CSCMP's Supply Chain Quarterly
February 22, 2020
Forward Thinking

Supply chain lessons from a small business: going beyond the product

A trip to visit a small retailer in Mexico revealed insights about customer experience that supply chain professionals at companies of all sizes should take to heart.

Let's start with a simple exercise: Write down what you believe your organization's overall strategy is. Now, go and briefly meet with the other managers at your organization individually, and ask them what they believe the organization's strategy is. Make sure to write down each response on the same piece of paper that your response is written on. When you have completed this exercise, compare everyone's responses to yours.

Papeleria Liz sign
In spite of its low-tech operations, Papeleria Liz, a small local retailer in Mexico, can provide big lessons for companies setting supply chain strategies.

Chances are that you received a lot of different responses, some of which may even contradict each other. Now, which of these different organizational strategies is your supply chain strategy aligned with?

Without a clear organizational strategy, most supply chain managers typically revert to creating their own supply chain strategy. And rightly so. A supply chain needs a strategy, even if it is siloed as a byproduct of the failure of the organization to create a unifying one.

What is your supply chain strategy, and why? Do you describe it as the clichéd, product-focused strategy pitched to every boardroom each quarter: having "the right product, at the right place, at the right time, in the right quantity, at the right cost"? This "five-R" strategy raises the question: How do you define "right" in your supply chain? A good strategy should answer this question and more.   

The short story that follows is our journey to an unlikely place that provided us with a unique perspective on strategy. We will take you on this short journey with us, where hopefully you too will experience what we did—the potential impact of a powerful strategy.

Finding inspiration in the "Valley of Windmills"

We were on the road an hour away from Guadalajara, Mexico, where we had conducted a workshop for small business owners the day before. As supply chain management graduate students visiting from the Massachusetts Institute of Technology (MIT), we were gathering data and observations for our research project, which involved studying what behavioral management patterns might be associated with small business growth and productivity. Our final destination was Valle de los Molinos, a small town in the northern part of Zapopan, a municipality in the state of Jalisco.

As we drove into the town center, one of our guides and translators, Mitzi, explained that the town's name translates to "Valley of the Windmills" as she pointed to a small windmill in the center of the upcoming roundabout. The town was made up of thousands of apartment buildings that seemed to stretch out into the desert landscape forever. All of the apartment buildings appeared to be the same: three stories tall, mainly white in color. Mitzi said that many people who live there commute to work in Guadalajara each day.

Our agenda was packed with multiple company visits, starting with a small school supplies store in this "valley of windmills." After drivingthrough the maze of apartments, we eventually pulled up in front of the store. It was operating from a first-floor apartment, approximately 600 square feet in size. On the outside of the building was a blue sign that read "Papeleria Liz." We were immediately greeted by Liz herself and kindly welcomed into her store.

All five of us piled into the small store, observing the racks of notebooks, pencils, paints, other arts and craft supplies, and toys. The store had a small cash register counter, and the bedroom had been converted to a "cybercafé" where Liz offered her customers the use of a desktop computer with internet as well as printing services, all somewhat of a luxury in this remote town.

We had dozens of questions prepared, and we were eager to understand more about Liz and the business operations. What we would come to understand about Liz and her life's journey was astonishing and, admittedly, took us by surprise.

Four years earlier, Liz's daughter was in elementary school and needed some school supplies. To her surprise, there was nowhere to purchase school supplies in her community. Liz saw this not only as a business opportunity but also as a chance to fulfill a need for the community. She immediately jumped into action and started selling basic supplies out of her apartment.

In just four years, Liz's business idea had transformed from selling a few notebooks and pencils from her home to a full range of computer services, school supplies, arts and crafts, cell phone repair, and even piñatas. She manages all of this out of an apartment, with no enterprise resource planning (ERP) or customer relationship management (CRM) software. We were greatly impressed with her success and wanted to understand how she had accomplished such amazing growth.

Liz explains the products, services, processes, and vision for her company
Liz explains the products, services, processes, and vision for her company.

We started by asking Liz about her marketing operations. She simply pulled out her phone and opened a WhatsApp group that she had created for her customers in the community. The group was made up of hundreds of contacts that could be reached at the push of a button. But it soon became apparent that Liz's connection with the community is deeper than WhatsApp messages and ads.

