Use technologies (e.g., IoT, predictive analytics) to improve supply chain visibility and streamline workflow so you can increase efficiency and become more responsive to changes in market demand.
Customer-Centric Procurement In Action
In May 2019, Google and Stella McCartney announced a sustainable fashion pilot program. The British designer has been a long-time advocate for sustainable fashion and appeals to environmentally conscious consumers.
Stella McCartney is now incorporating Google Cloud data analytics and machine learning technologies to further increase visibility into its supply chain.
The initiative will analyze data in the procurement process to measure the impact of raw materials in relation to key environmental factors such as air pollution, greenhouse gas emissions, land use, and water scarcity.
This innovation taps into consumers’ demand for transparency into the environmental impact of the companies they buy from. It also reinforces the brand’s message and strengthens its unique positioning in the marketplace so it can appeal to a unique segment of consumers, cultivate brand affinity, and stand out from other fashion brands.
Meanwhile, the environmental initiative also augments the customer experience, reinforcing a value that consumers want to identify with and make them feel good about purchasing from the brand.
A customer-centric procurement process requires a shift in your company’s culture from product-first to customer-first.
The shift in the procurement paradigm involves supporting business and brand strategy, adding value for consumers, contributing to top-line results, building collaborative relationships with external partners, fostering supplier diversity, and leveraging technologies such as AI and IoT to improve tracking and data-driven decision-making.
While the procurement process has multiple “customers,” such as internal departments, suppliers, and top management, their roles should be designed to serve the ultimate end customer – the consumer.
Your procurement process should ultimately focus on meeting market demands and improving customer experience so it can help your brand gain market shares and improve top-line results.
Photo by Carl Heyerdahl from Unsplash