Chapter 13.6. “Marketing and Supply Chains”
Shankar, V. Proceedings of a workshop: Supply chain management practice and research status and future
directions, April 18-19,(2001), 5.1-5.19.
 Background
The adoption of supply chain management techniques in firms is groping at a tremendous pace. At the
same time, marketing continues to be a critical function in firms. Traditionally, supply chain management
has been thought of as a back-end function while customer relationship management, an important aspect
of marketing, has been viewed as a front-end or customer-facing function and these two functions been
practiced separately. The constant search for competitive advantage, however, is pushing firms toward
developing an integrated approach to both customer relationship and supply chain management. Although
separate literatures in supply chain management and marketing exist, not much is known about the
interrelationship between marketing and supply chains. This article provides a conceptual understanding
of interrelationship, advances an integrated approach to demand and supply chain management, and offers
an analysis of the key issues involved in this area. It suggests an effective strategy for companies to
develop an integrated demand and supply chain and offers a view of the future of marketing and supply
chains. An integrated demand-supply chain can be approached in two major ways, namely, simultaneous
excellence in SCM and CRM and pursuit of new value propositions. Companies can develop and manage
an integrated demand-supply chain through a systematic procedure starting with audit their demand and
supply chains and ending with monitoring results and control. The future of the integrated chain is likely
to become more complex due to evolution of e-marketplace.
1. Introduction
The issue of supply chain management (SCM) has come to occupy center-stage in supplier-buyer
relationships. The adoption of SCM techniques in firms is growing at a tremendous pace. In fact, supply
chain management consulting today constitutes a major part of the revenues for top consulting firms. The
supply chain management consulting industry alone is estimated to be around $1 billion (fortune 1998).
In fact, the stated mission of i2, the largest supply chain management consulting firm in the U.S., is to
offer $50 billion worth of savings in supply chain management to its clients by the year 2005
(www.i2.com). At the same time, marketing continues to be a critical function in firms. Traditionally,
supply chain management has been thought of as a back-end function while marketing has been viewed
as a front-end or customer-facing function and these two functions have been practiced separately. The
constant search for competitive advantage, however, is leading firms toward developing an integrated
approach to marketing and supply chain management.
The goal of such an integrated approach is to form a seamless fabric of information, physical
distribution and financial flows across the supply and demand chains that would continuously provide
superior value to the end consumer. But despite the growing importance of supply chain management and
marketing, there has been little research on the relationship between marketing and supply chain
management. The supply chain management literature has predominantly focused on issues such as
procurement, transportation and logistics, whereas the marketing literature has not traditionally
recognized the role of supply chain management as key to gaining competitive advantage. What is the
relationship between marketing and supply chain management? How can these two functions be
integrated? How can companies plan and implement an integrated demand and supply chain management
system? What is the future of such an integrated marketing and supply chain management approach? In
this paper, we address these important questions.
2. Supply Chain Management
Supply chain management encompasses all the activities associated with the flow and
transformation of goods from the raw-materials stage through to the end user, as well as the associated
information and financial flows (Handfield and Nichols 1999). These activities include sourcing and
procurement, product design, production planning, materials handling, order processing, inventory
management, transportation, warehousing, and customer service. Furthermore, it embodies the
information systems so necessary to communicate among the supply chain partners.
Successful supply chain management involves the coordination and integration all these activities that
seamlessly link the different partners in the supply chain. These partners include suppliers, distributors,
transportation carriers, third-party logistics. and information systems providers. SCM includes both intraand inter-firm relationships. World-class supply chain leaders focus intensely on actual customer demand
and customer relationships. By doing so, these leaders the optimize the flow of raw materials, finished
product, and packaging materials - thereby minimizing inventory costs across the chain.
