Customer Conformity in Segmented Supply Chains

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Victor Walldin

Customer Conformity in

Segmented Supply Chains

A study of Schneider Electric Buildings AB

efforts in increasing customer satisfaction

Degree Project of 30 credit points

Master in Industrial Engineering and Management

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Preface

This master thesis project is the final part of my master degree in industrial engineering and management at the faculty of economics, communication and IT at Karlstad University. This work has been performed during spring 2012 in collaboration with Schneider Electric Buildings AB in Stockholm.

I would first like to dedicate a big thanks to the employees on Schneider Electric that has allowed me to perform my studies under friendly circumstances. Especially I would like to thank my supervisors Lennart Johansson and Olle Sirén at Schneider Electric Buildings AB, whose contribution, support and assistance has been invaluable and made the implementation of this thesis possible. My supervisor Martin Löfgren at Center of Research (CTF) at the faculty of economics, communication and IT at Karlstad University that provided helpful advices and valuable input should also have big thanks.

I also would like to thank other people that have been involved in this study who have contributed valuable answers and comments in Schneider Electric. Thank you for taking the time to answer my questions.

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Abstract

Background

Schneider Electric is a global company operating in the energy management industry providing customers with total solutions to their energy, electricity and automation needs. The company is built up by acquisitions consisting of several segments that require a great deal of adjustment work to integrate partnerships. This study aims to support Schneider Electric Buildings AB, a segment within Schneider Electric, active work of improving the streamlining of operations to make the supply chain even more efficient.

Purpose

This study seeks to investigate and describe what activities Schneider Electric Building AB can improve to better form customer conformity. It examines on how companies composed by acquisition strategies could facilitate adjustment activities between units.

Aim

The aim of this study is that attained results should culminate in recommendations for how Schneider Electric Buildings AB better can adjust internal operations to improve internal operations and further satisfy customers’ needs.

Method

To achieve the purpose of this study a mapping of the business activities and operations was first performed. The results of the study were found through a quantitative study. Results were analyzed to the background of empirical descriptions and theoretical framework.

Results

Results demonstrated that respondents to this study were very loyal and satisfied with the company’s current operations. Primary areas that were considered most important for customers were mainly delivery lead times, communication and information.

Conclusions

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1. Introduction

In the introductory section of the report, a background to the problem area covered in the research is presented. The background is a brief introduction to the subject, followed by a problem description and research questions. Finally in this section, the purpose, aim, delimitations and the disposition is presented.

Background

1.1.

Think of yourself in a situation when visiting a shopping mall to buy a product. The mall consists of several competing stores in the same relevant market selling this product of different brands. Assume that there are distinct classes of this product in form of its properties and quality, and that products in this class are within same price range regardless of the brand. The product are not in any way to be tailored or customized to your specific needs and requirements, assume that these products are almost identical. Then what is it that determines which store you will buy the product from? Maybe you expect some help from employees with technicalities? Maybe you are in a hurry and need this product quickly? If you decide to return this product, maybe you expect this to be a smooth process?

To summarize, you probably have different expectations and requirements of your shopping experience compared to other customers. What determine your buying decision in when price and product properties between competitors are equal are other factors and circumstances that influence your total experience. If you feel that the shop adapts and listen to you as a customer to improve your experience, then what is the likelihood that you will return and repurchase from the same store again? If you are dissatisfied with your experience, will you complain so they can get better? Probably not, most people avoid complaining as it is not a pleasant experience to argue. You will most likely simply choose one of the other stores in the mall as there is nothing that binds you to their products, and the store will remain unaware of why they are losing customers.

“Today, markets are experiencing the internationalisation of technology-driven competition, globalisation of manufacturing due to faster transitional flows of materials and money, compression of product lifecycles, need for greater integration of technologies and increasingly sophisticated customers.” (Shepherd & Ahmed, 2000)

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have realised the benefits of being integrated within a partnership to increase efficiency and reduce risks and costs. Businesses with a larger amount of working areas have a diversified product selections and services that lead to reduced volatility. This has derived acquisition tactics much more common and progressively made it more important for large corporations to target their markets with different segments for firm strength (Strandvik et al. 2011).

In the technology and electrical equipment sector customers are more and more requiring companies to offer them a total solution to their needs. In order to combat this companies are positioning themselves as service providers than purely product manufacturers. Companies have realised that in order to provide values to customers, it is important to quickly and accurately identify changing needs and develop products and services according to changed preferences (Shepherd & Ahmed, 2000). Vargo and Lusch (2004) demonstrate the importance of involving customers as co-producers as services are dynamic experiences based on customers perceptions of what quality of services are to them. Values should be created in collaborations with customers where products and services are only seen as resources to allow for the value adding activities. In a recent study made by Gebauer et al. (2010) it is presented that a new trend have emerged among large international manufacturing companies to make strategic shifts towards becoming service providers. In practice this means that companies are adding more services to their portfolio to offer customers with total solutions. This strategy implies focus is shifted from supplying customers with products to supporting them in their value-adding processes. This study concludes that key success factor to make this transformation prosperous it is of great importance to set clear strategies for how to structure the company according for how best to deliver a total solution.

In industries where there are large transactions and intense competition losing customers may end up being very expensive. In these segments it is important to retain customers as long as possible to extend the customer lifetime value. That is for how long customers are continuing being profitable by themselves, but also spreading the word that might lead to increased sales. This stresses the importance of getting a deeper understanding of customers’ needs and establishing business relationships (Zineldin 1995).

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complaints to companies if they experience a bad service. This given, it is implied that complainers are the most valuable form of customers as they contribute with information that points out the company’s shortcomings for improvement.

