The pandemic has elevated supply chain management into the broader collective consciousness of consumers, policy makers, and organizational leaders.Media reports now abound with daily updates on the supply chain status of critical products.Although many people are ambivalent about the details of how supply chains are responding, everyone wants to know when and where the things they want and need will be available.This sentiment reveals the core purpose of supply chain management: At the most basic level, supply chains exist to provide customers with utility.
Utility refers to the perceived value customers receive from a good or service.It is a concept that denotes the usefulness of something, the capacity to provide satisfaction, or meet a need.
There are four specific supply chain components of utility: time, place, form, and possession.Time utility ensures products are available when customers want them.Place utility refers to the availability of goods in a desirable location.Form utility refers to the characteristics of the product that is available to customers.Possession utility provides ownership and direct access to product benefits.When these components are combined properly, they enhance the customer experience, increase satisfaction, create value, and drive loyalty.
To better understand supply chain utility, think about disinfecting wipes. Like many others, I want this product to keep my family safe from the lurking coronavirus.I am willing to pay a premium, shop at odd hours, and travel to different store locations just to obtain disinfecting wipes.Unfortunately, I am regularly frustrated by the reality that I cannot obtain them.
As a consumer, I do not care about valid supply chain problems like unpredictable spikes in demand, problems with sourcing raw materials, bottlenecks in the manufacturing process, distribution capacity constraints, rising labor costs, or countless other potential challenges. I simply want my local store to have a disinfecting wipe available for sale when I arrive. Or, said another way, I want a supply chain to provide me with utility. The company that meets these basic needs will earn my business, loyalty, and gratitude.
The goal of supply chain management is to provide customers with the right bundle of time, place, form, and possession utilities.Meeting this goal efficiently, effectively, and sustainably is a challenge.Managers employ a variety of approaches to maximize capabilities and create network synergies. The details of how supply chains are structured or managed vary across industries and firms, but everyone shares that common purpose. Supply chains and supply chain managers exist to provide customers with utility.
When done properly, supply chain management results in operational excellence, positive financial performance, and a sustainable competitive advantage.Although it is easy to get hyper-focused on these desirable outcomes, it is important to remember the underlying driver of performance and the true purpose of supply chain management.As the pandemic has reminded us, without customers, nothing else matters. To acquire and keep customers, a supply chain needs to provide them with utility.