Despite the importance of customer demand and relationships, traditional supply chain management
has primarily focused on operational aspects such as Just-in-time(JIT), Electronic Data Interchange (EDI),
Efficient Consumer Response (ECR), Quick Response (QR), Efficient Replenishment (ER), and
Continuous Replenishment (CR) programs (Dong, Dresner and Shankar 2001). With the rapid penetration
of the Internet among businesses and individuals, the role of marketing and its relationship to supply
chain management are becoming increasingly important.
3. Marketing and Customer Facing Function
Marketing, the customer facing function in organizations, has an important relationship with supply
chain management. The supply chain management process is directed at meeting the demands of the end
consumer. Understanding these consumer needs, satisfying them, and continuously adding value is the
cornerstone of marketing. An important aspect of marketing, namely, customer relationship management
(CRM), has been gaining fast acceptance in many firms. CRM is a business process in which customer
equity - the value of customers to the firm - is continuously created, enhanced and managed by interacting
with customers through multiple touch points such as the web, email, phone, and direct sales. CRM helps
to improve customer retention and loyalty. cross-sell and up-sell solutions, reduce operating costs, and
increase sales and revenue. CRM and marketing in general, help to set up an efficient demand chain.
Customer demand forecasting and business planning, a component of CRM, is a critical driver of
supply chain success. Some organizations have recognized this driver and have plans in place to practice
effective demand planning. For example, Technologies has a department called Customer Demand
Planning (CDP) that enables sales teams to develop product demand forecasts as inputs to production and
inventory planning, revenue management and services planning processes. Aside from customer demand
planning, not much of the CRM function is integrated in supply management.
4. Integrated Demand and Supply Chain Management System
Most companies have tried to improve either SCM or CRM processes, but very rarely, have they
integrated both the processes. Traditionally, supply chain management and marketing have been practiced
separately. Research by Mercer Management Consulting has found that even many "best practice" supplychain management companies typically that excel in reducing operating costs, improving asset
productivity, and compressing order-cycle time, do not have a truly integrated demand and supply
management system that can enhance their profitability and competitive advantage.
Truly integrated demand and supply management system can be approached in two ways: (1)
Simultaneous excellence in SCM and CRM, and (2) Pursuit of new value propositions in the demandsupply chain
Simultaneous Excellence in CRM and SCM
A study by Deloitte Consulting Research suggests that successful companies will be those that leverage
both CRM and SCM capabilities to optimize the entire supply chain and differentiate themselves from
their competitors (Koudal 2000). This process should be done in real-time as a response to individual
customers based on their lifetime value, their requirements, and the total supply chain cost to serve them.
One way to analyze companies in their CRM and SCM capabilities is to use the CRM/SCM Analysis
Grid shown in Figure 1. Companies can be high or low in each of SCM and CRM capabilities, leading to
four types of companies. "Integrated Value Providers" are companies that excel in both SCM and CRM,
that is, those that have achieved a high level of customer loyalty and have integrated closely with their
suppliers, distributors/retailers, and customers. "Supply Chain Collaborators” are companies that have
achieved high levels of supply chain management, but have not succeeded in building strong customer
relationships. "Relationship Experts" are firms that excel in CRM, but are poor in SCM. Finally, "Status
Quoers" are those companies that are strong in neither CRM nor SCM.
Figure 1: SCM/CRM Analysis Grid
Figure 2: Evolution of e-marketplace
Indeed, the Deloitte study (Koudal 2000), based on interview with more than 850 manufacturers
worldwide, shows that companies that combine a customer relationship focus with excellence in
collaboration across their supply chain and customers are better positioned than others to be successful in
the new economy. These integrated value providers are 70 percent more profitable than status Queers.
They are also 54 percent more profitable than supply chain collaborators and up to three times as likely to
report exceptional performance on their goals for shareholder value, sales growth, market share and return
on assets. Integrated value providers are also about 19 percent more profitable than relationship experts.
Overall, only a few companies qualify as integrated value providers and even these firms face
tremendous challenges in improving their business models. Thus, there is a huge opportunity for
companies to create a sustainable business advantage by leveraging investments in CRM through
integration with their supply chain optimization systems.