When products are similar in properties and price between suppliers, customers assess other capabilities connected to the total delivered service. From the vast array of products available from different manufacturers on the market, customers choose the provider that they believe will deliver highest values to them. Thus, customers have built up expectations of their requirements of what is considered high values to them. This forms the basis for assessment whether provided service lives up to customers’ expectations that affect their satisfaction (Kotler 1994).For companies to be successful in delivering values to customers, it requires them to understand underlying customer preferences. This information is often implicit and cannot always be directly expressed and communicated.

Numerous of well acknowledged researches of service quality in supply chains have been studying how to best design it according to different organisational structures. Many companies in this field experience problems through increased number of changes in customer’s needs and requirements. Despite this there is a lack of research in understanding facilitating success factors for what supports adjustment processes between units in supply chains and what customer-prioritised values in this field are.

Problem description

1.2.

Direct contact with customers is valuable to any business as it clearly indicates what the company is doing right, and what activities could be improved. In large companies with major product ranges and different business areas it is difficult for single manufacturing units to acquire direct contact with end customers. These units only provide a part of the total delivered service and customers usually have different expectations and requirements for different parts of the service. Because of centralised operations in large corporations the direct information exchange between end users and suppliers may suffer. This complexity implies valuable feedback can be hard to break down such that it is of substance to use for single units (Hauge & Hauge, 2000).

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This means customers have no incentives to enter long-lasting business relationships with suppliers. Instead of informing current supplier of their shortcomings, it is often easier to just switch supplier. The complaining process are often time consuming and requires resources, and most likely it will take time for the supplier to adapt and change. For evident reasons, customers will therefore switch supplier without pointing out and informing their supplier of its shortcomings. From the supplier perspective this causes huge implications as the company remains unaware for what reasons they are losing customers. Complaints are of great value to companies to adjust services to increase chances of satisfying customer needs. Complaints should therefore be seen as gifts from customers in form of strategic tools (Barlow & Møller 1997).

Schneider Electric is large corporation operating in the building automation and energy industry (see chapter 2 for more information) involving large sales of products in different segments to offer customers a total solution to their needs. Consequently, the corporation is delivering products and solutions in different business areas with different separate manufacturing units working under one brand. The implication that has to be managed is customer different expectations, requirements and needs for different products. The numerous manufacturers in the company therefore require conformed information as expectations are different for different parts of the “total solution”. Schneider Electric performs large amounts of quality work on central levels to determine customers’ experiences in different areas to improve services. However, it is difficult to translate this general information into concrete substance to single units for what they specifically could improve.

In accordance with the background to the increased importance of a deeper insight of what customers asks for, Schneider Electric individual manufacturers has an endeavour to approach their customers to identify customer needs and requirements - critical customer values. As competing products have similar properties, it is of importance to identify other activities and factors included in the total solution that are of high value to customers. Numerous of quality surveys of customers experiences with Schneider Electric services are performed central levels. This information is then passed to individual units in the supply chain that proactively works to expand on this information to see how operations can be improved and perform incentivized changes

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the company to see what activities that would support their active effort in streamlining operations between units in the supply chain. The two following research questions should support understanding for the company, and other companies in this position, for how to improve processes to satisfy customers’ expectations:

Q1. What underlying conditions support adjustment work between tiers in a supply chain to streamline operations?

Q2. What potential improvements in areas of service and product delivery are there as it looks today in this segment?

Purpose and aim

1.3.

The purpose of this study is to investigate and describe what activities that support individual manufacturing units in supply chains to form conformity with internal customers. This implies determining approaches that enhance collaboration between units. From analysing results of this research the study intends to present recommendations for how Schneider Electric Buildings AB can improve processes to better meet expectations. This study is primary aimed for Schneider Electric Buildings AB as they can benefit from the outcome of this study in their active efforts of achieving customer conformity. The research is studied from the customer perspective from how they perceive the company’s current services.

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6 Delimitations

1.4.

In this study limitations have been made to clearly frame the study and make it more focused to present a structured analysis.

The study is intended to provide recommendations for how the specific analysed manufacturer in one of Schneider Electric Buildings supply chains can improve through enhanced understanding of customer priorities. The focus is on highlighting improvements in product deliveries, and the study defines itself to investigate on properties, price and quality of the product itself.

Understanding customer requirements and needs is something that permeates Schneider Electric Buildings AB to ensure customer satisfaction. It would not be possible to perform a study in which all customer relationships are studied. The research has thus been limited to only study a sample of customers within in different segments that intends to represent the entire customer base.

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7 Disposition

1.5.

Chapter 1 - Introduction

The structure of this thesis is divided into eight parts. The introductory section presents a background highlighting the underlying conditions and motives to why this study is performed. This is followed with a problem discussion that ends with research questions permeating this study. The purpose and aim of the study is presented followed by the limitations that were made.

Chapter 3 - Methodology

In this part methodological choices and proceedings are discussed and motivated to which this study has been conducted. The method used was of a quantitative nature where practical data collection was carried out through an on-line based customer survey.

Chapter 4 - Theoretical framework

This chapter presents theories from literatures with intent to give the reader a better understanding of related fundamentals. The theoretical framework begins with describing relevant theories in supply chain management. Further in this chapter theories of customer satisfaction and customer loyalty are presented.

Chapter 5 - Empirical description

To complement the theoretical framework providing the reader with further understanding, this section describes the company’s current operations in relevant areas. This recital arrange for enhanced insight and opportunity to comply with analysis of the findings.

Chapter 6 - Results

In this chapter empirical findings from the survey are presented. In order to structure the findings this section is divided in three parts of conceptual results, by customer categories and by geographical areas.

Chapter 7 - Analysis

The analysis reflects on the results of this study that draws on the theory and empirical background. The analysis is structured to analyse results to provide answers to research questions.

