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 Building a Customer-Centric Supply Chain Strategy:
Enhancing Competitive Advantages

Pankaj M Madhani*

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

Introduction
In today’s highly competitive business environment, organizations are struggling to survive
as Product Lifecycles (PLCs) have become shorter, clock-speed has become faster, and the
consequences of disenchanting a customer have become more severe. Thus, organizations
are looking for ways to be more creative, competitive and innovative as these factors affect
their performance. There are various drivers influencing the performance of the organizations.
One of them, customer-centric performance, is the organization’s performance as perceived
by its customers. Accordingly, dependability, responsiveness, delivery speed, customization,
and customer satisfaction are manifests of customer-centric performance (Evans and Lindsay,
2005). Slogans such as “The Customer Comes First” or “The Customer Is the King” are quite
common in the business world. These slogans are used to emphasize the role of a customer to
the stakeholders such as owners and employees of a service firm (Olsen et al., 2014).
In the current era of competitive global scenario, developing a successful supply chain
strategy is critical to an organization’s long-term success. The management of supply chains
has become increasingly important as well as complex in the context of globalization, new
product development, diffusion of innovation and changing customer preferences. Thus,
organizations are looking for ways to be more creative, competitive and innovative as these
factors affect the performance of the organizations. Supply chain covers all movement and
* Associate Dean and Professor, ICFAI Business School (IBS), Opp. Annapurna Dham, Por, Adalaj Koba
Highway, Ahmedabad 382421, India. E-mail: pmadhani@iit.edu

28 2019 IUP. All Rights Reserved.

© The IUP Journal of Business Strategy, Vol. XVI, No. 2, 2019
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 initiative to improve
supply chain performance attempts to match supply and demand, thus simultaneously driving
down costs and improving customer satisfaction. Customers are crucial to any business as
without customers, there will be no sales; and without sales, there will be no revenue and
profits. Hence, there is a lot of attention on ‘customer-focus’ or ‘customer-centric’ approach.
There are various drivers influencing the performance of the organizations, and customer-
centric performance (i.e., the organization’s performance as perceived by its customers) is
one of them.

Literature Review
Supply chain is a network of organizations that are linked to deliver value in goods and
services to the end consumer (Christopher, 2011). Chow et al. (1994) and La Londe and
Masters (1994) defined a supply chain as a chain of entities that connects upstream and
downstream to deliver goods to end-users. According to Agarwal and Shankar (2002), 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. Sundaram et al.
(2010), emphasized supply chain as an integration of processes and resources to deliver value-
added products and services to end-users. Supply Chain Management (SCM) is “the
management of upstream and downstream relationships with suppliers and customers in
order to create enhanced value in the final marketplace at low cost to the supply chain as a
whole” (Christopher, 2011). In the context of SCM, firms can enhance performance by
focusing on creating value for the ultimate customer (Mentzer et al., 2001). Firms can
experience improved performance through SCM by integrating key business processes from
end-users to suppliers and vendors, by providing products, services and information that add
value to customers (Othman and Ghani, 2008).
While increased customer expectations require higher customer orientation (Terlunen
et al., 2015), firms that fail to satisfy their customers’ needs and expectations eventually suffer
performance deterioration (KPMG Nunwood, 2017). Firms that cannot satisfy their customers
are likely to lose market share to rivals who offer better products and services at lower prices
(Simona and Gómez, 2014). Conversely, successful firms are usually “rewarded with more
business from customers and with more capital from investors” (Anderson et al., 2004).
Customer-focused firms rely on developing strategies towards increasing customer satisfaction
(Rajagopal and Raquel Castano, 2015). Satisfying customers is critical to a firm’s success.
Customer satisfaction is an antecedent of customer retention/loyalty (Szymanski and Henard,
2001). Higher customer satisfaction leads to increased transactions (Bolton and Lemon,
1999), willingness to purchase additional services (Anderson et al., 1997), as well as reduced
price elasticity (Anderson, 1996) and transaction costs (Anderson et al., 1994).
SCM is a set of approaches that efficiently integrate and coordinate the materials,
information and financial flows across the supply chain so that merchandise is supplied,

