Step 1: Understand what customers value
To make good decisions about what to prioritize in a supply chain, start with your customers. Because the purpose of a supply chain is to deliver value to a customer, the first step in engineering and managing a supply chain is understanding exactly what your customers value. They may value having a wide selection of products to choose among, for example, or they might prefer to have a smaller number of options at a lower price. Alternatively, your customers may value having products available immediately for pickup, or they might prefer to have products delivered to their homes at a time that they choose.The answers may be "all of the above," but each of these choices creates different requirements for a supply chain, and they may be contradictory. It often helps to choose a particular customer, a key customer, and focus in on their specific preferences.
Some great techniques are available to help with identifying what customers value the most. One of the most popular is called quality functional design (QFD) or the house of quality (HOQ). The figure shows an example of a HOQ, which looks like a bunch of boxes with a roof on top. To build an HOQ, first you interview customers to determine which characteristics or features they value the most. Then, you match those features with your design to ensure that you're focusing on delivering products and services that genuinely meet your customers' needs.
Example of an HOQ.Another common technique for determining customer preferences is called A-B Testing. To perform an A-B Test, you give your customer a choice between two options: Option A and Option B. Online shopping sites frequently use A-B Testing to see which products or ads are most attractive to customers, but A-B Testing can also be used in face-to-face experiments.
Step 2: Recognize your competitors
The next step in prioritizing your supply chain goals is recognizing your competitors. In the age of e-commerce, your competitors may not be who you think they are. Many traditional retail stores, for example, have been slow to realize that their most aggressive competitor is not another brick-and-mortar store, but a website: Amazon.com. Amazon.com isn't competing only with retailers, however; it's also competing with trucking companies, warehousing and distribution companies, and even technology companies such as Apple and Microsoft.To understand who your real competitors are, you need to stop thinking about the product or service that you sell and start thinking about the problem that it solves. Dr. Clayton Christensen of Harvard Business School calls this approach to matching your product with a customer's problem the Jobs to Be Done Theory. Think about what "job" your product or service does for your customers and what other products or services might be able to do that same job better, faster, or cheaper. These alternative products (or services) are your product's real competitors, and you need to design and manage your supply chain so that your product can do that same job better than its competitors.
Step 3: Understand your products or services
The next step in prioritizing your supply chain goals is understanding the characteristics of your products or services. The easiest way to illustrate this step is to show how different kinds of products need to achieve different goals to deliver the greatest value to their customers.The table describes supply chain priorities for different kinds of products. These examples are definitely not an exhaustive list of supply chains, but they illustrate why the supply chain for corn, for example, has different priorities from the supply chain for computers.
Supply Chain Priorities
| Product Type | Supply Chain Priorities |
| Commodities | Low price, high availability, minimum quality standards |
| Luxury goods | High quality, uniqueness |
| Fashion goods | Fast throughput, low inventory, wide variety |
| Durable goods | Balance between transportation/inventory cost and customer needs |
| Technology | Speed, flexibility, security |