Chapter 8 - Conclusion and future directions

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2. Schneider Electric Buildings AB

This section presents a brief description of the case company

Schneider Electric is a French global company founded in 1836 specialising in energy management. The company’s active acquisition strategy has brought more than 100 brands into their portfolio that has built the foundations for the energy management solution offer.

“At Schneider Electric Customer Satisfaction is everyone’s number one priority. We develop an exemplary customer-centric culture, listening with humbleness and acting on our customer’s feedback. We know that if we can satisfy and further delight our customers by delivering a superior, differentiated experience then we can also earn their loyalty. That loyalty is a key driver of our sustainable, profitable growth”

– Jean-Pascal Tricoire, President Schneider Electric

Schneider Electric is today the world leading energy specialist in many fields, with more than 120,000 employees operating in over 100 countries with 19.6 billion euros in sales (2010) in over 200 countries. The company was ranked as the 330 biggest company in the world on 2011 Fortune Global 500 annual rankings of the world’s largest corporations.The company have moved its business from the start operating in the steel industry, heavy machinery and ship building in the 19th_{century to} electricity and automation management in the 20th_{century. Schneider electric today} provides integrated solutions to make energy safe, reliable, efficient and productive.

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Schneider Electric provides total solutions to customers’ needs which mean they provide complete services to all relevant areas. A total solution means that a number of smaller services in different areas are put together to a complete service. Consequently the company consists of several business areas that together contribute to the total delivered service. These divisions is presented in Figure 1 and consists of Power, Process and Machines, Buildings, Security and IT room Management.

Figure 2 Constituent segments in each business division (Schneider Electric, 2012) In each division of business area, there are several segments that together contribute to the part of solution for that particular business division. Thus, there are a large number of supply chains in each division. Figure 2 illustrates constituent segments in each division. The Buildings divisionemploys approximately 2000 people in Sweden headquartered in Malmö with offices nationwide. Schneider Electric Buildings AB, a segment in the Buildings division, employs approximately 600 employees (2012). Schneider Electric Buildings AB mainly supplies automation products for surveillance systems to buildings. This includes products such as valves, actuators, controllers, regulators and sensors (Figure 3).

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3. Methodology and research design

In the following section proceedings and methods that will be used to gather and analyse data to make conclusions in the study is described. Methods are presented and motivated and the chapter ends with a section of how reliability and validity are maintained.

Overall working method

3.1.

There are several methodological possibilities of procedures to deal with the problem area to achieve the purpose of this study. The work begins with an introductory comprehensive pre-study as it is considered a necessity for the author of this study to build up an understanding and knowledge in the subject area. The pre-study is intended to deepen knowledge in relevant internal and external business areas within the company as substratum to the quantitative study conducted that supports analysing results leading to conclusions and recommendations.

The study emanates on an empirical basis with background information communicated from supervisors of the partner company. It derives from a research of relevant theory in areas of subject to define factors and variables essential in examined segments that contribute to increased customer loyalty and satisfaction. In that way, it can be spired and narrowed down to a more manageable level to focus on a number of selected areas.

Analytical method

3.2.

This study is performed through a quantitative nature. The opposite is a qualitative and exploratory study. The names of the methods provide indications of how they are carried out. Qualitative approaches are preferred when there are no expectations of the outcome of the studied problem and go deeper into the problem to define data except beyond acquaintance. Data are obtained e.g. through in-depth surveys or interviews, observations and interpretations of analyses (Creswell, 2008).

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The quantitative approach of this study was considered most appropriate, as there were a wealth of knowledge of what areas to study with expected outcomes. The activities and factors examined are directly measurable to respondents’ perceptions and values making a qualitative study proper. Further, this choice was considered appropriate in the time perspective with regard to respondents’ limited time and opportunity to answer questions because of their daily work, as well as the limited time of this study. A quantitative method also allows for more respondents to participate that is suitable in this case when studying a large market (Holme & Solvang, 1997).

Quantitative studies are more concerned with positivism rather than hermeneutic paradigms as in qualitative studies. This is because quantitative researches focus more on explanations and descriptions than understandings and interpretations. Positivistic approaches in quantitative studies emphasises that studied phenomena’s can be observed. Exploratory qualitative studies more attempt to understand how humans perceive their own behaviours and its surroundings (Gummesson, 2000).This researched is initiated with a descriptive approach of research in relevant theories to later become transcended to a more normative interprevitistic approach in the empirical analysis.

This study is of deductive character that is most common in quantitative research methods where theories are proved by the research method. The opposite is to form new theories from individual empirical cases and is called an inductive method. Deductive studies may be strengthened by the fact that theories are already proved and existing (Patel & Davidsson, 1991).

Working procedure

3.3.

This section describes the working procedures in the course of this study. Figure 1 graphically illustrates sequences of working procedures. The figure is iterative and not strictly sequential in the sense that the first step is completely finished before the next is initiated. In reality there was jumping back and forth between stages and steps was sometimes carried out in parallel.

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The initial stage in the execution of this study entailed a proposition from Schneider Electric Buildings AB of analysing activities in product deliveries and services that could be improved. This phase set the reason to why this study was of interest to be performed and what activities that it should cover. It was followed by defining the work and narrows it down to a manageable level by limiting the project. This provided a greater focus to more detailed analysis for understanding to provide useful recommendations. According to Patel & Davidsson (1991) the process of limiting a work increases the reliability of a study.

Next phase involved initiating a pre-study by studying theory relevant to the problem area and current operational processes. The theory aims to contribute with an increased understanding from previous studies in similar problem areas and support the analysis of findings in the empirical study. In this stage the research questions were formulated together with the purpose for how to answer them and what the aim was.

A process mapping followed the pre-study for how relevant operational processes worked both internally and externally. Based on the pre-study this concerned identifying value-adding activities of current capabilities in supply chain operations. Mapped internal processes studied included activities in production, inventories, logistics and purchasing. The author actively participated and practiced activities himself and conducted interviews with responsible managers in each area. Respondent were selected from the eligibility criteria’s in consultation with supervisors on the company.

