Customer-Focused Supply Chain Strategy:

Developing Business Value-Added Framework

Pankaj M Madhani*

Customers are crucial to any business as without customers, there is no sales; and without sales, there is no
revenue and profits. Hence, there is a lot of attention on ‘customer-focus’. With competition now at the supply
chain level, competitive advantage comes from the ability of supply chain partners to coordinate and integrate
strategies aimed at satisfying the end customers of the supply chain at a relatively low cost. Customer-focused
supply chain strategy provides an approach to respond to these challenges as it strives to match supply and
demand, thereby driving down costs simultaneously improving customer satisfaction. This study underlines the
significance of customer-focused supply chain strategy. It also provides supporting matrix to underscore various
attributes of customer-focused supply chain strategy; develops 4Rs (responsiveness, resilience, reliability and
realignment) framework for building customer-focused supply chain strategy; and formulates business value-
added framework to emphasize the overall benefits in terms of improved firm performance.

Introduction
In the context of globalization, shortening product lifecycles, and changing customer
preferences, the management of supply chains has become increasingly complex. Supply
chain covers all movement and storage of materials and goods including inventory of raw
materials as well as work-in-process, and finished goods from point of origin to point of
consumption. Any initiatives to improve supply chain performance attempt to match
supply and demand, thus simultaneously driving down costs and improving customer
satisfaction. Customers are crucial to any business as without customers, there is no sales;
and without sales, there is no revenue and profits. Hence, there is a lot of attention on
‘customer-focus’.
With competition now at the supply chain level (Craighead et al., 2007), competitive
advantage comes from the ability of supply chain partners to coordinate and integrate
strategies aimed at satisfying the ultimate customers of the supply chain at a relatively low
total cost (Cohen and Roussel, 2005). Customer-focused supply chain strategy provides an
approach to respond to these challenges and hence they are most likely to prosper within
today’s competitive global landscape. Customer-focused supply chain strategy strives to
match supply and demand, thereby driving down costs while simultaneously improving

* Associate Dean, Faculty (Finance and Strategy), IBS Business School, IBS House, Opp. AUDA Lake, Science
City Road, Off. S.G. Road, Ahmedabad 380060, Gujarat, India. E-mail: pmadhani@iit.edu

Customer-Focused Supply
© 2017 IUP. All Rights Chain Strategy:
Reserved. 7
Developing Business Value-Added Framework
customer satisfaction. In short, customer-focused supply chain strategy maximizes value to
the ultimate customers of the supply chain in terms of both satisfaction with the product
and/or services and a relatively low total cost of the product and/or service.
The study aims to underscore the significance of customer-focused supply chain
strategy. It also provides supporting matrix to emphasize its various attributes; develops
4Rs (responsiveness, resilience, reliability and realignment) framework for building
customer-focused supply chain strategy; and formulates business value-added framework
to emphasize the overall benefits in terms of improved firm performance.

Literature Review
A supply chain is an interconnected set of relationships from customer to supplier,
through a number of intermediate stages such as sourcing, manufacturing, and
warehousing and distribution and it is a network of companies which influence each other
(Agarwal and Shankar, 2002). The ‘supply chain’ is a process that describes the flow of
goods from the production of a product right through to the final sale to the end consumer
(Bruce et al., 2004). Supply Chain Management (SCM) can be used to describe various
concepts—the processes inside a manufacturing firm; purchasing and supply management
relationships; the total chain; as well as a total firm network. Hence, it is an integration
of all activities associated with the flow of goods, starting from raw material to the final
product reaching the customer. SCM is a critical success factor for today’s organizations
(Duarte and Machado, 2011).
Supply chain strategy of the firm refers to the strategic goals and objectives of its supply
chain and requires an end-to-end focus on integration of business processes throughout
the value chain for the purpose of providing optimum value to the end-customer (Green
et al., 2008). A supply chain strategy is part of the overall business strategy, designed on
the basis of competition (innovation, low cost, service, quality) (Hugo et al., 2011).
Therefore, organizations should understand customers’ needs, and to choose and
implement the appropriate supply chain strategy to satisfy customer demands (Dubey
et al., 2017).
Implementing an effective supply chain strategy is an important issue in enhancing
customer satisfaction. Various actors in supply chains need to be able to recognize changes
in the environment and utilize opportunities that evolve to meet the changing customer
demands. Proper implementation of supply chain strategy improves the performance of
the supply chain (Gunasekaran et al., 2004).
SCM emphasizes how to maximize the overall value of the firm by better deploying and
using resources across the firm (Sukati et al., 2012). Today, firms view SCM as a strategic
tool to increase their competitive advantage by building various capabilities. The dynamic
capability view of a supply chain conceives the business as a knowledge processing and
utilizing entity and explains how combinations of resources and competencies can be
developed, deployed and protected to create firm-specific capabilities that can provide a