With the emergence of new e-Business technologies that can link manufacturers to their suppliers,
distributors and customers almost seamlessly, companies are able to swiftly orchestrate resources to
respond to each customer's needs. While this model maybe ideal from a customer standpoint, it is far from
reality for most manufacturers. Many companies excel either at the "front end" (CRM) or the "back end"
(SCM). Why are companies unable to simultaneously practice real-time responsiveness, low
manufacturing costs, zero inventories, superior quality, and excellent customer satisfaction for every
customer? One reason is that companies do not have the massive resources needed to do satisfy each and
every customer perfectly. Satisfying every customer calls for spending scarce resources on potentially
unprofitable customers, underserving the most profitable ones. Manufacturers have to learn to
dynamically balance customer value and supply chain costs to build the right strong customer
relationships.
How will manufacturers make this a reality? Manufacturers need to integrate supply chain management
(SCM) and customer relationship management (CRM) capabilities to differentiate the way they treat each
customer. Manufacturers can achieve this by leveraging Internet technologies to create digitally integrated
demand and supply system that would provide real-time, differentiated responses to customers according
to their loyalty, lifetime value, requirements, and servicing costs. By focusing on maximization of the
entire value creation process in the system, companies will begin to reap the real benefits of the new
digital economy.
Manufacturers that successfully link their CRM and SCM activities can create integrated systems and
derive significant competitive advantage. Companies that: 1) collaborate externally (with their supply
chain partners such as suppliers, distributors/retailers, and customers) and internally, and 2) measure and
exceed their goals for customer loyalty and retention (and, therefore, excel at CRM) perform far better
than most other companies.
Integrated value providers will not only likely outperform other manufacturers in shareholder value,
but also likely have happier customers and more efficient supply chains. These companies can have
exceptional performance on their customer satisfaction goals, versus relationship experts, supply chain
collaborators, and status quoers. Integrated value providers are nearly three times as likely as supply
collaborators to report excellent performance on their inventory reduction goals.
Internet technologies far supply chain and customer relationship manage have now reached a stage
where companies can create a digital integrated system to profitably meet different customer needs with
the appropriate differentiated supply chain capabilities. The real value from new e-Business technologies
will accrue to companies that use e-Business capabilities to; (1) improve supply chain collaboration
across
a network of suppliers and customers (e-Collaboration); and (2) build relationship by
differentiating the way they create value for every customer and segment. These capabilities are the
hallmarks of successful digital integrated system.
Manufacturers such as Heineken and Cisco Systems are leveraging the Internet for electronic
collaboration with customers, distributors, and suppliers (Koudal 2000). Heineken has focused on CRM
while Cisco has emphasized SCM. Heineken has developed a web-based system to share information
with distributors on forecasts, marketing and promotions, and fulfillment. The system has doubled
Heineken's customer satisfaction ratings. Cisco, a leader in networking equipment or telecommunications
and the Internet, has created electronic links with key suppliers across its entire product line to give it
unprecedented supply chain flexibility. The links enable Cisco’s suppliers to ship more than 65 percent o
Cisco’s orders direct to the final customer without physical intervention from Cisco, and have
significantly cut the time it takes to ramp up production of new product. However, these companies do
not have a truly integrated system comprising CRM and SCM.
As more companies leverage new e-Business capabilities, a few leading manufacturers like Herman
Miller and Dell Computer have discovered that excellence in products, service, and production alone will
not be enough to compete in the future. Herman Miller, a leading furniture manufacturer, is tailoring web
pages to sell and service its most important customers and to streamline manufacturing, inventory, and
order information flows to and from its 500 plus suppliers around the world. These building blocks will
help differentiate products, service. and delivery for customers according to the value theγ bring to the
company. Dell Computer continuously re-segments its customer base, measures the lifetime value of
customers, and manages customer interaction through tailored web pages to offer each customer the most
profitable customer service level. Dell's online supplier portal handles 90 percent of purchases from the
33 most important suppliers and helps in sharing key data and measurements on shipment accuracy,
quality, and demand forecasts. As companies like Dell succeed in integrating customer and supply chain
systems, they can further reduce inventories, improve customer responsiveness and increase customer
loyalty and shareholder value.