In order to get an insight for how customer projects worked to where products are partially supplied a process mapping of external operations was also performed. This included activities in marketing departments, sales departments and customer projects. In the preparatory execution of this work it was performed in collaboration with the business excellence department that supported proceedings. A situation analysis was made to study possibilities and problems associated with the studied area. Information was mainly found from the company intranet, extranet and through interviews with responsible persons in departments.

The methodology and research design was decided to be quantitative. This approach was considered most appropriate to attain specific information in studied areas of product deliveries and services. Collected material from the pre-study and mapping was used as a basis for designing interview survey questions.

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number of recommendations for how activities could be improved. From the analysis, future directions derived to what areas that could be further explored relevant to this area.

Choice of approach and data collection method

3.4.

There are several approaches and techniques to collect data through e.g. observations, interviews and questionnaires. The choice of technique affects the outcome of the study to what is most appropriate according to prevailing circumstances. The choice of approach should be selected based on type of study and available time and means (Patel & Davidsson, 1991).

The data collection method in this study included both primary and secondary sources. Primary sources are data collected during the time in which the study was conducted and are contemporary accounts in that presence of events. This includes present documentations and oral sources through e.g. interviews. Secondary sources interpret and analyse results from primary sources and lacks imminence of a primary record (Holme & Solvang, 1997). This includes e.g. published works such as journal articles and books.

Selected theory in the theoretical framework was areas relevant to the problem area. To find relevant theory the so-called snowball sampling technique was used which is an informal method to find targeted relevant subjects. Vogt (1999) describes this method as “one subject gives the researcher the name of another subject, who in turn provides the name of a third, and so on”. This technique takes advantage of wider sets of link tracings that provides ever-expanding ways to find relevant information (Berg, 1988).

Secondary sources used for data collection was primarily acquired through journal article search through databases Business Source Premier, Elsevier, Emerald, Science Direct, Science Citation Index and SpringerLink Journals. Books that have been used in the work were loaned from Karlstad University libraries and available on-line books. Schneider Electrics intranet and extranet was also used as a secondary source for data.

3.4.1. Practical data collection method

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statistical sample and are dependent on selecting appropriate respondents. Quantitative surveys can include some qualitative features in its structure with open questions or if there are no statistical principles for how respondents are selected (Biemer & Lyberg, 2003).

Groves et al. (2009) demonstrates that there are several methods to conduct surveys through e.g. mail, phone, online surveys, hybrids etc. and they are influenced by:

 Costs;

 Coverage of target groups;

 Flexibility of questions;

 Respondents willingness to participate;

 Response accuracy

The on-line based survey in this study was performed by using the tool Survey & Report from Artologik, Artisan Global Media, which was provided a license from Karlstad University. The survey was of a structured character common in quantitative studies where respondents are provided with fixed answers to choose from. This type of structure makes the survey more focused and information-oriented (Holme & Solvang, 1997). The idea of performing an on-line based survey was advised from the Schneider Electrics business excellence department. From previous experience this was seen to be most appropriate and effective, seen that the response rate tends to be significantly higher compared to alternative methods. Respondents to the survey were provided from employees and customers registered as responsible in the ERP system. It was initiated by sending a first e-mail with an introduction and description of contents with a link enclosed to complete the survey. Three reminders were sent out during the publishing period to respondents who have not yet responded. Replies that were not acquired after the reminders were sent out, respondents were assumed to not want to participate.

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Schneider Electric. The participation percentage was probably influenced by respondents’ intense daily work, the relevance of their knowledge in this field, language difficulties, and the willingness to participate.

Research quality and generalisation

3.5.

The veracity and credibility of findings in a research are arbitrated by the validity and reliability in a study to be generalised and sound. “Reliability and validity are conceptualized as trustworthiness, rigor and quality in qualitative paradigm” (Golafshani, 2003).

These two concepts measure the degree of distortions and bias in a research. A study is claimed to be generalised and sound if it is free from bias and distortions.

Reliability refers to measuring the degree of consistency used under similar conditions in a research. A high degree of reliability means that same result should under similar conditions on another occasion be achieved again. Although, it is important to point out that this research was focused only on the unique situation and present events at the time of the study. Validity measures the degree of accuracy to what a research is supposed to be measuring. Naturally, this is easier to ensure in quantitative compared to a qualitative studies as there tends to be larger variations of intensions. Consequently, reliability is a precondition for validity in that an unreliable measure cannot be valid. However, achieved reliability does not automatically means there is validity and vice versa (Cormack 2000).

To enhance reliability and validity in this research an underlying understanding of the subject area was studied to make reasonable assessments from collected material through a pre-study and process mapping. Supervisors from both the company and the writing institution were involved in the process of what was of importance and essential to this study to not leave out on any fundamental area.

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4. Theoretical framework

This section covers the theoretical framework that is used as basis in this research. The theory section provides the reader with a deeper insight of the subject to get more understanding for the problem area. Parallels between theories and collected information from the case study will then be compared an analysed.

Supply chain and supply chain management

4.1.