Building a Customer-Centric Supply Chain Strategy: Enhancing Competitive Advantages 29

produced and distributed in the right quantities, to the right locations, and at the right time,
in the most cost-efficient way, while satisfying customer requirements (Hugo et al., 2011).
With rapid swings in demand and supply characteristics of the products, the possibility of
losses due to delivery of wrong products or delivery of right products but at the wrong time, is
very high (Forza and Salvador, 2002). Besides, as the uncertainty in volume or mix requirements
of an order increases, suppliers’ ability to deliver on time and in the right quality reduces
(Thun and Hoenig, 2011). Several different sources of uncertainty have been recognized in
SCM literature (Trkman and McCormack, 2009) that create an uncertain business
environment for firms. Firms should consider investing in supply chain agility and
responsiveness (Braunscheidel and Suresh, 2009; and Oke and Gopalakrishnan, 2009) in
order to respond quickly to marketplace fluctuations and to manage disruption risk.
The risk associated with the likelihood that customer demand will change requires that
the supply chain develop a degree of flexibility in terms of its ability to respond to the
changes (Ronchi et al., 2007; and Tang and Tomlin, 2008). Flexibility is defined as “the ability
to change or react with little penalty in time, effort, cost or performance” (Upton, 1994).
Supply chain flexibility in the presence of uncertain environments has contributed to better
business performance (Martínez and Pérez, 2005). Supply chain flexibility incorporates three
dimensions of flexibility—(i) supply flexibility; (ii) manufacturing flexibility; and
(iii) distribution/logistics flexibility (Sreedevi and Saranga, 2017). Supply chain flexibility is
considered as a competitive response to environmental uncertainty (Merschmann and
Thonemann, 2011).
Supply chain strategy is defined as a set of approaches utilized to integrate suppliers,
manufacturing, warehouses, and stores so that merchandise is produced and distributed at
the right quantities, to the right location, at the right time, in order to minimize system-wide
costs while satisfying service level requirements (Simchi-Levi et al., 2008). In the 4th edition
of Supply Chain Leadership Forum, organized by The Council of Supply Chain Management
Professionals (CSCMP) Spain, more than 150 supply chain professionals, representing more
than 92 leading companies in over 24 different markets from 15 countries participated. The
theme of the forum was “Enabling Customer-Driven Supply Chains” and the focus was on
how to implement a customer-centric strategy by sharing knowledge, the best practices, and
innovative ways to boost company performance by aligning and integrating supply chains to
best serve the customers (CSCMP, 2016).
Supply chain strategy is considered ‘a prerequisite’ for SCM in any firm, since “top
performers have a clear supply chain strategy aligned with overall business objectives and
customer requirements” (Varma et al., 2006). Despite its importance and relevance, supply
chain strategy is often neglected in practice. Dittmann (2012) found through “a survey on
the state of supply chain strategy” that, although 62% of the respondents said that “they
have a supply chain strategy”, only 18% had “a documented, multi-year” supply chain
strategy. This study focuses on CCSCS and develops appropriate competitive priorities to
enhance SCM efficiency, effectiveness and competitive advantages.

30 The IUP Journal of Business Strategy, Vol. XVI, No. 2, 2019

Objectives
The major objectives of this paper are firstly, to introduce the concept of the Customer-
Centric Supply Chain Strategy (CCSCS) as a process which combines the strengths of supply
chain networks by shifting the focus to the customer; secondly, to demonstrate how such
strategy meets the challenges of customer value creation in today’s fast changing and highly
competitive marketplace; and thirdly, to suggest various research frameworks of CCSCS for
better understanding customer interface and organizations from inside-out. Finally, this
study focuses on how CCSCS improves business performance.

