After a very enjoyable first semester back in the classroom, I am now in the third week of classes for the Spring Semester at Augusta University. This semester, I am teaching two courses that focus on operations and supply chain management (O/SCM); one at the undergraduate level and one in the MBA program. While the study of O/SCM delves into such topics as process analysis and improvement, product and service design, capacity analysis and planning, quality management, inventory management, sourcing, and logistics, the essence of O/SCM in a business is to produce the goods and deliver the services that the firm offers to its markets. Therefore, before I start delving into the various elements and topics of O/SCM, it is critical to stress to the students that the reason we need to learn all of those topics is to understand their impact on the ability of a firm’s goods and services to provide value to the customers in its markets. This lesson of providing value is not only important to undergraduates preparing to embark on business careers and MBA students aiming for more senior positions in their organizations, but also to those of you competing for customers every day. Today’s column will help you better understand value in the eyes of your customers and through the context of what we call order qualifiers and order winners.
Connection between strategy, marketing, and O/SCM
One of the first things that I stress to my students in O/SCM courses is the important connection between the functions of strategy, marketing, and operations/supply chain in a business. Basically, strategy determines how a firm is going to compete in its markets. That is, how is the firm going to create a competitive advantage in order to win customers who will purchase their goods and services. In order to have a competitive advantage, a firm must do one or more things better than its competitors, and it must be something that its customers value. Then it is marketing’s job to communicate to customers a “value proposition” (see my column in the Augusta Business Daily on May 30, 2023, for more on value propositions) which is to attract them, and it is O/SCM’s job to then deliver on that value proposition. Before going any further, we need to better define “value” and how to best think about value, as we try to attract customers to buy our products.
The first important thing to realize about value is that it is in the eyes of the beholder. Therefore, the concept of a “target market” is very important. Within a larger market, a target market is a group of customers who assign a higher value to a particular characteristic(s) or attribute(s) of a product.
For instance, Volvo has traditionally targeted potential automobile buyers who value safety more than any other characteristic. There are many different characteristics that some customers value over others, such as low price, various types of performance quality, conformance (consistent) quality, customization, and customer service. It is critically important for companies to understand the relative value its target markets assign to each of these characteristics or attributes. Typically, a firm’s value proposition will highlight the one or two attributes that it does better than its competitors and that its target market values. It is the responsibility of O/SCM to ensure it truly can provide those better attributes.
It is important to realize that even if you are the best at a most valued attribute, you cannot ignore the other product attributes. That is why the concepts of “order qualifiers” and “order winners” are important when delivering value to customers. Order winners are easier to understand than what I described in the paragraph above. They are the competitive characteristic(s) (usually one or two) that cause a customer to choose a company’s product. It is basically what the firm does best and matches what the target market values most. However, you cannot even compete for business if you do not meet the “order qualifiers” for your market. Order qualifiers are the minimum characteristics that a firm’s product must exhibit to be a viable competitor in the marketplace.
For instance, in the fast-food market, if your price is way too high or your service is way too slow, it will not matter that your performance quality (taste) is the best. For years, McDonald’s has won business from its target market (families with small children) because it has been traditionally the least expensive, fastest, and most consistent (attributes that its target market values most), while it has performance quality and customization that meet order qualifier levels.
My message today is that your operations and supply chain management are keys to your success in your marketplace. However, everything you do in the O/SCM area of your company should be focused on delivering what your target market values. If you have not done it recently, do an “audit” to ensure you know what your customers value and make sure the O/SCM function of your business is delivering what they value, particularly what they value most.