8 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
competitive advantage. Dynamic capabilities refer to “the firm’s ability to integrate, build,
and reconfigure internal and external competencies to address rapidly changing
environments” (Teece et al., 1997). Effective dynamic capabilities contribute to a firm’s
competitive advantage by enabling a series of temporary advantages, which allow a firm
to stay ahead of competitors and maintain a competitive advantage (Teece, 2007).
Possession of dynamic capabilities, enabling for example the speedy reconfiguration of a
firm’s supply chain, promises to hold great potential, especially in today’s dynamic and
fast-changing environment (Ambrosini and Bowman, 2009).
Dynamic capabilities occur when assets, abilities and competencies are used to create
strategies and activities that address specific markets and customer needs in distinctive
ways (Eisenhardt and Martin, 2000). Here, resources refer to those tangible and intangible
assets in the organization or the participating firm of the supply chain; whereas
capabilities refer to the firm’s ability to exploit, combine and reconfigure those resources.
The dynamic capability perspective stresses firms’ capacity to exploit and develop specific
capabilities, combine those capabilities with existing resources, and further reconfigure
resources to achieve congruence with the changing environment (Teece et al., 1997). The
key issue addressed by this perspective is how firms should organize and build capabilities
to achieve their dynamic fit with the rapidly changing environments.
In today’s competitive business environment, customer satisfaction is an increasingly
important component of an effective organization (Fornell et al., 2006) and hence every
organization aims to become more sensitive and responsive to the changing needs of
customers (Lusch and Laczniack, 1987), i.e., ‘customer-focused’. Customer focus is
described as: “… the set of beliefs that put the customers’ interest first, while not
excluding those of all other stakeholders such as owners, managers, and employees, in
order to develop a long-term profitable enterprise” (Deshpande et al.,1993). Supply chain
responsiveness, resilience, reliability and realignment act as a dynamic capability and
enhance customer satisfaction as described below.

Responsiveness
Responsiveness in supply chain is the equivalent of agile and agile means capable of coping
with the wide changes in demand. Agility in a supply chain is the ability of the supply
chain as a whole, and its members, to rapidly align the network and its operations to
dynamic and turbulent requirements of the customers (Duarte and Machado, 2011).
Supply chain agility is the capability of the supply chain to respond quickly and
effectively to market changes (Lee, 2002 and 2004; and Swafford et al., 2006). Supply chain
agility is the ability of the firm to adjust tactics and operations within its supply chain
to respond to environmental changes, opportunities, and threats (Gligor et al., 2013;
Gligor and Holcomb, 2014; and Eckstein et al., 2015). Supply chain agility can also
positively affect operational performance. It enables firms to meet delivery deadlines and
ensure dependability and accuracy of a service (Gligor and Holcomb, 2012).

Customer-Focused Supply Chain Strategy: 9

Developing Business Value-Added Framework
 Supply chain agility emphasizes the speed of response (Yusuf et al., 1999), which is more
essential in coping with short-term, temporary changes in supply chain and market
environment, rather than with long-term, fundamental changes. Towill (1996) argues that
a reduction in lead times is the necessary condition for operational responsiveness and
which further reduces the time to market. Being operationally responsive will enable
organizations to compete based on cost, quality, time to market, and delivery
dependability.
Agility is defined as a system with exceptional internal capabilities to meet the rapidly
changing needs of the marketplace with speed and flexibility. Agility of a supply chain is
critical for the success of supply chain members (Van Hoek, 2006; and Forsberg and
Towers, 2007). Agility is the ability to respond to short-term changes in demand or supply
quickly and handle unexpected external disruptions smoothly and cost-efficiently. Supply
chain agility can contribute to cost performance in various ways. It enables firms to
smoothly and cost-efficiently handle supply chain disruptions (Blome et al., 2013), which
are a major cost factor for global supply chains (Hendricks and Singhal, 2005).