Customer-Centric Supply Chain Strategy: Building Competitive

Priorities
In the traditional supply chain with multiple tiers of suppliers and customers, each operation
regarding production as well as distribution setup is planned on the basis of forecasted demand.
However, traditional supply chain strategy in which the customer is the final destination of
all supply chain processes is no more relevant today, as such efficiency-based, cost-saving
supply chains tend to be more vulnerable to unanticipated shifts in customer demand
(Lee, 2004). Nowadays, market competition no longer happens between individual companies,
but takes place between supply chains (Farahani et al., 2014). Table 1 shows the major
differences between traditional supply chains and customer-centric supply chains according
to competitive priorities. These competitive priorities of responsiveness, reliability, resiliency
and realignment are explained below:

Table 1: Traditional Supply Chains Versus Customer-Centric Supply Chains

S. Competitive Traditional Supply Customer-Centric
No. Priorities Chains Supply Chains

1. Responsiveness Modest ability to respond to changes Strong ability to be proactive as well

as responsive to changes

2. Resiliency Often limited to a single chain Maintain a limited set of multiple

or a large number of chains chains to ensure distribution

3. Reliability Focus on cost-efficiency Focus on reliable and cost-efficient

supply chains

4. Realignment Participants forced to choose Interests of participants coincide

between own and chain’s interests (or are developed to be synergistic)

Source: Tabulated by author adapted from Ketchen and Hult (2007)

Responsiveness
Today’s external business environments are often characterized as volatile and unpredictable
due to intricate dynamics of business relationships and rapid changes in consumer behavior.
To better meet these demands, today’s firms should take more proactive initiatives which
will allow them to capture the hearts of their customers and subsequently enhance their

Building a Customer-Centric Supply Chain Strategy: Enhancing Competitive Advantages 31

competitiveness in the global marketplace (Roh et al., 2011). In this context, the main principle
of a responsive supply chain is that firms must become more customer-centric, information-
intensive, and flexible. Responsiveness describes the ability to react quickly to sudden changes
in demand or supply. With responsiveness, firms handle external disruptions smoothly by
responding to short-term changes in demand or supply swiftly. Creating a responsive supply
chain has become a source of competitive advantage (Lau and Hurley, 2001). Thatte (2007)
stated that supply chain responsiveness and competitive advantage of the firm are positively
related.
Sharing of information strengthens collaboration among the supply chain partners as
collaboration is also a key to the supply chain’s ability to respond (Lee et al., 2008; and
Thomas, 2008). Responsiveness also implies that the organization is close to the customer,
hearing the voice of the market and quick to interpret the demand signals it receives. Major
crises encountered by Marks and Spencer, Sainsbury, and Motorola in the late 1990s and the
early 2000s stemmed from their failure to promptly respond to the sudden shift in the customer
needs and preferences rather than their inefficiencies in the production process (Finkelstein,
2003; and Walters, 2006). In the future, organizations must be much more demand-driven
than forecast-driven and the keyword in this changed environment is agility (Christopher,
2011). Agility is defined as “the result of integrating an alertness to changes (opportunities/
challenges)—both internal and environmental—with a capability to use resources in
responding (proactively/reactively) to such changes, all in a timely, and flexible manner”
(Li et al., 2008).
Supply chain agility has been acknowledged as the capability that enables supply chain
competencies to respond to the changing environment and ultimately lead to elevated
performance and sustained competitive advantage (Swafford et al., 2006; and Gligor and
Holcomb, 2012). An agile supply chain strategy allows the supply chain to flexibly and
rapidly respond to short-term changes in customer demand (Lee, 2004; and Dubey et al.,
2018). Hence, it is more responsive to unpredictable customer demand. However,
responsiveness without cost-effectiveness is not a real competitive strategy (Gunasekaran
and Yusuf, 2002). Such ability to rapidly react to changes in demand depends on the degree to
which the supply chain partners integrate and coordinate information flow throughout the
supply chain (Swafford et al., 2008). Supply chain agility enables firms to better synchronize
supply and demand, reducing the cost of inventory and transportation (Christopher, 2000).
With an adequate level of agility, it is possible to proactively anticipate changes while seeking
new emerging opportunities (Sharifi et al., 2006).

