INTERVIEW
Breakthrough Supply Chains in Complicated Times
With Chris Gopal – Global Supply Chain & Operations Consultant and Educator
Chris Gopal, is one of the world’s most forward thinking experts on supply chain. We first met in the 1990s at Dell Computer Corporation where he was leading the corporate transformation of Dell’s manufacturing logistics to what was at the time the case study of success.
But Chris’ contributions to supply chain thinking are much broader. He was the partner of supply chain services at Ernst and Young Consulting, held similar positions with SAIC, Tata, and IBM and even did a hands on stint in China for several years. His contributions to methodology meant that he was the prescribed reading for APICS certification. His new book ‘Breakthrough Supply Chains’ is a timely reflection on customers, risk, and the fragility of the global trading system.
Richard Owen
Let me start with this, which I hope is a low topspin lobbed to the net. You’ve been in the supply chain, industry for for a while. I’m not going to embarrass you by saying how long, but let’s just say it’s it’s it’s not new to you. When you look back at your career in supply chain, and you think about the things that have really changed over that time period, how would you characterize that?
Chris Gopal
I think there have been a lot of inflection points.
The first inflection point was when we started financializing the supply chain, which is we focused the entire supply chain on dollar values such as accounts payable, inventory, low costs, no assets, all those things that make financial results look so good even if they aren’t, which led to a lot of outshoring, offshoring, and in general lengthening of the supply chain.
The second point was when we discovered that It’s not a chain. It’s a network and a critical part of the network of the supply chain, as we call it, is the customer. And the integration of the customer with the rest of the supply chain is the second biggest inflection point.
And the third one which we are going through right now is the fact that there are certain aspects from the outside that impact the supply chain very, very strongly; things like risk, things like the Ukraine, China, the Sudan, the Houthis, supplier concentration, a whole bunch of things. As well as sustainability issues. So things we call sustainability, which is really a grab bag of everything anybody can think of for the good of humanity, put in one bucket, ESG. And that’s the third inflection point. And the importance of this is one builds on the others. Risk and sustainability are critical factors today in determining buying decisions and sourcing decisions.
So I’d say, Richard, that’s how it’s progressed over the last many years.
Richard Owen
So it sounds to me like, in some ways, because these are layered on each other, the the net result is that the equation for success becomes far more complex.
So almost before all that, supply chain operations and by implication, manufacturing operations, you could argue were relatively simple. You managed costs so that you could build something to high quality, to reasonable, levels of cost. You warehoused it and you put it into a distribution channel and then you shipped it. Now you’re making an argument that if I hear you correctly, you add in risk assessment. You add in the equation of customer impact. You add in the much more sophisticated financialization of this view, and the level of complexity seems to have risen markedly.
Chris Gopal
Absolutely. It is a highly complex, highly networked set of entities, which revolve around two aspects. One, your critical source of supply, and secondly, much more important, your customer base. And it’s that set of trade offs and those sets of decisions that make or break a company today.
Richard Owen
Obviously, given our audience, people, especially in manufacturing, are trying to figure out how to introduce the customer equation more effectively into the decisions they make around manufacturing operations and supply chain operations. How much of this is a consequence of the shift to direct sales? An online commerce implies direct sales in most instances. Go back thirty years and the channel acted as a kind of supply chain buffering system heavy on inventory, with lots of local fulfillment, while online implies lots of direct sales. Is the driving factor for all that the direct sales to customer?
Chris Gopal
Direct sales to customer is one of the major driving factors. No doubt about it.
The second is the fact that a lot of the products, the bulk of the products today, end up in one way or the other in the hands of the end consumer. So even though companies go through channels, that does not define the customer experience. It’s the channel’s customer that defines the customer experience. For instance, nobody will go to UPS and make a complaint about Dell. Nobody will go to Walmart and make a complaint about Lenovo, they’ll go straight to Lenovo, and the responsibility for the customer is now squarely on the manufacturer; the driving force and, the center of the supply chain.
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Richard Owen
And and that that must come as a shock, I think, to some businesses that historically thought that their channel buffered them from that customer relationship. And I’m particularly thinking about COVID experiences because COVID represented a shock to supply chains and one of the impacts, I think, was that a lot of manufacturers who thought their channel was delivering the customer experience, and they were somehow divorced from it realize that the moment they get into problems or fulfillment, the customer turns around and looks right through the channel, right at the manufacturer and says, what are you doing to solve this problem? And the manufacturers seemed in many instances woefully ill-prepared for that. Is that is that a fair characterization?