In the global market place today, companies are not individually competing as independently unique units, but are part of integrated systems that coordinate series of inter-related processes called supply chains (Min & Zhou, 2002). A supply chain is a network between manufacturers, suppliers, distributors, and retailers, through which raw materials are produced, transformed and delivered to end consumers. It handles complex flows of materials, products, services, information, and money across several functional areas within complex hierarchies of participating individual units (Chuu, 2011). The networks include a number of stages that units’ altogether works to produce, deliver and sell products and services to satisfy the last stage in the SC called end customers. A recognised definition of a supply chain is:

“…a system whose constituent parts include material suppliers, production facilities, distribution services and customers linked together by the feed forward flow of materials and the feed backward flow of information” (Stevens, 1990)

Supply chains consist of a series of units that successively add value to products and services to deliver finished goods to customers with activities ranging from raw material suppliers to retailers (Hugos 2006). Supply chains are not consistent but unique to every company depending on the strategic objectives for how to satisfy customers. Companies with numerous products likely have several supply chains in different segments. Although there are several individual units operating in the same supply network, it does not mean the supply chain looks the same for all units. Depending on from what perspective supply networks is observed, the unit from which it is viewed from is usually referred as “channel captain” or “focal firm” (Figure 5). Units on either side of the channel captain are first-tier, second-tier (or further removed) suppliers and customers.

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together ensure that finished products are delivered to customers the networks are not completely independent of other parties. There are several other indirect participating companies including service providers for activities such as warehousing, distribution, consultants etc. (Wisner et al. 2009).

Figure 5 Supply chain network structure (Lambert et al. 1998)

To allow series of tiers working together it requires supply chain management that is concerned with managing activities that influences behaviours of the supply chain to make it work effectively. Mentzer et al. (2001) defines SCM as “…the systematic, strategic coordination of traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole”. This includes managing end-to-end business processes to assure value to customers (Lambert, 2008).

Managing product-related activities are part of supply chain management work to improve on operating efficiency, quality, and customer service among participating units to gain competitive advantages (Wisner et al. 2009). In contrast to traditional logistics that are concerned with activities in a single company, supply chain management handles networks of companies working jointly to deliver products to market.

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between participating units in supply chains should best be performed from a holistic perspective to satisfy customers. Without this strategic approach it would otherwise lead to conflicts between individual units interests (Hugos 2006).

Supply chain segmentation

4.2.

The decision for individual manufacturers to initiate business relations with suppliers/customers and vice versa is a major step as the value gained from interacting in a supply network rest on the principles on choosing partners that could support the company somehow (Choi & Krause 2006). This necessitates for companies to establish supply bases with different segments of different portfolios to be able to offer customer with a total solution that makes the company more effective and successful (Wagner & Johnson 2004).

Day et al. (2010) define supplier segmentation as “…a process that involves dividing suppliers into distinct groups with different needs, characteristics or behaviour, requiring different types of inter-firm relationship structures in order to realise value from exchange”. Buyers and suppliers usually set up prioritisation schemes with underlying condition that might negatively influence on the partnership from creating value with shared exchange of resources (Peteraf 1993). A lack of connectivity between buyers and suppliers means shared shortcomings in the partnership that stresses the importance of strategic management (Day et al. 2010)

A frequently used buyer approach to segment suppliers is called portfolio matrix based on Kraljics (1983) model of risks in portfolio management modelling. The model demonstrates that values provided from supplier relationships should be evaluated and compared to risk levels of dependency. This assumes that relationships between buyers and suppliers are built upon dependency and power. A key task for buyers is to ensure there are mutual dependencies with shared powers. Day et al. (2010) supports this model in his study and stresses the importance of risk management in reducing dependencies in relationships that might negatively influence cost, quality and delivery reliability.

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Before the segmentation process of supply chains is initiated it is important to decide on strategic aims for whether it is beneficial to enter and stay in the collaboration (Olsen & Ellram 1997). Strategic decisions are important operational activities in strategic sourcing when deciding upon future directions for companies. Segmentations therefore play a critical role in linking operational capabilities to find strategic opportunities to create values with partners(Day et al. 2010).

Supply chain partnering and implications

4.3.

Properly established and well managed partnership between companies should result in improved performance in delivering values. Partnerships are most successful when based on mutual trust, openness and shared risk and rewards. The idea behind partnerships is that collaborations should offer advantages that leads to more success than what companies would have achieved by themselves. Some advantages of partnerships are mainly to reduce risks and costs while at the same time increase performance and efficiency. The consequence of being an incorporated link in a supply chain is a type of partnership based on financial and process advantages that should increase competitiveness (Lambert 2008).

The intension of a partnership is to gain competitive long-term advantages of financial sustainability and benefits. The process of initiating partnerships requires investments to adjust operations and activities between tiers to make the supply chain consistent. There are several different ways to control shared operations (Lafontaine & Slade 2007). A common strategy for greater control and possibility to customize supply chains according to specific needs is vertical integration. Vertical integration means that independent units in supply chains are not only united under a common ownership, but to one company. This method allows companies that want full control and ownership of all tiers to further promote efficiency through information sharing and cost savings through e.g. large bulk purchases. Although this method is attractive to companies it might affect the flexibility to previous upstream and downstream investments and capacity planning (Harrigan 1985).

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The idea behind partnerships is that they are beneficial to both parties with shared dependencies and risk. According to Lambert (2008) tires that are closer to the point-of-consumption in supply chains have more power. Supply chain management is therefore claimed to be much concerned with relationship management between links (tier-to-tier) and customer relationship management. Supply chains that best manage internal relations are shown most successful.

Supply chain flexibility

4.4.

Supply chain flexibility has been identified as a key determinant for successful performance. Supply networks with ability to rapidly react and adjust processes to changed customer needs possess major competitive advantages (Wadhwa et al. 2005). In dynamic environments where demand constantly changes companies needs to be responsive and act on changes in demand (Swamidass and Newell, 1987). Flexibility is often viewed as a reaction to environmental uncertainties and increases with the range of options available. Flexible supply chains are more able to cope with continuously changing environments and unpredictable demands by adapting to changing markets (Giachetti et al. 2003).

Agility is a measure of how well relationships between units can handle speed and flexibility to adjust activities to satisfy changing needs. Responsiveness is a major capability of agility that supports the preservation and takeover of new markets while improving quality and horizontal operations flows (Figure 5). Horizontal flows include flows of products, information and decisions. The faster horizontal flows are the faster supply chains can respond to customer needs. In agile companies functions are organised into compiled teams where barriers that stand in the way for effective communication are removed (Van Hoek et al. 2001).