Resilience
Resilient supply chains are more capable of coping with the uncertain external
environment, i.e., they are more adaptable. Resilience means “the capacity to anticipate
unsafe and unexpected events for organizational survival in the face of threats, including
the prevention or mitigation of failures in the systems” (Woods, 2006). Adaptive supply
chains or supply networks are those that are flexible enough to meet the uncertainty of
changing customer demands and accordingly restructure the supply chain in response to
changing markets and economic environments. Adaptable supply chains rely on
information sharing to identify shifts in the market, and then take appropriate actions
such as moving facilities, changing suppliers, and outsourcing (Ketchen and Hult, 2007).

Reliability
Today’s business scenario is characterized by higher levels of turbulence, volatility,
unexpected shocks and discontinuities and reflects many uncertainties causing risks.
Consequently, supply chains are vulnerable to disruption and, in consequence, the risk to
business is increased. Hence, increasing reliability by preparing for customer demand is a
top priority for SCM in any organization. Reliability is different from robustness as
robustness is concerned with uncertainty in the data, while reliability refers to uncertainty
in which it is intended to hedge against failures in the system described by a given
solution. Robustness assesses the reduction of the output, whereas reliability can be used
to quantify the likelihood of a reduction of any magnitude. From the perspective of supply
chain design or facility location, robustness is concerned with demand-side uncertainty
(uncertainty in demands, costs, or other aspects of the distribution of goods from a firm
to its customers), while reliability is concerned with supply-side uncertainty (uncertainty

10 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
in the availability of plants, distribution centers, or other facilities required to produce and
distribute the product) (Snyder, 2003).

Realignment
The quality of the supply chain relationships directly impacts the performance of the
supply chain (Fynes et al., 2004). Powers and Reagan (2007) contend that supply chain
partners, in particular buyers and sellers, derive competitive advantage from strong, long-
term relationships and empirically identified relatively more important relationship
factors. Chopra and Meindl (2010) argue that supply chain performance is enhanced when
an ‘inter-organizational, inter-functional’ approach is adopted by all supply chain
partners. Hill (2000) emphasized that firms rarely own the resources and activities to make
a product or provide a service from the beginning to the end. Since purchased goods and
services account for 50 to 70% of manufacturing company’s potential value, a firm’s
competitive advantage depends largely on the links it forges with external organizations
rather than its internal capabilities (Ramdas and Spekman, 2000). Such realignment of
supply chain enhances customer satisfaction as well as overall performance.
Supply chain capabilities of responsiveness, resilience, reliability and realignment are
dynamic capabilities that result in competitive advantage as these capabilities are
developed and renewed in response to changes in customer demand and changes in the
market structure and economies. As these organizational capabilities are integrated and
coordinated within supply chain networks, it ultimately develops competitive advantage
related to the ability to satisfy the ultimate customers of the supply chain. It is necessary
to decipher the needs of ultimate consumers—not just immediate customers. Otherwise,
organization may fall victim to the ‘bullwhip effect’ which amplifies and distorts demand
fluctuations. Success depends on the ability of all supply chain partners to focus on
ultimate customers and respond to changes in the demands of those customers. Only
supply chains that are agile (i.e., responsive), adaptable (i.e., resilient), reliable and
realigned provide firms with sustainable competitive advantage. Since dynamic capabilities
reflect difficult to replicate sources of competitive advantage, supply chain responsiveness,
resilience, reliability and realignment can result in superior firm performance and generate
competitive advantages. This study works in this direction and builds customer-focused
supply chain strategy based on dynamic capabilities of responsiveness, resilience, reliability
and realignment.

Methodology
This study proposes a new framework to evaluate the customer-focused supply chain
strategy. A two-stage methodological approach is adopted in this paper. In the first stage,
the study focuses on development of a 4Rs framework for emphasizing the benefits of
competitive priorities in supply chain. The second stage involves the design of a business
value-added framework to identify the key processes of value chain and emphasize
resultant business value-added.