Chris Gopal
That’s a fair characterization. In fact, that’s very, very well put. The other part that you’ve got to remember is that the changing face of the channel. They now take the customer complaint and point it directly at the manufacturer. It’s don’t talk with me about this fridge. Go talk with Whirlpool. And so it’s all fallen back to the manufacturer. So people who’ve whose job has always been, make it at a low price, supply it at some form of delivery performance plus two days minus one day to a channel customer, build up inventory. suddenly found themselves to be completely adrift. They have to operate through a new set of parameters and rules, which has left many of them really in in trouble.
Richard Owen
Yeah. So I think this is a really interesting observation. Any shock to the system, and okay, COVID was one shock, but when you talk about other risks, by implication, fragile supply chains, represent just a collecting ground for risk, right? And this is one of the points you make, especially in your new book, and which I’ve seen in other speeches you’ve made, risk, risk to supply chain has changed our notion of what supply chains should be. Could you elaborate a little bit more on that? How should companies respond to a riskier world when it comes to supply chain design?
Chris Gopal
Well, there are several ways. And and these are things that we’ve always done but sometimes ignored because we were seduced by the prospect of globalization where everything moves smoothly. There are no hiccups. You know, you buy from somewhere at a low cost. You can sell it anywhere. The famous Carl von Clausewitz notion of the frictions of war never entered our minds. They do now. It turns out that countries operate in their own interests. Other countries and other consumers don’t operate on our social values or the things we think are should be our social values.
The notions of the past which is inventory is bad for you, consolidation is good for you, have all gone flying out the window now because those are the things that mitigate risk, diversification, and inventory, and redundancy.
So the end result is supply chains are shortening. People are bringing stuff in shore, on shore, and this new concept, and it’s not new to you, Richard, but it’s new to a lot of manufacturing and supply chain people, and that is the supply chain drives the customer experience.
The term customer experience is new. And the concept that supply chains drive the customer experience is even newer, and people are wrestling with that right now. Because that requires a whole different look at costs, a whole different look at metrics, a whole different look at priorities and structure.
Richard Owen
Yeah. That’s an interesting segue. One of the things that that I thought you asked as a rather thought provoking question here is what do manufacturers actually sell and you question whether indeed they are selling the product. Could you could you elaborate a little bit on your thoughts on that?
Chris Gopal
Oh, absolutely. The days of selling a product have gone, long gone. Today, what we sell is something physical, wrapped in information, wrapped in a service across the life cycle of the customer. And that’s what companies are trying to get to grips with.
In addition to supplying a product, something physical, they supply information with it back and forth, real time, not real time, analytics of the customer, how the customer buys, they supply a service on time in full delivery, perfect orders, things like that, that they’re just now starting to come to grips with. And the people who come to grips with that quicker are the ones who excel. For instance, Amazon has always looked at itself as a supply chain company, while Walmart never has. They’ve looked at themselves as a supply and retail company. However, now they’ve changed and they’re competing head to head as supply chain customer experience companies, and a lot of others are going to follow suit.
Richard Owen
As you said that, what sprang to mind was, a company like Kone, for example, the the elevator manufacturer, almost redefining themselves as an internet of things company because now the money in the elevator business is in service, which is a very competitive market. And the types of products and services that make service cost effective is IOT types of products. So information about the failure rates of an elevator. Whenever I talk about failure rates of elevators, I always have this horrible sense that that means it’s gonna plummet from the thirtieth floor down, which of course, not not how it actually works.
But this this kind of information wrapper, is this one of the things you’re alluding to that we’re we’re not just dealing with information about about the performance of supply chain? We’re also dealing with information as part of the product?
Chris Gopal
Oh, absolutely. That that example strikes very close to home. Because as I think you know, Richard, I have a Kone elevator at my house. And in one of the failures that happened a long time ago it stopped midway, because a switch gave way. And I was stuck inside for, well, half an hour. It’s not a pleasant experience.
Now we’ve got a lot of things that I’m paying a lot extra for in terms of information technology that talks directly to Kone. They can monitor everything, and I gladly paid for that because it’s part of the customer experience and the customer assurance part of it. That’s it. The elevator is the same elevator that has been here since almost forever. It’s everything around it that’s changed that makes me want to stay with Kone. And I wish they did more and I would like them to do more, but I’m sure they’ll get around to it sometime.
Richard Owen
I think that’s an interesting first-time experience. And that could presumably be extended to the vast majority of manufactured product, right? If people start to think about the the core product, and the extension of that product into information services, that represents perhaps the new battleground. Elevators are a good example because, as you said, the core product hasn’t changed that much at the end of the day.
