Building solutions for customers (69.806Kb) - DOWNLOAD

RTM: The traditional channels model typically shows channels as pipes taking products from the supplier to the consumer. Why do you see this as dangerous?

LG: Many reasons. Firstly, it is a company-centric approach. I think we should start with the customer and see ourselves and other intermediaries being involved in creating valuable solutions for customers.

Secondly, the traditional model sees channels as intermediaries who take title and ownership of the goods. This determines how you draw a channel in a textbook – producer, wholesaler, and retailer.  But these players are only a small, marginal part of your route to market.  When you look at it like this, you don’t see the other firms in this structure. It ignores the host of service providers, logistics operators, banks/insurers and support companies who determine the customer experience.

"Mass manufacturing and …mass distribution…are now often out-moded."

Thirdly, it implies a separation between manufacturing (supplier) and distribution (channels) which is increasingly false.

Car-maker Volvo, for instance, would be seen as a supplier. Yet Volvo only adds 30% of the value to the components shipped in by its suppliers.

It could more accurately be seen as a distributor, who manages a brand and connects suppliers of complex systems with dealers controlling the buyers of cars. And that definition applies better than that of manufacturer to many, many large ‘manufacturing’ companies in many industries.

RTM: OK, so what are the implications of this way of looking at the world?

LG:  I’d like to talk about a concept we call ‘differentiated distribution".

Formerly, we had mass manufacturing and that went hand in hand with mass distribution.  It led to enormous improvements in efficiency. But I would argue that it is now often out-moded. 

RTM: Why?

LG: We need to look at what business users want and why they have different requirements from distribution.

Some factories want sophisticated just-in-time delivery that a typical mass boxshifter may not be able to deliver. Others simply want the lowest possible price.  They may even want to come and pick it up from your factory door! These two groups will definitely not be satisfied with one and the same distribution solution.

If you ignore these different groups and the different experiences they want, then you risk losing marketshare to others, who target more closely.  New technology makes it far easier for companies to tailor products for the needs of their customers.

But unless you analyse these needs you will go on turning out the same product.
RTM: But isn’t mass distribution simply about increased efficiency. I mean how can specialists compete?

LG: By understanding the customer experience. The other day we came across an electronics distributor in Norway who actually stated that it doesn’t want to turn its inventory more than three times a year.

"Volvo could more accurately be seen as a distributor, who manages a brand and connects suppliers of complex systems with dealers controlling the buyers of cars."

RTM: But that’s nuts! Everyone wants to push down their inventory turn as far as possible.

LG: That is what we said at first!  But the brilliant idea behind this is to support its customers’ efforts to be lean. What makes this distributor special is the sheer width of its inventory.