How can excellent customer experience be combined with optimal integral margins? This is a crucial question for category managers, supply chain managers, CFO’s, but also Human Resources. Collaboration by means of chain integration leads to higher integral margins and customer satisfaction in the retail
by Joris van Hijfte
In this paper we will clarify how chain integration plays an essential role in realizing business objectives and strategy in the retail. We will also explain what approach was chosen, that led to a successful implementation in a supermarket chain. This case started some years back and has proven to give sustainable results.
First, what do we mean with chain integration? Retail companies are traditionally organized in functional, vertical columns like supply chain, procurement, category management, promotions and the shops, with each of the columns having its own objectives. But the product (groups) are supported by each of these columns. With chain integration we mean here the horizontal organization and governance through these columns, that can lead to optimal margins, revenue and customer satisfaction. This does not only include the supply chain function, but also areas like promotion policy, assortment choices and shelving plans.
Developments over the last couple of years have emphasized the necessity to evaluate how retail chains can handle the increasing complexity, speed of changes (for instance in the area of digital commerce) and the need for improved customer experience. A lack of chain integration can lead to:
- Stock management issues
- Loss of margins due to sub-optimization (for instance too much emphasis on purchase prices at the expense of terms of delivery)
- Declining customer satisfaction (are experiences of customers in the shop sufficiently taken into consideration?).
Chain integration has proven to be effective in a breakthrough project in a national supermarket chain. They initiated chain integration through a culture program that was led by HR.
How did this program get so successful? Chain integration was designed and implemented over the different dimensions of the holistic operating model (see picture below). Some examples of this:
Organization and governance
Chain integration does not mean that the existing formal organization structure needs to be changed, but this structure needs to be able to work in a matrix structure. Meeting structures were changed to become multi-functional per product chain (from supplier to shops). Also a healthy power balance between the departments is important.
Culture and behavior
Results of the chain integration can only be sustained by a changing culture. Culture change starts with changes in behavior. For instance the behavior in decision taking needed to change, where with each decision the effects for the complete chain is considered. New ways of collaboration also require changes in behavior. The example of the behavior of management is crucial for a real culture change.
Part of the program was to become more data and fact focused in the decision taking. A limited number of leading KPI’s were chosen, such as integral margin, customer satisfaction and revenue. New IT systems make it possible to deliver the necessary reports per chain. The KPI’s that measured the performance over the whole chain became leading in the decisions (rather than the performance indicators per department).
Chain integration requires a holistic approach to challenges
The way of working has changed fundamentally. The new way of working has become part of the company and has its tangible pay-offs. It became a starting point for continuous improvement.
The implementation approach of this supermarket chain led to this success. Crucial for the approach were:
- Pro-active leadership
This program was widely supported by the management. Their role is to be the example in behavior. Coaching and training were a crucial part of the program.
- Ambitiously planned roll-out
The program was planned well in advance with clear milestones and firm timelines. In this way changes could be implemented in a relatively short time period. Regular team meetings were held to discuss progress versus plan and possible obstacles. When needed the program was adapted to cope with the challenges.
- Involvement of the whole organization
The program was carried out by a team of line managers, representing all relevant departments. Policy documents were written by these team members and new structures were tested under supervision of this team. In this ways the new way of work was embraced by the whole organization. Change management was integral part of the program.
Both the principles of chain integration and the integral approach of the program can widely be applied in other organizations and other sectors. We are happy to assist you in that journey.
Joris van Hijfte
Partner of New Behavior