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 Demand variations;

 Lead times;

 Quality;

 Information delays

Integrated partnerships between tires make the end-to-end flow of supply chains more flexible to reduce time delays in downstream flow of goods and upstream flow of information. To enter into a supply chain partnership reduces the level of risk, fixed assets and increase flexibility and responsiveness but might result in a loss of control (Frohlich & Westbrook, 2001). Flexibility supports costs and quality work through controlling as well as preventing distortions (Yusuf et al. 2004).

Uncertainty of customer needs

4.5.

Uncertainty is defined as “any deviation from the unachievable ideal of completely deterministic knowledge of the relevant system” (Walker et al. 2003). In practice this means that no one can predict what the future will look like. Uncertainty is derived from a discrepancy between the future demand and the capacity of available resources. To cope with uncertainties it is important to find methods that provide indications as closely as possible to what will happen in the future. This activity is called forecasting and helps companies to cope with uncertainties in its internal or external environment (Walker et al. 2003). The demand uncertainty is stated to be the primary source of risk for companies as it will cause over- or under-production. This implies that companies will end up with over or under stockings involving high costs or inability to deliver products (Sheffi & Rice, 2005). According to Swamidass & Newell (1987) there are three distinguished main types of uncertainties:

 Volume uncertainty;

 Mix uncertainty;

 Delivery uncertainty

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encompasses expectations of product quality, service quality, price etc. (Swamidass & Newell, 1987).

Designing an effective supply network requires knowledge and insight of what type of products that will be supplied. Fisher (1997) has introduced a model for business networks to shape their supply chains properly according to the type of products supplied (Fisher, 1997; Cachon and Fisher, 1997). The model states that products can either be functional or innovative depending on demand predictability characteristics, lead times, product variety, services, and life cycle lengths (Table 1). In this model SC’s are claimed to be either market-responsive or physically efficient depending on its overall objectives and strategies for resources and inventories (Figure 6).

Figure 6 Fishers model of shaping an effective supply chain (Fisher 1997)

Innovative products are characterized by short life cycles and demand variations. Innovative products should therefore preferably by supply through responsive supply chains that is more flexible and more capacity to process market characteristics. Functional products are featured by steady demand patterns, high volumes and long product life cycles. This type of products is best supplied through physically efficient Supply chains that emphasises cost reductions and high utilization. The other two combinations are assumed to create mismatches between supply chains and products and results in lower performance.

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Table 1 Characteristics for functional versus innovative product types and physically efficient versus market-responsive supply chains (Fisher, 1997)

Customer satisfaction

4.6.

In recent times companies have realised the importance of customer satisfaction and made this a prioritised key operational goal. It is widely understood that there is a strong link between customer satisfaction, retention and profitability. Loyal returning customer is shown to be much less costly than gaining new ones (Johnsson & Gustafsson, 1997). Customers that are satisfied with their experiences are more likely to continue and increase their expenditures to purchase from the company over a longer term.

Positive customer experience increases the probability of “word-of-mouth”. This means that customers tell others of their positive experience that may generate new business (Naumann et al. 2009). As a consequence of this knowledge it has become more important for companies to make investments in activities that increase customer satisfaction. Improving common activities has made companies investing in relationship management to approach customers to better understand their underlying needs (Hill & Alexander, 2006).

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the difference between what customer anticipate and what they receive, regarding the fulfilment of some need, goal or desire”. Spreng et al. (1996) states that customer satisfaction is influenced through “…assessing of the degree to which a product’s performance is perceived to have met or exceeded his or her desires (desires congruency) and expectations (expectation congruency)”.

Figure 7 Direct effects on profitability of the components of the satisfaction sequence. (Oliver, 1997, p. 403)

To pleasurable fulfil needs and expectations it is necessary for companies to understand what aspects influences customers perceptions. In order to deliver values of quality it is important to understand expectations of factors such as responsiveness, reliability and reassurance that needs to be fulfilled and exceeded (Wong, 2000). Understanding what customers sees as values and how they form expectations and value perceptions is therefore critical to deliver perceived quality. According to Porter (1990) perceived customer value is the main variable of customer satisfaction. What customer perceives as values may not correspond supplies thoughts. This purports that key activities for suppliers is to determine actual perceptions of customers and not only rely on internally generated information to what may satisfy needs. Companies may demonstrate great results on set up key performance indicators (KPI) to assess their performance. However, if KPI values do not conform to customers actual perceptions they are representing a false truth (Hill & Alexander, 2006)

Customer loyalty

4.7.

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for switching to another supplier. According to Porter (1990) customer-perceived value can be described as the ratio between total benefits received to total sacrifices made. The sacrifices include both financial and non-financial aspects such as the time searching for other suppliers as well as costs of performing this activity.

Perceived value is evaluated from the experience of actual service in relation to customer expectations. Switching to another supplier is often associated with switching costs that deter customers from doing so and encourage maintaining beneficial relations (Lam et al. 2004). This signifies the desire to be in a valued relationship means loyalty can be described as similar to committing a business relationship (Morgan & Hunt, 1994). A supplier that satisfies customer’s expectations for what is considered values naturally increases the probability of repurchase from the same supplier again. For that reason, customer-perceived values are positively related to customer loyalty (Sirdeshmukh et al. 2002).

According to Oliver (1999) customer loyalty is directly influenced by customer satisfaction (Figure 4). Previous exploration in this field shows that increased satisfaction among customers results in a higher degree of loyalty and thus repurchase intentions (Andersson et al. 1994) However, the reverse that loyal customer are usually satisfied is not at all times true (Oliver, 1999).