But the ability to leverage information and data around these products is an incredible opportunity for innovation, wouldn’t you say?
Chris Gopal
Absolutely. In fact, many manufacturers today are dealing with this concept of monetizing the information. So who’s buying? What are the patterns they’re buying with?
How much am I serving them with? For instance, this notion, you know we’ve always had notions Richard, way back in the day when we talked about total landed cost. And then some smart people said, and so, you should talk about total cost of acquisition. Oh great! Or spend analysis or target costing. But today, the big thing is cost to serve. What are we actually providing to our customers? How much is it costing us? And do we want to continue that or add to it.
Adding to the cost to serve is, we call it, a delivery quotient, emotional quotient, auto quotient. All these terms have come up. Where we try and gauge the, the psychology of the customer, in order to provide more services and charge them more for it. And more importantly retain the customers. So customer retention is a big part of the supply chain now.
Richard Owen
Which which leads to another observation you’ve made, which I think is very interesting. And perhaps seems like an idea that’s not new, but is still not fully embraced by a lot of companies in the manufacturing field, which is this idea of high degrees of customer segmentation and different service levels for different groups of customers and the whole profitability, cost to serve, you know, executions or frameworks that enable you to subdivide your customer base, or as I think you put it, all customers are equal, but some are more equal than others. Could could you talk a bit about embracing this idea that companies need to become much more thoughtful about the different segments of customers and how they serve them and how they ultimately make profits out of those different segments?
Chris Gopal
Oh, absolutely. As we said, what manufacturing companies sell are products wrapped in information wrapped in a service. All of those cost money. When we sell to a customer and try and satisfy their needs, we do it in two ways: reactively to their order and proactively to help them buy more, to pay more.
Given these, the whole issue arises of which customers should we focus on for profit, which customers should we focus on for strategic reasons, not related to profit, and which customers should we focus on cutting back services so that we can make them profitable. Or explain to them how they can pay more to get some of those services.
These are strategies that people are using based on the data that they get from sales, to customers, from manufacturing outwards.
Richard Owen
I’m reminded that one of our previous guests on, on this podcast, Das Naryandas from Harvard Business School, used to have a have a two by two matrix and in one corner there were customers that were neither well aligned with the business, not profitable, And he he he used to call them strategic customers because the only explanation anyone could ever give for why they were doing business with them was because they were, quote, strategic.
There was absolutely no logical reason to be doing business with these people. Especially when you start to get into questions of lifetime and recurring business, it seems it’s critical to understand this cost equation, not just in terms of the initial product, but in terms of the lifetime. Right? So is is customer lifetime value now sort of colliding with traditional manufacturing thinking as being something that that’s going to have to redefine how financials work in in manufacturing companies.
Chris Gopal
Oh, absolutely. They will never redefine how financials are reported because the SEC moves at the speed of one of these Norwegian glaciers that we read about. It’s more how management uses the information. And that’s a critical piece of it because we are now looking at costs and working capital. So there are two pieces to this, Richard, as you know, there’s the cost involved that we pay for services and information and all that. And there’s the cost involved that we use to finance the business. The working capital classes.
How the combination of those focuses directly and relates to a customer? I’ll give you one quick example here.
Adding to the cost to serve is, we call it, a delivery quotient, emotional quotient, auto quotient.
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So there’s this company that in order to save costs, has gone offshore to buy and make stuff. They process the order and the stuff is shipped directly from the manufacturer to the customer, and you’d think that’s a wonderful thing. And they thought it’s a wonderful thing. It bypasses all the middlemen and it comes directly. Of course, it can’t work. What they sell can just barely get through the minimalist laws, but then they found out that they were not getting any customer retention. People are not buying again and again and again. And one reason was that the variability of the delivery from supplier to the end customer was too great. Secondly, when the end customer called about something, they didn’t have the information because it was provided from somewhere else.
And all these things got together when they realized that they were losing customers because of the supply chain and the way they handle the costs. It wasn’t just a cost per product. It was the cost per customer and per customer lifetime experience. So they started changing that. They started looking at different product parameters, pulling some onshore all for the basis of providing the customer that customer experience that was profitable. So it’s it’s made things very complex as you said.