Customer-Focused Supply Chain Strategy: 11

Developing Business Value-Added Framework
4Rs Framework
Customer-focused supply chains possess four very different qualities: (1) responsiveness—
as supply chains react speedily to sudden changes in demand or supply, (2) resiliency—
as supply chains adapt over time as market structures and strategies evolve, (3)
reliability—as supply chains have set up systems that perform their functions as intended,
and (4) realigned—as supply chains maximize the interests of all the partners in the supply
network to optimize the chain’s overall performance. Key attributes of customer-focused
supply chains are given in Figure 1, in terms of 4Rs framework. The four ‘Rs’ stand for
Responsive, Resilient, Reliable and Realigned.

Figure 1: Customer-Focused Supply Chain (SC) Strategy: 4Rs Framework

Respond to short-term changes Adjust SC design

in demand or supply quickly to accommodate market changes

Responsive Resilient

Customer-
Focused
SC
Strategy

Reliable Realigned

Set up system that performs Establish incentives for SC

its function as intended partners to improve performance
of the entire chain

Customer-focused supply chain strategy with attributes of responsiveness, resiliency,

reliability and realignment can boost the competitiveness of the firm, provide best-in-
class products and services at lowest price, enhance customer satisfaction and strengthen
the likelihood that customers will remain loyal to a supplier.
The framework as displayed in Figure 2 shows how customer-focused supply chain
strategy leads to superior customer value creation and generates competitive advantages.
Having a competitive advantage for organization generally suggests that they can have one
or more of the following capabilities when compared to its competitors: lower prices,
higher responsiveness and dependability, and shorter delivery time.

12 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
 Figure 2: Customer-Focused Supply Chain (SC) Strategy:
Enhancing Competitive Advantages

Competitive Advantages

Business
Performance

Customer Value
Creation

Customer-Focused SC Strategy

Responsive Resilient Reliable Realigned

In customer-focused supply chains, supply chain partners work together to:

• Quickly respond to short-term changes in customer demands (i.e., Responsive);
• Streamline the supply chain to reflect long-term changes in markets,
technologies, and products (i.e., Resilient);
• Set up supply chain system that performs its specified function as intended
within a given time horizon and environment (i.e., Reliable); and
• Realign relationship as well as strategies throughout the supply chain with a
fresh look to meet the needs of the ultimate customers and to share costs and
benefits equitably across the supply chain participants (i.e., Realigned).

Business Value-Added Framework

To grow and prosper in the times ahead, organizations must develop and implement
competitive business strategy that satisfies the needs of the target market. The core of any
business strategy is the customer value proposition, which describes the unique mix of
product and service attributes, customer relations, and overall image that an organization
offers. It also explains how the organization will differentiate itself from rivals to attract,
retain, and strengthen relationships with targeted customers. In the present scenario of
competitive environment, more and more organizations are aggressively searching for