Just by moving if the direction of integrated value providers, companies can significantly boost
business performance, while at the same time erecting formidable barriers to competition. It will be
increasingly difficult for competitors mimic the value that digitally integrated value providers can build.
Without access to the same detailed, customer-specific information on value, requirement, and cost, it will
prove very difficult for competitors to copy the business model. New product development, human
resource models, marketing and customer service, supply chain collaboration, manufacturing excellence,
and quality standards can be imitated. However, the ability of a company to differentiate – in real time –
the way each and every customer and segment is served by a network of suppliers, logistic providers,
vendors, manufacturers, and distributors/retailers, will be difficult to imitate.
New Value Propositions in the Demand-Supply Chain
By tweaking the demand-supply chain, suppliers can offer their customers completely new value
propositions and improve their own operations - without having too weight the benefits of customer
service against its cost (Holmstrom, Hoover Jr., Louhiluoto, and Vassera 2000). The idea that suppliers
should work much more closely with customers to give them better value is not new. Yet close
partnerships of this kind are still not at all common, largely because, until recently, integrating the
information systems of two or more companies was a lengthy, expensive, and technically difficult process.
The recent widespread adoption of web-based enterprise resource-planning systems and rise of the
Internet, have made it much easier and cheaper for customers and suppliers to exchange data. This
development prefigures the emergence of closer relationship.
On the Internet, customers can easily find the best price and will choose their suppliers on that basis unless they want (and are willing to pay for) something beyond it. Suppliers that can credibly promise to
improve their customers' performance can avoid the commodity trap and reap cost benefits.
In the past, suppliers reengineered only their end of the supply chain, by reducing obsolete inventory or
inventory in general, cutting throughput times, and so forth. But what if a supplier could adjust its supply
chains in ways that improved the service its customers received and thus their performance? This kind of
reengineering is trickier.
In reality, most of the changes that suppliers implement do not add much value from the customer's
point of view. A supplier, far example, might typically cut its inventory by reducing the variety of its
products - which is not very helpful for the customer or for the customer's customer. By mastering the
demand-supply chain, however, suppliers can design mutually beneficial supply chain systems far
particular customers, if they focus on customer demand chain.
The concept of the customer's demand chain, which transfers demand from markets to suppliers, is less
familiar. For example, a retailer's demand chain would consist of assortment planning (deciding what to
sell), inventory management (deciding the quantity of supplies needed), and procurement (deciding the
other details of the actual purchase). The demand chain, together with the supply chain farm the demandsupply chain. They are linked in two places - the supply fulfillment point (SFP) and the demand-offering
point (DOP).
The SFP is the place in the supply chain where the supplier allocates the goods ordered by the customer.
Goods might, for instance, be produced after orders come in (“make to order”) or allocated from a
warehouse once the orders have been received (“ship to order”). Each order fulfillment point has different
costs and benefits for the supplier and its customer. When the supplier allocates orders from its
distribution center, it can deliver them quickly if they are in stock. Speedy delivery (a benefit for the
customer) therefore depends on holding a large inventory (a cost for the supplier). Of course, the wider
the product range, the bigger the inventory, so the supplier either incurs large inventory costs to minimize
delivery times or cuts inventory and risks delays in fulfilling orders.
It is possible to move the SFP back to the packaging or assembly: the point when goods are turned into
finished products - when shampoo, for instance, is poured into containers and sealed or components are
assembled into wireless handsets. This approach (“pack to order”) gives the supplier the benefit of lower
inventory expenses, but the customer must wait far the goods to be packaged (a cost). To reduce that
delay (a benefit for the customer), the supplier must bear the cost of additional packaging capacity.