Each summer, Liz helps parents plan what supplies their children will need for the upcoming school year. Because the lump sum cost of supplies is typically large compared to local income levels, she helps the parents put together a payment plan. Once the last payment has been made, Liz delivers the purchased supplies to the children. By doing this, she has essentially created her own version of a layaway program for hundreds of customers.

During our two-hour visit, many customers stopped by. It was very apparent that everyone in the community knew Liz and that she had a deep connection with them. We would later come to learn that Liz serves as the president of her local homeowners association and also has an active leadership role in her daughter's school. Liz does all of this as a single mother.

Every Saturday, Liz writes down her inventories in a notebook, determines what she needs more of, and drives to a distribution center in Guadalajara to purchase the supplies she needs for the upcoming week. Ultimately, Liz would like to open more store locations and, eventually, a distribution center (DC) in her community. It is her goal to open one of these within the next six months.     

Liz is currently facing many of the complex business decisions that larger businesses face. Should she open more stores, open a DC, or both? What would be the optimal location(s)? How can she keep consistently high service levels as she grows and hires more people? What is the most cost-effective form of transportation for her supply chain? How will expansions affect her cash flow? Should she extend credit to her customers? Where should the supplies be sourced from? How much inventory should be purchased, and when?

Deeper than data

During our time in graduate school, we found that there is a lot of emphasis on studying large businesses. We analyzed case studies, financial reports, and network models for all of the well-known business giants. But it seems that there is a case to be made for a greater emphasis on the study of small businesses as well. There are millions of small businesses in the world, run by owners and managers like Liz, who are faced with these complex challenges. Some of these managers are successful despite having little or no access to large datasets, advanced technologies, or venture-capital money.

Abou Chacra, Liz, and Joshua Rocha on the right) and Liz inside her 600-foot store.
The authors (Abou Chacra on the left, Joshua Rocha on the right) and Liz inside her 600-foot store.

At MIT, we often take for granted the access we have to high-quality data and cutting-edge technologies. So we thought it would be interesting to ask: How would we do, as MIT grad students, if we were placed in Liz's shoes in the Valley of the Windmills, without these luxuries? Would we succeed and grow the business as well as, or better than, Liz has?

The underlying question here is: What has made Liz so successful? Is it the unique product selection and services that she offers in her 600-square-foot store? Probably not, given that the products are mostly commodities and that many people could mimic the product offering. Additionally, 600 square feet does not provide much retail shelf space. After reflecting on this visit for some time, we have concluded that Liz has succeeded largely because of a clear strategy that goes beyond products, deeper than data, and unexplored by technology.  

Liz genuinely wants to help provide a way for children to explore, create, imagine, and grow through art, reading, and writing; she sincerely wants the children to receive a good education. This motivation is the basic foundation of a strategy that drives all of her business decisions. Liz has taught us that it is not the product that makes the strategy; it is the customer experience and the customer promise that makes the strategy. Jonathan Byrnes, Senior Lecturer at MIT, writes in his book Islands of Profit in a Sea of Red Ink: "The starting point in strategy development must be the creation of value for customers by deeply understanding their real underlying business needs and developing innovative ways to meet them."

As supply chain professionals, we have come to realize that we need to stop trying to describe our strategies solely in terms of products or numbers. Rather, we should strive to create a strategy that provides the "right" customer experience and promise. Having the right supply chain strategy will ensure that an organization provides that customer experience and keeps that promise. So the next time we use the clichéd "five-R" statement, we will know that there is something powerful behind it—a deeper strategy that defines the customer experience and goes beyond the product.

To end this short journey, we leave you with a quote from Sanjay Sarma, Vice President for Open Learning at MIT: "The future is beyond products. Reach beyond your product. Imagine and invent."

Joshua Rocha recently graduated from the Master of Applied Science in Supply Chain Management program at the Massachusetts Institute of Technology. He is now a supply chain manager for Walker Edison Furniture in Salt Lake City, Utah.  Fadi Abou Chacra recently graduated from the Master of Applied Science in Supply Chain Management program at the Massachusetts Institute of Technology. He will join ASML in the Netherlands as supply chain tactical planning expert in October.

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