Customer-Focused Supply Chain Strategy: 13

Developing Business Value-Added Framework
competitive advantages in order to get a better position in the markets. Competitive
advantage is the extent to which an organization is able to create a defensible position
over its competitors (Porter, 1985). The source of competitive advantage can be found in
a firm’s ability to differentiate itself from the competitors (Morgan and Strong, 2003). To
gain competitive advantage over its competitors, a firm must deliver value to its customers
through cost advantage by performing activities more efficiently than its competitors or
by creating greater differentiation advantage by performing the activities in a unique way
in relation to competitors (Barney, 1991; Peteraf, 1993; and Slater, 1996).
Intensive competition in the marketplace has enforced organizations to focus on
customer value creation. Customer-focused supply chain strategy attempts to improve
customer satisfaction by focusing on customer needs. Porter describes customer value as
the advantage that a firm creates for its customers by either lowering its customers’ costs
or by raising its customers’ performance in real and perceived terms (Porter, 1980).
Slywotzky and Morrison (1997) used a ‘customer-centric’ approach to propose a modern
value chain in which the customer is the first link to all that follows. The role of added
value has long been accepted as a means of securing competitive advantage (Normann and
RamõÂrez, 1994; and Naumann, 1995) and long-term success of the firm (de Chernatony
and McDonald, 1998). To emphasize how customer-focused supply chain strategy can
generate overall business values, Porter’s (1985) value chain framework is used as a basis
to present a business value-added framework as shown in Figure 3.
In Porter’s (1985) value chain, one of the four support activities (procurement)
involves logistics and all of the five primary activities involve logistics (inbound logistics,
operations, and outbound logistics), marketing (marketing activities), or both (service).
Value chain analysis describes the activities within and around an organization and links
them to the organizations’ competitive position. Therefore, it evaluates which value each
particular activity adds to the organizations’ products or services. According to Brown
(1997), the value chain is a tool to segregate a business into strategically relevant
activities. This classification enables identification of the source of competitive advantage
by performing these activities more cost-effectively or better than its competitors. Prior
researchers have also used value-added framework (Moon and Ngai, 2008; and Madhani,
2011, 2012, 2015, 2016 and 2017).
Customer-focused supply chain strategy has a positive impact on the entire supply
chain network and creates value for customers and organization in terms of responsiveness,
resiliency, reliability and realignment. Responding quickly, being resilient, building
reliability and realigned interests of supply chain members are essential in the current era
of intensive competitiveness. The business values that are generated by developing
customer-focused supply chain strategy can help firms advance the operations in logistics
and inventory management as it enables large savings in time and labor costs in inventory
management, and creates a rapid response when unexpected problems occur. In addition,
it can help improve the overall reliability of supply chain. With customer-focused supply

14 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
 Figure 3: Customer-Focused Supply Chain Strategy:
Developing Business Value-Added Framework

Customer-Focused Supply Chain Strategy

Competitive Priorities Dynamic Capabilities

Responsive Resilient Reliable Realigned

Value Creation

SCM Key Processes

Customer Value Proposition
Cost Reduction/Customer

Network (Provide the Value)

Sales/Net Income

Enterprise Value
Manufacturing flow and supplier
relationship
Satisfaction

Supplier Product development and

Manufacturer commercialization
Distributor Demand management and order
fulfillment
Retailer
Customer service and relationship
Customer management
Returns management

SCM Value Chain Business Value-Added

(responsiveness, resiliency,
reliability, realignment)

chain strategy, organization is able to respond more quickly to the market demand. It also
helps to deliver the most relevant information to related parties in supply chain network
to adapt with external environment and make supply chain more reliable. Customer-
focused supply chain strategy realigns the operational process in the areas of logistics,
inventory management and CRM. Improved performance in these major activities will, in
turn, enhance the overall efficiency of a firm, generate more sales volume, and increase
profits eventually. All these will contribute to the competitiveness of the firm in supply
chain and, subsequently, may change the business ecology of the entire supply chain
partners.
The major emphasis of the business value-added framework is the creation of superior
customer value. With customer-focused supply chain strategy, firms reduce cost and

Customer-Focused Supply Chain Strategy: 15

Developing Business Value-Added Framework
enhance customer satisfaction, trust and loyalty and ultimately create value for the
customers by enhancing customer value propositions. Such cost reduction and higher
customer satisfaction result in higher sales, profitability for firms and ultimately higher
enterprise value.

Case Study: Seven-Eleven Japan

Seven-Eleven Japan, a legendary and the largest convenience store chain in Japan has built
customer-focused supply chain strategy. It has remarkably low stock out rates and had an
inventory turnover of 55. With gross profit margins of 30%, Seven-Eleven Japan was also
one of the most profitable retailers in the world. Seven-Eleven Japan was able to give
shareholder return 10 times better than the Nikkei index in Japan. Seven-Eleven Japan
was far above its competitors in terms of sales per square foot, profitability, and market
share. It was the third largest retailer in the world in terms of market capitalization (Lee,
2001). With attributes of responsiveness, resiliency, reliability and realignment, Seven-
Eleven Japan was able to achieve micro matching of supply and demand (by location, time
of day, day of week and also season) (Lee, 2004). The various competitive priorities of
customer-focused supply chain strategy of Seven-Eleven Japan are explained below.