Moving the SFP back still further to manufacturing on demand makes it possible for the supplier to meet
the specifications of individual customers (a benefit for them). But the delivery time rises (a cost for
them), and the supplier's process efficiency declines each time a customized design replaces a standard
one (a cost for the supplier and the customer alike).
To summarize, the further back in the supply chain the supplier moves the SFP, the more steps there are
to complete without disruption and the more difficult it become to fulfill orders promptly. The advantage
to the supplier of this approach depends on the amount of cost savings it can achieve from lower
inventory, on the one hand, compared with the reduction in sales that may be brought about by longer
delivery times and higher total costs for customers, on the other hand. Customers and suppliers do not
benefit equally.
The demand-offering point (DOP) - the second place where the demand supply chains meet - is where
the supplier fulfills demand in the customer's demand chain. Moving the DOP back in the demand chain
largely benefits the customer, requiring more work from the supplier. There are four major DOPs.
The first DOP is an "offer to purchase" DOP. In the conventional, arm's-length buyer-seller relationship,
the DOP is the purchasing department, which accepts an "offer to purchase" by choosing the supplier and
deciding when goods are needed. The second DOP, an "offer to manage inventory," moves the DOP
further back in the demand chain. By carefully monitoring the customer's inventory levels, a supplier can
cut down on stock that is unlikely to sell and ensure that the customer never runs out of goods that move
briskly. These benefits, however, mean more work for the supplier, since it must now have a separate
inventory control process for each customer.
The third DOP, “an offer to plan” moves the DOP back to merchandizing (in the case of retailing) or
production (e.g., automotive and computing industries). In other words, by joining forces to analyze the
consumer demand categories served by products from the supplier, both retailer and supplier can avoid
new products or promotions that lack a significant market. Suppliers are also expected to use this kind of
collaboration to improve their delivery performance. The result is a more profitable use of retail space by
retailers, but unless suppliers can charge a premium or increase their sales through this kind of
collaboration, they do not benefit from it.
The fourth (and still largely unexplored) DOP is the “offer to end use,” such as Dell Computer's direct
sales model for business clients. Rather than fulfill orders from wholesalers (an offering to purchasing),
Dell went all the way back in the demand chain to the end consumer by fulfilling orders for customized
PCs-complete with software and network configuration. All employees have to do is turn on their
machines. Corporate customers reap an enormous advantage: the ability to eliminate half of their PC
support teams, which spend most of their time setting up computers.
Although moving the DOP back in the demand chain is largely in the customer’s interest, the supplier can
benefit if it simultaneously moves the SFP. Ordinarily, moving the SFP benefits one party at the expense
of the other. But by coordinating movements in both the demand and supply chains, suppliers and
improve their customer’s performance and at the same time generate step changes in the efficiency of
their own operations.
For example, a manufacturer may be interested in moving the DOP back to inventory management to
help a customer reduce its lost sales and obsolescence costs, but to do so, the manufacturer must assume
the high expense of integration. In fact, managing the customer's Inventory gives the manufacturer much
earlier access to information about that customer's demand. Such access permits the manufacturer to cut
its own inventory costs by packaging products to order rather than stocking all its products at a
distribution center; none of this comes at the expense of the customer's delivery times.
Likewise, Dell can profitably offer excellent service to end users-by pushing the DOP all the way back
to them-only because it has pushed the SFP back in the supply chain by assembling PCs to order. Since
Dell receives early information about customer’s demand, the company can take the time it needs to
assemble PCs out of the front end
the process rather than the back end, where it would delay deliveries has also eliminated inventory costs
and can buy components later than its conventional competitors do, thus taking advantage of continually
falling prices.
Manipulating the demand-supply chain does more than improve customers’ performance and benefit
suppliers; suppliers can also use this approach to discover completely new value proposition to customers.
Suppliers can thus extract new value from current accounts by escaping the commodity trap (and also, in
some cases find new customers). Consider the following real-life example (Koudal 2000).
