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Gaining Local Perspectives on a Global Business
Accenture, ACC Survey Unveils Local Perspectives for Global Chemical Firms
11:19 AM MDT | August 31, 2010 | By TONI LANGLINAIS AND VARUN RATTA
Toni Langlinais is a managing director in Accenture's management consulting practice. Varun Ratta is a senior manager in Accenture's strategy group. You can hear Toni, along with Dow Chemical's Chief Marketing Officer Ruby Chandy, discuss the survey's findings and implications at CW's webcast Customer Smart - The Key to Becoming a Preferred Chemicals Supplier, at 10AM ET/3PM GMT on Wednesday, September 15.
A recent survey featuring 1,300 companies conducted jointly by Accenture and the American Chemistry Council (ACC) has reveals that chemical firms will have to be more deliberate if they are to meet the varied expectations of customers across regions. The survey also found that building operational excellence that enables customers to deliver the basics of product performance, quality and supply reliability is key to customer’s success.
To a great extent, that will mean going beyond the industry’s traditional one-size-fits-all approach to understand differences in customers on an individual and regional basis. Doing so will help companies avoid “over-delivering” to significant portions of the customer base: Too often, research shows, companies are investing money and talent in things that buyers are not willing to pay for. And a more targeted approach can help companies find opportunities to strengthen pricing by focusing on the things that matter most to specific customers.
The Basics—and Beyond
Accenture and ACC’s study analyzed the factors that industry buyers consider when assessing suppliers, and ranked those factors’ importance relative to price. Among the key findings is that industry buyers place a high value on suppliers’ ability to deliver on the basics of quality and supply reliability. For example, product quality and performance is clearly the most important factor for industry buyers. Buyer responses indicated that it is 84% more important than innovation, 54% more important than relationships, and 29% more important than price. Supplier reliability is not far behind as an important buying factor, and it ranks well above most other factors in importance—including price. The message is twofold: Firstly, it is not just about price, as delivering on these ‘basic’ factors is clearly important if chemical companies are to win increased share-of-wallet with their customers. Secondly, many customers are willing to pay a premium if chemical companies are able to deliver on these basics better than the competition.
Buyers in emerging markets place an even higher premium on these factors. Product quality and performance is a particularly important issue for Chinese chemical companies, who rank it 33% higher than the already-high industry average. This could well be a reflection of past high-profile quality problems in China , such as the melamine contaminated milk issue and the 2007 recall of 1.5 million Chinese toys due to concerns about lead-based paint. Meanwhile, buyers in both India and China place a higher value on reliability than do buyers in other regions—an interest perhaps driven by the relative immaturity of the supply chain in those markets.
The overall findings of the survey underscore the importance of operational excellence, and the need for suppliers to have the basics in place across regions. As one executive noted at an ACC conference, “we have enormous assets that have tight operating parameters that can’t afford to have hiccups in either supply or quality. And so the cost of entry of doing business with us has been a suppliers’ ability to consistently do those things.”
The research explored a range of other buying factors, and often found variations across regions:
Globally, buyers see innovation as only moderately important. But a more detailed analysis shows that they are highly interested in innovation that helps increase reliability and quality and reduces costs. They place less importance on innovation that is focused on energy efficiency, product features and functions, and flexibility.
Regional perspectives on innovation differ significantly. Indian and Chinese companies have especially high expectations for innovation support for reliability, quality and cost-reduction initiatives. Companies in those regions are 59 percent more likely than their counterparts in Europe to cite the reliability component as important, and 37 percent more likely than North American companies to do so. In addition, the research found that Indian companies also value support in the areas of energy efficiency and product features and functions.
In general, industry buyers place a 10% premium on customization that is focused on delivery. Again, this is especially pronounced in emerging markets, where there are typically many smaller companies that carry lower inventories and thus value flexibility and speed of delivery more than price. Indian buyers, and to some extent those in China, also place importance on customized product specifications and designs.
In serving such customers, it is important to remember that customization carries a cost. That means that suppliers need a solid understanding of which customers value customized delivery, and what factors—such as lead times, technical and testing services, customer-specific inventory, etc.— are customers actually willing to pay for.
Over half of buyers globally believe there’s an opportunity to improve the knowledge and skills of their supplier’s sales force. This issue is most pronounced in North America, where two-thirds of buyers expressed that view. In Europe, meanwhile, the situation is reversed, with two thirds of buyers saying that the sales force is highly knowledgeable and skilled. Asian buyers, too, give suppliers’ salesforces good marks. This discrepancy may be due to the salesforce cutbacks and streamlining efforts that many North American chemical companies have pursued in recent years.
Here, North American companies may benefit from a realignment of channel strategies to increase the use of e-commerce. So, too, might European and emerging-market companies—the former because slower growth in maturing markets calls for increased efficiency, and the latter because the smaller-volume purchases typical of those regions can be handled cost-effectively online.
In North America and Europe, buyers consider sustainability to be important, but not a differentiator, and less important than cost. In China and India, sustainability issues are given more weight, but they are still trumped by price when it comes to buying decisions. However, there are areas of opportunity. In general, buyers are more interested in energy efficiency, materials efficiency and reductions in waste , and less interested in social and safety issues, emissions reductions and product stewardship. Also, there is significantly higher interest in waste/water reduction among Chinese buyers, and in emissions control among Indian companies. What’s more, the research suggests that suppliers in these regions are largely unaware of these buyer perspectives, indicating untapped potential for meeting customer needs.
Working with a Sharper Focus.
The research clearly shows that there is significant opportunity for suppliers that can provide high levels of reliability, especially for those serving emerging markets. In striving to meet buyers’ expectations for these industry fundamentals, companies need to do more than simply boost quality and service levels across the board—which in the long run is likely to be expensive and unsustainable. As mentioned above, they need to move beyond the one-size fits all approach to know and treat customers on a more individual basis.
In the area of reliability, for example, companies can develop an understanding of different customers’ different “versions” of reliability. Some buyers may value the ability to handle rush orders, while others may want to order below-minimum amounts, and yet others may have special packaging or shipping requirements, such as truck versus rail. Companies can then tailor their services accordingly.
That type of approach will require chemical companies to use sophisticated customer segmentation processes to develop a better understanding of the differences among their customers—and then target resources to meet the needs of their highest value customers. “By definition, segmentation and understanding what makes the customer click has a lot of value,” said one executive at an ACC conference. Segmentation should assess customers on basic qualities, such as revenue or profitability, to identify high-value customers. It should also give suppliers insight into the customer’s business and what the customer wants—and, just as important, what the customer doesn’t want, to avoid over-spending on things that don’t matter.
Suppliers should also focus on greater collaboration with customers. Joint research and development initiatives can help companies move past “inside out” innovation to instill deeper customer knowledge into research efforts. Today, there is a growing degree of interdependence among supply chain partners in the industry. This interdependence will require more trust-based relationships that enable partners to share information about intellectual property, costs and operations. The industry does not currently have a high comfort level with that kind of information-sharing—but the research suggests companies that can forge trust-based relationships will have a leg up on the competition.
By getting better at segmentation and collaboration, chemical companies can get smarter about customers and regional markets. In an evolving, global business, this will be a vital key to focusing spending, differentiating the company and its offerings, and becoming a preferred and profitable supplier.
September's webcast will be interactive throughout, with the speakers answering questions sent in by the audience. We encourage you to send us your questions in advance. Email any questions to CW Executive Editor Alex Scott, firstname.lastname@example.org.