Responsiveness
Seven-Eleven Japan has designed its supply chain to respond to quick changes in demand
by investing in real-time systems to detect changes in customer preference and tracks data
on sales and consumers (gender and age) at every store. To make supply chain responsive,
Seven-Eleven Japan has linked all its stores with distribution centers, suppliers, and
logistics providers. This real-time data is processed to enable store managers to analyze
hourly sales trends and stock out rates of all SKUs by customer groups. Such data linkage
has allowed supply chain to detect fluctuations in demand between stores, alert suppliers
to potential shifts in requirements, help reallocate inventory among stores, and ensure
that Seven-Eleven Japan restocks at the right time. Seven-Eleven Japan employees
reconfigure store shelves for fresh and perishable products at least three times a day so that
the store caters to the requirements of different consumer segments as well as demands
at different hours. Such high response is possible even without increasing costs with close
collaboration between a manufacturer and a retailer in supply chain (Takeda and Matsuo,
2002). To enhance responsiveness, Seven-Eleven Japan has framed a policy that if a truck
is late by more than 30 minutes, the carrier has to pay a penalty equal to the gross margin
of the products carried to the store. With its agile supply chain, Seven-Eleven Japan
schedules deliveries to each store within a ten-minute margin (Lee, 2004).

Resilience
Seven-Eleven Japan has highly resilient supply chain and accordingly adapted its supply
chain to its strategy over time. During the earlier period, the company decided to
concentrate stores in key locations instead of building outlets all over the country, but
doing so increased the possibility of traffic congestion every time the company replenished

16 The IUP Journal of Supply Chain Management, Vol. XIV, No. 4, 2017
stores. The problem became more acute when Seven-Eleven Japan became more
responsive and decided to resupply stores three or more times a day. To minimize delays
due to traffic snarls on frequent supply every day, Seven-Eleven Japan adapted its
distribution system and asked its suppliers from the same region to consolidate shipments
in a single truck instead of using several of them. In this way, supply chain resiliency
helped Seven-Eleven Japan to minimize the number of trucks going to its distribution
centers, where it cross docks products for delivery to stores (Lee, 2004).

Reliability
The reliability of Seven-Eleven Japan’s logistics system is legendary as evident during the
period of natural calamity. Seven-Eleven Japan has expanded the fleet of vehicles it uses
from trucks to motorcycles, boats, and even helicopters. After the Kobe earthquake on
January 17, 1995, when relief trucks were crawling at two miles per hour on the highways,
Seven-Eleven Japan used seven helicopters and 125 motorcycles to deliver 64,000 rice
balls to the city, within six hours after the earthquake (Lee, 2004).

Realignment
There is a close realignment between Seven-Eleven Japan’s interests and those of its
member partners. The incentives and disincentives are clearly defined: share the rewards
on making Seven-Eleven Japan successful or pay a penalty on failure to deliver on time.
The relationship is based on trusting its supply chain partners, i.e., when carriers deliver
products to stores; no one verifies the truck’s contents. Since drivers do not have to wait
after dropping off merchandise, it allows carriers to save time and money. When Seven-
Eleven Japan clicks business opportunities, it works with suppliers to develop products and
shares revenues with them. SEJ’s logistics network delivers products to stores efficiently
as well as from the convenient location of stores, thereby benefitting partners. Seven-
Eleven Japan also encourages partners to set up multimedia kiosks in its shops to produce
games, tickets, or CDs, and has become a manufacturing outlet for partners. Seven-Eleven
Japan could not have realigned the interests of its partners more closely with those of its
own (Lee, 2004).

Conclusion
In the current era of highly competitive market, developing a strong relationship with
customers is vital to achieving the goals of both the customers and the organization. To
be successfully focused on customers, organizations must ensure a high level of consensus
and cohesiveness around the belief that its existence relies on being responsive to the
needs of its customers. Customer-focused supply chain strategy helps organizations in
achieving these customer-focus objectives. By developing dynamic capabilities of
responsiveness, resilience, reliability and realignment, organizations enhance customer
value propositions. This study develops 4Rs (responsiveness, resilience, reliability and
realignment) framework for building customer-focused supply chain strategy and identifies

Customer-Focused Supply Chain Strategy: 17

Developing Business Value-Added Framework
its key attributes. The business value-added framework developed in the study provides
the basis of value creation in customer-focused supply chain. 

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