Resiliency
Globalization, outsourcing and reduction in supply base have exacerbated the uncertainty
within and risk exposure of supply chains. Thus, it is no longer enough for firms to develop
capabilities to cope with short-term, temporary changes in supply and demand through
supply chain agility, and hence firms also need to develop resiliency (Lee, 2004). Resilience is
the combination of responsiveness and flexibility and refers to the ability of a supply chain to
cope with unexpected disturbances and respond to marketplace changes to gain or maintain

32 The IUP Journal of Business Strategy, Vol. XVI, No. 2, 2019

competitive advantage (Sheffi, 2005). Resilient supply chains are more capable of coping
with the uncertain external environment, i.e., they are more adaptable. Adaptability sometimes
requires developing more than one supply chain for the same product in order to ensure
distribution. For example, the supply chain surrounding the Gap relies on China for
manufacturing and sourcing of Old Navy stores, while Central American facilities supply
Gap stores and Italian facilities supply Banana Republic stores. This approach is far more
expensive than if all three brands were served by one network, but it helps differentiate the
brands and provides insurance against problems that might arise in any of the three regions
(Lee, 2004). Wal-Mart’s responsive and resilient supply chain enabled the company to access
the devastating areas of hurricane Katrina, earlier than the Federal Emergency Management
Agency (FEMA) and the Red Cross (Waller, 2005).
Reliability
There has been a shift of focus from creating simply cost-efficient supply chains to ‘reliable
and cost-efficient supply chains’ (Snyder and Daskin, 2005). Reliability refers to the
performance of the supply chain in delivering the correct product, to the correct place, at the
correct time, in the correct condition and packaging, in the correct quantity, with the correct
documentation, to the correct customer. The main reason for this shift to reliability is the
negative impact of supply uncertainty on supply chain networks. Any supplier failure
compromises supply chain reliability; hence when Land Rover was unprepared when a major
supplier of a crucial component went bankrupt, its supply chain reliability suffered (Lester,
2002). There are many disruptive events such as earthquakes, severe weather, floods, fires,
port explosions/disruptions, terrorist attacks, labor strikes, and financial distresses causing
supply uncertainty in a supply chain (Pickett, 2003). Sheffi (2005) provided diverse examples
of companies that encountered severe problems when their supply chains were disrupted.
A breakdown in any link in the supply chain would increase the total supply chain cost and
reduce the ability to create customer value (Lehrer, 2003).
Realignment
Realignment of supply chain refers to aligning the interests of supply chain members time
and again by ensuring that the goals of all participants in a supply chain are consistent. While
aligning the interests of all firms in the supply network, companies optimize the chain’s
performance when they maximize their own interests. Realignment creates incentives for
better performance. Incentive alignment is an important tool to facilitate collaboration
between the common supply chain and each individual firm (Pakdeechoho and Sukhotu,
2018). According to Matthyssens and Vandenbempt (2008), firms must be aligned both
internally and externally with supply chain partners.
Supply chain realignment is the property of the supply chain such that the interests of all
the organizations in the supply chain are aligned through free information exchange, as
information plays an important role in designing a customer-centric supply chain
(McCormack, 2003), clearly laying out the role of each constituent of the supply chain and
through equitable sharing of risks, costs, and benefits (Dubey et al., 2018). The supply chain
as a network has led to a shift from the value-added supply chain to the value co-creation

Building a Customer-Centric Supply Chain Strategy: Enhancing Competitive Advantages 33

supply network context as the entire supply network actors participate in the process of value
creation and value delivery to the final customer (Martinelli et al., 2017).
The alignment of systems throughout the supply chain enhances organizational
performance (Green and Inman, 2005). Realigned supply chain facilitates the sharing of risk
throughout the supply chain; as risk is reduced in terms of costs, and the resultant benefits in
terms of performance increases are also shared (Arend and Wisner, 2005). This represents a
fundamental shift from the traditional supply chain strategy in which supply chain partners
often focused more on maximizing their own internal systems than on working together to
meet the needs of consumers.