Richard Owen
There’s a tendency to think that channel approaches in general, you know, B to B to X, if you like, are just an obsolete approach. We’ve seen over thirty years now, a shift towards direct and the internet has increased that. What what do you think of this as the future for indirect execution? And I don’t just mean sales, but the actual fulfillment mechanisms through through channels. Is it simply a dying tendency, in which ultimately we’re going to end up with cars sold like Tesla. You’re going to go into a local mall, and and there’s gonna be a very tight showroom, you’re gonna place an electronic order, and forget dealers, you know, point of sale inventory is an obsolete idea, or do you imagine a future where indirect distribution and channels fit into this new universe of supply chain execution, adding value equal to or greater than the cost. And therefore serve the customer better and serve the shareholder better?
Chris Gopal
I think it’s the latter. I think channels are finding the position now, the things they should be doing, they’re not just a bunch of sales people going around and selling stuff.
They’re aggregators. They’re aggregating product from different manufacturers from different things. They’re service providers. They’re counseling customers on the products. They’re the one shop for providing product and order fulfillment information to the customer. They’re the one showroom pulling together multiple multiple source of supply into one. Consider Avnet for instance. They’re a services company, but they’re also an aggregator. They provide the help. They provide value added services. So I think channels are changing, and they are changing fast.
Richard Owen
So that’s an optimistic view in part in saying that you think intrinsically there’s a high value role for these models, but not sort of the model that existed twenty, thirty years ago where it was easy margin just from literally warehousing product. It’s really much more of an emphasis on value add if I hear you.
Chris Gopal
Absolutely. In fact, that’s a growing term among a lot of distributors now: value add services, what can they do to help the consumer?
Richard Owen
Well, they’ve often called themselves value add, but it tended to be a bit of a euphemism in the past, right? I mean, possibly “cost added” might have been a more accurate description. But now, perhaps we’re being a little more honest about it.
I’d like to switch and talk about your your your most recent book that you published last year, which is entitled ‘Breakthrough Supply Chains – How Companies and Nations Can Thrive and Prosper in an Uncertain World’. The headline implies that risk you know, risk and stability in supply chains is obviously one of the one of the big ideas behind behind the book. But how would you communicate the handful of concepts that you really wanted to get across when when you when you wrote the book?
Chris Gopal
Well, I’ll tell you the book came about when we had a lot of discussions with executives and policy makers about the supply chain. Things were breaking all over the place. So we came up with several different concepts behind the book. The first was that supply chains over the last fifteen, twenty years were built to break. They were built to encompass an economic system of neo liberalism and globalism, which never really existed in real life. And so once it started falling apart, bad things began to happen.
To add to this, companies financialized their supply chain to reduce working capital, minimize inventory, just in time, send assets offshore, try and get to the lowest cost, which made their supply chains very fragile.
The third was this concept that the supply chain is not a supply chain. It’s an entire network that stretches from the point of supply, first supply to the customer and back. The ‘back’ is very important.
So those were the things, how do you treat the customer differently? How do you look at supply as a strategic, focal point in what you do? How do you measure things differently? How do you deal with risk today? And one of the major aspects of risk, and I hate to take this point of view because people think I’m, you know, I hate the planet and I hate my fellow man and so on, but sustainability is a risk that companies have to deal with. No company is in the business of saving the planet. We are in the business of helping shareholders. The question is do we help only shareholders or do we help stakeholders? And how do we go about that? So sustainability is a risk.
So those are the focus points of the book. And one of the key focal points of the book was its extension of the supply chain into the customer. Because that’s what drives customer experience. All the way from when a customer before a customer thinks of a product, right to making the customer think of it, buying it, selling it, servicing it, disposing of it and reselling it to the person and starting the whole thing over again. That’s the life cycle. That’s the money part. And the supply chain has to integrate with that.
Richard Owen
The the more the more I hear you talk about this, what strikes me is that in some ways, some of the factors that have shaped just about every company, whether it’s selling, you know, atoms as a product or bits as a product. At the end of the day, you’ve got this issue of how you successfully retain customers over the long term, how you get repeat purchases, right? This is a kind of universal norm now. The profitability is not in necessarily the initial sale, but it might be in post-sale revenue streams. But manufacturing feels a little late to the party in terms of embracing these ideas.
And, is that a fair characterization? And, if you agree with that characterization, why why is it taking so long? Because you know, I I hear you and obviously agree very strenuously about this idea of customer being part of supply chain, but we could have had, and I think probably did have this conversation twenty years ago. And the progress hasn’t been hasn’t been anything like as much as you might have expected or certainly not close to the pace that the digital companies have progressed, the the bits companies. So the world of atoms seems to have been much slower. Is that fair? And if so, why why do you think it has been so slow in manufacturing?