In business-to-business environments there are a number of identified factors that directly influence on customer loyalty. These directly affect the choice of supplier and directly constrain the ability to fully predict on customer loyalty (Naumann et al. 2009). According to Lam et al. (2009) there are two primary factors affecting loyalty. The first one is because of mergers and acquisitions. This influence loyalty through staffing reductions by affected personal relations with customers resulting in poorer responsiveness and more uncertainty. The second one is through slow-down of internal growth of typically marketing and sales activities. Naumann et al. (2009) points out that customer that are more price-sensitive are less loyal.

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26 Service quality

4.8.

There are a wide variety of descriptions of the meaning of what a service is. Basically it can be described as an industry, output or process. The service process implies different factors for how the product deliveries are made from interpersonal interactions and skills (Seth et al. 2006). Grönroos (1984) describes service quality as “the outcome of an evaluation process, where the consumer compares his/her expectations with the service he/she perceives he/she has received”. This means service quality is two-fold from provider perspective and from customer perspective. Service providers’ perception of what quality means is often neglected as customers are the ones receiving the product or/and service (Parasuraman et al. 1988).

In industries where offered products have inseparable features it becomes more important for manufacturers to differentiate themselves from competitors in service quality activities. Lee et al. (2000) indicates that service quality is something that influences customer’s perception of their experience. There is a proven relationship of service quality with customer satisfaction, customer loyalty, lower costs and improved business performance (Figure 7).

The underpinning factor of providing service quality is customer focus through effective customer oriented supply chains conforming to end customer needs (Crosby, 1979). Service quality is manifested not only to impact on customer satisfaction but also impacts on the overall business growth (Seth et al. 2006). Tiers in supply chains directly affect one another and units providing poor service quality may directly cause a knock-on effect where not only the units business itself are affected, but might threaten the entire long-term survival of the supply chain (Crosby, 1979).

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Customer relationship management

4.9.

Customer relationship management involves utilising customer-related information or knowledge to enhance the understanding for how to ensure customer satisfaction. The aim of this approach is to understand what is perceived values to customers in delivered services. This helps companies to provide better, more appropriate and higher values to customers. Customer relationship management activities also promote establishing long-lasting relationships with chosen customers by approaching them to maximizing the market share.

Activities include marketing, service, sales and relationship building supports a company to find and retain customers. Hence it is possible to conclude that customer relationship management is more of a business strategy rather than a functional strategy that supports companies to achieve customer loyalty, retention and profitability (Temporal & Trott, 2001). It is influenced and built upon relationship marketing and is defined as:

“a process where the firm in such a way constructs alliances of long stated period with current or potential customers, of form that buying and selling works in direction of a common set of specific objectives” (Evans & Laskin, 1994)

To understand preconditions of customer motivations and behaviours it requires that there is working channelling, interaction and information exchange between parties (Shaw, 1999). As with any other business strategy to make it successful it requires that it is strategically managed from a holistic and coherent perspective with clear objectives. A key activity in the strategic management of customer relationship management involves the combination and classification of customers into different segments. Selected customers should be the one that most profitably serve and shape the interactions and services between the company and its customers.

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 Business processes;

 Technology;

 People

Activities strive to adjust business processes directed to customers, including activities in all departments of the company. Technology is concerned with providing products and services that adds value to customers and information technology that promotes interactions. The people aspect is very important for the social marketing of services and requires great communication skills (Chen & Popovic, 2003).

Customer complaint behaviour

4.10.

Customer complaints can be described as customers protest against a company’s products or services with aim to receive an apology, exchange, refund or improvement (Singh & Widing, 1991). Customers have different intension with complaining. Some is looking for a recovery action while others just want to comment on a current situation. The complaint itself is a form of reasonable or unreasonable negative feedback from customer that can be used to help companies improving its services (McCole, 2004). Maute & Forrester (1993) argues that companies are offered a second chance when customers forward dissatisfaction or complaints. It is shown that in relationships where complaints are addressed between participants there will be a more positively long-term stability in the relationship (Sharma et al. 2010).

When a customer reacts to an unsatisfactory experience it is done through first an initial action and then a subsequent action. Initial actions follows after the business transaction of a product or service has been made. The subsequent actions are a reaction that follows to the business reaction. Actions from dissatisfying experiences can be divided in three different proceedings exit, voice and loyalty (Hirschman, 1970). Exit actions are most likely worst for companies where customers actively and destructively reduce their spending’s or complete stop buying products or services from the supplier. The relationship is consequently impaired without complaining and telling the company of its reasons.

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5. Empirical description

This section describes current business processes of Schneider Electric buildings relevant to this study. In order to describe processes more circumstantially, business process mappings are illustrated to clearly present external and internal flows.

Internal and external flows

5.1.

Schneider Electric is divided in a number of segments that altogether provide customers with total solutions to their needs. The corporation consists of several supply chains with flows between units in each division. Each individual unit in the supply chain are part of value-adding processes of products and services in different respects. When the value-adding stage of one unit is completed products are distributed upstream to next tier (internal customer) in the supply chain. Figure 8 demonstrates the supply chain for a part of Schneider Electric Buildings division, one of many divisions in the company’s business portfolio. Products are partially manufactured at different production sites and afterwards distributed to the production site in Västerhaninge in Stockholm before forwarded to internal customer of different categories worldwide. Some products are completed in the initial production and only supplied to the distribution centre located in Västerhaninge. Figure 8 presents production sites in this specific SC.

Figure 8 Global supply chain of production sites and central distribution centres (Schneider Electric, 2012)

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finished goods. This internal flow is demonstrated in figure 9 and is described in more detail further in this chapter.