A typical university bookstore decides which books to sell (assortment planning), estimates few many
of them it needs (inventory management), and then places its orders with publishers (purchase). Each
publisher's DOP is thus a straightforward offer to purchase, and the ship-to-order SFP is the publisher's
warehouse or distribution center. This system may seem to work nicely for bookstores, but for students it
works less well: books are expensive; some of the cost is unnecessary, since teachers often assign only
part of books; and if the bookstore underestimates demand, some students must wait for the publisher to
make extra shipments. How should a publisher enable its customers (the bookstores) to help their
customers (the students)?
The publisher can start by analyzing the whole demand-supply chain the retailer's assortment-planning
process appears to respond to student demand, it is really shaped by instructors, who choose the reading
lists for courses. One publisher, McGraw-Hill, therefore moved its DOP back to instructors, offering to
tailor collections of reading materials for each of them. It did this by moving the SFP out of the
warehouse and forward to the retailer. McGraw-Hill's Primis electronic-publishing system allows
instructors to choose standard McGraw-Hill textbook chapters from a database and to add complementary
materials (such as course objectives, instructions, old test questions, and teaching cases) from a variety of
sources. All of the readings are then combined into a single package that is printed and bound in the
bookstore. This assemble-on-demand system benefits bookstores, students, and publishers in several ways.
Even if a bookstore has the syllabus for a course in hand well before the first day of classes, the manager
can't know precisely how many students will enroll in the course that year. The new model largely
eliminates this problem, and the bookstore also saves display and storage space. As for students, most
tailored textbooks are cheaper than their standard mass-produced counterpart because they include only
the readings instructors actually require. Furthermore, on-campus print technology makes the publisher's
unit costs independent batch sizes, so print runs don't have to reach a certain minimum, and the publisher
can avoid the crushing cost of returns, which can amount to 30 percent of sales. McGraw-Hill has used
this new demand offering to win over teachers on more than 1,000 US college campuses, and several
competitors are now following suit.
Another area of innovation is the ordering of physical goods such as groceries. Consumers want the
convenience of shopping from home. but they must usually pay extra for home delivery because the
goods still come from local supermarket shelves,
so retailers have no way to achieve offsetting
economies. Moving the SFP by allocating and then delivering the order from a more distant warehouse
may allow the retailer to save money on site costs, but delivery to the customer would take longer.
Streamline, an online grocery takes a different approach with a service called "Don't Run Out." Every
week, for every customer, Streamline automatically fulfills a customized standing order for a selection of
standard grocery products, such as milk, juice, pet food, and diapers. It delivers them to a companyowned refrigerator it installs in the garage of the customer, who does not have to be at home when they
arrive. By getting early access to demand information and thus moving the DOP, Streamline has also been
able to move the SFP from a supermarket or a grocery store to an efficient distribution center. Moreover,
once the customer has chosen the items on the standing order, Streamline cannot only deliver them at its
own convenience; it can also plan bulk purchases and keep its own inventories low. Although the service
is still young, Streamline is already considering how to move the DOP back for a wider range of products
and how to manage the contents of the refrigerator (the customer's "inventory") so that it is always
stocked correctly. even with items the customer requires infrequently.
By modifying the demand and supply chain, supplier can offer their customers, completely new value
propositions and improve their supply chains-without being forced to weigh to the benefits of customer
service its cost. The means to this end are
customer's end of the supply chain
the repositioning of the demand offering point at the
and the exploitation of better information about customer demand.
Integrated demand and supply chain systems can be optimized using multi-period profit maximizing
models (Bhattacharya and Ramesh 2000).
The Internet enables firms connect the demand and supply chain and complete an integrated demand
and supply chain. Different firms use web-based systems for different processes in extended supply chain
management (Lancioni, Smith and Oliva 2000). For example, Air Products and Chemicals does global
procurement using an Extranet. The appliances division of General Electric uses a web-based system for
scheduling warehouse shipments. Fisher Scientific tracks inventory and builds to order on the internet.