Chris Gopal
It is completely fair. The increase in that is now exponential, starting from a few years ago. And as I said, manufacturing companies, including the ones we worked with, were built on several bases: neoliberalism as the economic philosophy, shareholder primacy, which basically talked about globalism, you know, the world is flat type of thing. We, you, bought from some country. It would come beautifully by ship. We’d send it over by air. There’ll be no problem. They pay a little customs duty, pay a little taxes, but the countries themselves didn’t figure at all into this.
Starting from COVID, we’ve started to have what we call the hundred year cycles, crammed into five years. COVID was a pandemic of the type that was global. All these things are global now, not local. The last thing we had something like COVID was in the nineteen twenties with the Spanish flu, which destroyed everything.
On the heels of COVID came the thing that everybody talked about, but nobody expected to happen: the Russia-Ukraine war, which has turned into the Russia-Western war.
On the heels of that, we have the Israeli Hamas war as well and the Houthis shooting at everybody. And we’ve now got other things in there including Chinese territorial ambitions, and the scare of supply chains falling short with semiconductors and pharmaceuticals and everything that we’ve outsourced offshore.
All these things in a matter of a few years have changed the mindset of people. We now see manufacturing as a critical part of what we do, a critical part of managing the customer, satisfying the customer, and being part of national security. And I think that’s what’s changed. Let’s not forget about the nasty things, the big Chinese floods in the Three Gorges dam as well, which nobody spoke about, but happened. So there was that.
Richard Owen
I’d seen the stat, and I can’t cite it immediately, about the shift of product geographically from the United States away from China to sort of ‘friend-shoring’ strategies. And probably just one of the biggest numbers that people have missed is how much America has re-sourced It’s supply chain away from China. And that’s, you know, a huge disruption, for a country that’s been familiar with, Chinese-manufactured product. And of course, contributes in some ways ties into an inflationary environment where we were running an economy very much focused on lowest cost, and now we have to deal with inflation.
So I think what I take away from your comments, and I think we could certainly expand upon it a future conversation, is that these macro equations have reshaped risk in these industries. But at the end of the day, if your north star is is creating great shareholder value through being able to serve customers really well, it forces you to make different tradeoffs in terms of risk mitigation so that you can ultimately deliver on that promise. And that’s a level of thinking and sophistication that’s, I think, relatively new for a lot of manufacturers, but going to dominate the winners for the next ten years. Is that fair summary? Are we we on the right path?
Chris Gopal
Yeah, absolutely on the right path. Let me just relate in closing, a comment that I heard. I was in Washington recently talking about some things like this, and we looked up, and we looked at each other and said, you know, nothing has changed since the industrial revolution or even before. You have somebody to supply something. We have to get it quickly and make it, and somebody has to buy something. And they have to keep on buying it. And if you don’t have somebody buying and keeping on buying, there’s no point in having the rest. So the middle part is great for enabling it. What is the front and the back? And so we cannot lose sight of that.
Richard Owen
That is a great point on which to end the conversation. Chris Gopal, thank you very much, and, congratulations on getting the book out and the continued timeliness of this conversation. Thank you very much.
Chris Gopal
Thank you, Richard. I appreciate it. Thank you.
All these things in a matter of a few years have changed the mindset of people. We now see manufacturing as a critical part of what we do, a critical part of managing the customer, satisfying the customer, and being part of national security.
ABOUT THE CX ICONOCLAST(S)
Chris Gopal is an accomplished figure in the field of supply chain management and operations and has recently published Breakthrough Supply Chains. He is a faculty member at the University of Southern California (USC), where he contributes to research, teaching, and thought leadership. Dr. Gopal has co-authored influential books related to supply chain strategy, emphasizing resilience, agility, and sustainable practices. His impact extends beyond academia, influencing both enterprises and public policy.
Richard Owen is celebrated as a leading figure in the Customer Experience industry, primarily known for his contribution as CEO at Satmetrix, where he and his team, along with Fred Reichheld, developed the Net Promoter Score methodology, now the globally dominant approach to customer experience measurement. His efforts further extended to co-authoring “Answering the ultimate question” with Dr. Laura Brooks, establishing netpromoter.com, and initiating both the NPS Certification program and a successful conference series. Owen’s diverse 30-year career has seen him drive technology-led business transformations at Dell, lead software companies like AvantGo to a Nasdaq listing, and Satmetrix to acquisition by NICE Systems, while also engaging in venture investment and board roles. Today, he spearheads OCX Cognition, leveraging machine learning for real-time NPS and customer health analytics.
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