Design and Methodology

This study focuses on the development of a theoretical framework for identifying and analyzing
the benefits of a CCSCS. A two-stage methodological approach is adopted in this study. In
the first stage, the study focuses on development of a 4Rs (responsiveness, resiliency, reliability,
and realignment) framework for identifying key processes and drivers of supply chain
performance improvement in organizations. The second stage involves development of a
framework for emphasizing the benefits of customer value proposition on deployment of 4Rs
framework.

Customer-Centric Supply Chain Strategy: Developing 4Rs Framework

Traditional supply chain focus has always been on how to reduce operating costs for firms through
improved efficiency in outsourcing, production planning, and logistics processes. Although
improved efficiency throughout the end-to-end supply chain can enhance a firm’s competitiveness,
it will not necessarily make the firm a winner. The rationale is that improving efficiency alone will
not help the firm to differentiate its products and services from those of its competitors
(Roh et al., 2014). Figure 1 shows CCSCS with all these competitive priorities of responsiveness,
resiliency, reliability and realignment.

CCSCS: Enhancing Customer Value Proposition

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 (Madhani, 2017b). Nevertheless,
the CCSCS has to be designed according to the specific characteristics of the supply chain
considered and the context in which this operates. Madhani (2017a) advocated that firms
should select the right supply chain strategy based on product characteristics and market
environment. In CCSCS, supply chains are much more customer-centric—they deliver great
service at lower cost. Value-creation aspects of the customer- centric supply chain have
become a new competitive ground to which most firms can aspire. As explained earlier, every
supply chain needs four key elements in order to be as customer- centric as possible:
Responsiveness, Resiliency, Reliability and Realignment (4Rs). As shown in Figure 2, the
4Rs are major contributors in enhancing customer value proposition.

34 The IUP Journal of Business Strategy, Vol. XVI, No. 2, 2019

 Figure 1: Customer-Centric Supply Chain Strategy:
Developing 4Rs Framework

Adjust supply chain

design to accommodate
Resiliency market changes
SCM
Respond to short-term SCM
changes in demand or
supply quickly

Responsiveness CCSCS Reliability

Set up system that

performs its function
as intended
SCM SCM

Establish incentives for supply Realignment

chain partners to improve the
performance of the entire chain

Figure 2: Customer-Centric Supply Chain Strategy:

Enhancing Customer Value Proposition

Retailers

CCSCS CCSCS

4Rs 4Rs

Raw Customer
Material Value Manufacturers
Suppliers Proposition

4Rs 4Rs

CCSCS CCSCS

Intermediate
Suppliers

Building a Customer-Centric Supply Chain Strategy: Enhancing Competitive Advantages 35

 The following case study of Longs Drug Stores illustrates how CCSCS enhances customer
satisfaction as well as business performance:

Case Study: Longs Drug Stores

Longs Drug Stores is a major drug chain in North America, with 521 retail outlets totaling
$5 bn annual sales. The company has always emphasized high customer service since its
founding in 1938. Longs Drug Stores used information-oriented services to differentiate
from their competitors. These services include the pharmacy application. In Longs Drug’s
client/server environment, the pharmacy system resides on a server in each of its stores as it
has a lot of local data. This system allows pharmacists to access local patient information
from the in-store server and compare that information with reference data housed on a
central server at corporate office. The pharmacist can even go outside the network, to access
some clinical information on the disease. Customers highly appreciate this kind of attention
given in a matter of seconds by pharmacist. To the customer, the pharmacist becomes a
trusted counselor and that attention is keeping customers loyal. For better customer services,
it is necessary to identify and predict customers’ need and consumption pattern. Weather
plays a big role in demand for flu drugs, holidays trigger higher demand for indigestion drugs,
changes in packaging sizes by manufacturers and natural disasters may also result in shifting
demand patterns. Therefore, in 1997, Longs Drug invested in a Nonstop Solutions technology
to use more science in demand chain management processes. This technology uses state-of-
the-art data-driven methodologies to eliminate as much guesswork as possible and optimize
the activities in the demand chain—forecasting, inventory control, transportation, material
handling and warehousing.
Instead of tracking products as they move across the supply chain, Nonstop analyzes the
subtle clues buyers send across the demand chain in the other direction. Nonstop’s analysis
accurately produces a 90-day replenishment plan based on 150 variables per product and
improves performance by freeing up some of the capital tied up in inventory and some of the
labor tied up in restocking it. Such scientific analysis enabled Longs Drug to cope with the
higher transportation costs caused by frequent ordering and improve performance through
inventory savings. With such up-to-the-day sales predictions, Longs Drug reduced inventory,
replenishment costs and freed up $105 mn in working capital (Doan, 1999).
Longs Drug incorporated seasonal profiles of products and used statistical analyses of
day-of-week, seasonality, and trend effects in customer demands of products to increase
availability levels at its stores to 99% and thus enhanced ‘responsiveness’. At Longs Drug,
better replenishment system, integrated databases, close links with suppliers, and deep
knowledge from buyers resulted in ‘resilient’ supply chain. Integration of forecasting, inventory
management and transportation resulted in ‘reliable’ supply chain. Information sharing allows
Longs Drug to have visibility of point of sales, demand forecasts, inventory, and shipment
plans. When supply chain partners are willing to collaborate and are sharing information
with one another, there is better synergy of product introduction, development, and
replenishment. For better coordination, roles and responsibilities for replenishment,

36 The IUP Journal of Business Strategy, Vol. XVI, No. 2, 2019

forecasting, order fulfillment and customer service need to be realigned. Longs Drug’s explicit
treatment of supplier performance (supplier fill rate and delivery performance), ‘realigned’
its interests and those of its member partners.
Thus, Longs Drug has created customer-centric supply chain based on attributes of
responsiveness, resiliency, reliability and realignment. Longs Drug’s performance was the
envy of its competitors in the marketplace due to its excellent business performance leveraged
by customer-centric approach. Inventory at Longs Drug’s distribution centers has dropped
by 79%, while the corresponding store inventory has dropped by 32%. Longs Drug has average
inventory turns of 9.4 (i.e., 160% better) compared to the industry average of 5.8 (Lee, 2002).
In August 2008, Longs Drug was acquired by CVS Health for $2.8 bn by paying a 32% premium
over Longs Drug’s closing stock price.

Conclusion
CCSCS has a positive effect on top and bottom-line growth of the firm as it enhances the
capabilities of the firm to adapt to the rapidly changing environment, with even more focus
on the customer. In addition to matching organizational resources with customer value, it
can improve forecasting, product planning and optimization. Greater insight into demand
and delivery schedule will improve operational efficiencies and help organizations in creating
the business value they seek. CCSCS helps organizations to sense consumer demand, respond
to it in real-time and provide a superior consumer experience at every opportunity, while also
decreasing the time to market, trimming overall costs and optimizing productivity. This
research has developed various frameworks and emphasized that responsiveness, resiliency,
reliability and realignment (4Rs framework) are important drivers of CCSCS, and hence
contribute immensely to enhancing customer value proposition.
Implications, Limitations and Future Scope: The current study focuses on identifying various
attributes and competitive priorities (i.e., responsiveness, reliability, resiliency and
realignment) of the supply chain that creates value for customers. By developing a CCSCS,
value creation process is analyzed within the whole supply chain by examining all supply
chain members responsible for value creation and for the final product offered to the consumer.
The study has highlighted that customer-centric approach will generate better values for
customers and companies. Being a theoretical study, the 4Rs framework presented in this
study did not develop or validate any scales for the supply chain variables. Hence, empirical
tests are needed to measure the variables of customer-centric supply chain and credibly test
the theory about any causal links between capabilities, practices and performance related to
such supply chain. Future research may focus on empirical studies to validate each of these
causal links to measure overall performance improvement on deployment of CCSCS.

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42 The IUP Journal of Business Strategy, Vol. XVI, No. 2, 2019

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