Figure 9 Internal logistic flow in Västerhaninge production site (Schneider Electric, 2012)

5.1.1. Order process

In the order process customers places purchasing orders to the company’s order department with specifications of products and volumes. This is performed electronically via EDI system, e-mail or fax. Purchasing orders are registered automatically by electronically systems or manually by employees with main responsibility for the particular customer in the order department. When completed, customers receive an order conformation with information regarding planned delivery date for each product category. There are pre-determined order points according to demand patterns of what production capabilities can manage under normal lead time. Purchasing orders exceeding this capability is provided with a delivery schedule for partial deliveries or a longer lead-time if a total shipment is preferred for complete shipment.

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Completed registered orders in ERP (economic resource planning) and MRP (material resource planning) systems generates a manufacturing or assembly order electronically to the production to what products to produce and how much. The production unit also works as local distribution centre that supplies ready-made products from a prior manufacturing unit in the SC. For those products electronically purchase orders is transferred via the EDI system to purchasing departments that order requested products from suppliers.

5.1.2. Purchasing

The purchasing department can be described as divided in two different types of purchasing activities. One area are responsible for the purchasing process for supplying and making sure that production have available materials to locally manufacture products at the site. Strategies for purchasing to be efficient are based on Toyota concept with lean manufacturing, kanban and just-in-time. This ensures material is ordered to minimize inventory levels and at the same time make sure materials are available in stock to maintain steady production flows to avoid variation in production and risk for stagnant production.

Purchasing’s are based partially on previous years demand (purchase-to-stock) and customer order driven supply (purchase-to-order). The process of being flexible to changes and variation in demand driven orders is significant to the performance. This is supported by strategically continuously monitoring’s through planning systems and cross-functional communication between departments. The other part of the purchasing department works with sourcing products from suppliers for onward distribution to customers. There are over hundreds of different suppliers providing different materials and products for cost efficiency and to reduce dependency and risk if one supplier end up with bankruptcy.

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The production is divided into several production cells specialised in producing different product categories. Manufacturing processes works according to Schneider Electric production system based on lean manufacturing to maintain a high level of efficiency with consistent production flows and avoidance of production variations. Productions are partially demand driven by production-to-stock of products with a high turnover rate (ex-works) and partially order-driven manufacturing-to-order. Delivery concepts for product categories manufactured are derived from time it takes to manufacture a certain amount of products. Ordering points are set according to available capacity. In accordance with the lean strategies, manufacturing cells are flexible and mobile to control productions of products that are most primary at the particular time to prevent delays. Products consist of several components that are initially manufactured in machines. In every stage of this process quality tests and inspections are performed were products are tested electronically and manually to minimize production errors.

Products are completed by assembly of components manually by personnel in each cell with quality inspections and tests. Each cell receives manufacturing orders through the planning system with signals of amount to be produced of each product category. Materials are ordered from the material supply team supplying components from stock to assemble. After assembly and quality inspection are finished, material supply team transfer products to stock and register them into the planning system as ready for dispatch. Signal is sent to the logistic department that dispatch products to customers on planned dispatching date when ordered quantity of products is in balance.

5.1.4. Inventory management

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Inventory management is key activity in this business and is managed through kanban and lean strategies to weigh on stock levels. High stock levels reduce lead times and increases delivery security. However, high inventory levels brings additional costs of working capital, costs for storage area and risk that products become obsolete and cannot be sold. An important activity of inventory management is forecasting for future demands to avoid under- or overproduction and minimise risk and costs.

5.1.5. Distribution

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6. Results

In this section, the result of the empirical study based on the situation analysis is presented. The first section presents some general findings for all respondents together. In further section, results are more detailed and respondents are categorized by different criteria’s.

Overall results

6.1.

The obtained results of customers’ perception and experience regarding service quality and product deliveries are translated into understandable and applicable information to analyse. The results of questions asked in the survey are connected to each other by cross tabulations and are narrowed down to different category levels to see specific results. This section presents results from the total amount of participants responding to the customer survey conducted.

The overall findings using ASCI index (1-10 rating scale interpretations) in this section concludes that more than 50% of the respondents have been a customer and used the company as supplier for more than five years. Three out of four respondents are using SE as supplier for more than 50% of their products in relevant fields. 65% of the participants are very satisfied with the relationship and the company as a supplier. About half of the respondents specify that Schneider Electric Buildings AB has a very good understanding for their business, and three out of four are not likely to switch to another supplier.

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36 Results per business category

6.2.

To further intensify overall results from respondents altogether, results have been narrowed down to different respondent categories. In the initial part of the survey, respondents were asked to make an active selection between three categories of what most closely described their type business. The categories were:

 Project sales (PS1)

This type of business is characterised by purchases of product and goods directly to large and complex customer projects such as building hospitals or office buildings.

 Distribution centre (DC)

Characteristic for this type of business is warehouses or other type of specialized buildings where products are “purchased-to-stock” to later be distributed to wholesalers, retailers, or directly to customer projects.

 Product sales (PS2)

This business is characterised by wholesalers and retailers that purchase products to official stores for customers with smaller projects.

From table 2 it is possible to discern that the business category that provided generally highest scores (mean value) and most unanimous was respondents describing their business as DC. The latent variables measuring customer satisfaction and loyalty indicate a result of over 80% consistently. It was shown that these respondents had the greatest inclination and ability to improve business operations in the relationship. Noteworthy is that DC respondents are least satisfied with lead times, delivery information, mutual understandings and reciprocity in the relationship.

Respondents describing their business as PS1 or PS2 are less satisfied compared to the prior in this study. Results from measured variables related to latent variables measuring customer satisfaction indicates mean values ranging between 62-72% with a double spread of opinions among respondents. PS1 considered the performance of packaging quality, delivery information and service capabilities to help when problem occurs as less satisfying compared to other measured. These customers indicated lowest possibilities to improve the relationship.

Customer Conformity in Segmented Supply Chains

Victor Walldin