Ford Motors and PPG industries track outbound shipments on the web. Rollins Leasing, Inc. uses the
Internet to partner with other companies. Waste management uses the Internet to support its customer
services center. These companies, however, do not have truly integrated demand-supply chain, but are
well positioned to move in that direction.
Demand-Supply Chain Metrics and Cross-functional Collaboration
Metrics are key to the development and management of a good integrated demand and supply chain
system. Some typical metrics appropriate for integrated demand and supply chain system are as follows.
Criteria
Measures
Value maximization
Customer value perceptions
Customer satisfaction
Customer ratings, complaints
Speed to market
Market cycle time
Order fulfillment
Relative delivery time,
commitment time
Customer Service
Warranty costs, returns,
allowances
Total supply chain cost
Percentage of costs to value
of goods in the chains
Inventory management
Inventory turns, inventory
obsolescence
Asset utilization
Return on Assets
Critical to the success of extended supply chain management is cross-functional collaboration among
the different functions and departments within and across organizations. Such collaboration involves trust,
dependency, communication, joint ownership of decisions, and collective responsibility of outcomes. For
collaboration to succeed, it should be based on cooperation (willingness) rather than com](requirement).
Cooperation can be enhanced by aligning reward systems with overall business goals (Ellinger 2000).
5. Future of Marketing and Supply Chain Management
The tremendous growth in e-marketplaces or B2B exchanges or hubs promises to reshape extended
supply chain management. As supply chain management moves to e-marketplaces, the interrelationship
between marketing and supply chain management will assume even greater importance. The need for an
integrated demand-supply system will be strong such a scenario.
E-marketplaces are likely to evolve from primarily procurement exchanges today to an inter-networked
exchange ecosystem in the long term (Shankar 2001). This evolution will be driven by two key factors,
the business orientation of firms and exchanges and the degree of interconnectedness among different
vertical or horizontal exchanges. The business orientation of firms can be either cost reduction or value
addition. Exchange interrelationship can be low or high. Depending on the combination of these levels of
factors, four possible types of e-marketplace system are possible as shown in Figure 3. When the business
orientation is cost reduction and exchange interrelationship is low, the exchange is a procurement
exchange. Most exchanges today are procurement exchanges. From a procurement exchange, an
exchange is likely to move toward either a supply chain exchange (value addition business orientation and
low exchange interrelationship) or a procurement web (cost reduction business orientation and high
exchange interrelationship). The ideal scenario of both value addition and high exchange interrelationship.
that is a networked exchange ecosystem, is likely to take a long time to happen.
To better understand the networked exchange ecosystem of the future, consider the following example
(see Figure 3). In the future, a consumer may be able to buy an auto option bundle that comprises the use
of four types of cars during pre-specified times of
the year.
4-door Sedan
Convertible
250 days
30 days
SUV
45 days
Minivan
40 days
Furthermore, the consumer may be able to get real time price quotes for different option bundles. To
deliver such an option bundle, auto manufacturers will have to work backwards to achieve efficiency in
respective supply chains and exchanges such as steel exchange, plastics exchange, parts exchange, tire
exchange, chemical exchange and financial services exchange. Each type of vehicle may have to be built
and assembled by going through multiple exchanges. For peak efficiency, each exchange has to be
interrelated so that the task of assembling such a consumer option bundle can be electronically
coordinated with the networked exchange ecosystem and priced real time depending upon the availability
of parts, lead and lag times of assembly and just-in-time delivery. The integrated demand-supply chain in
this environment will likely be very complex.
Figure 3: Networked Exchange Ecosystem In the Auto Industry
Agile supply chains are likely to play an important part in future integrated demand-supply chains.
Market uncertainty is leading to the adoption of agile supply chains. Agility is a business-wide capability
that allows a firm to be flexible or nimble in response to market uncertainty (Christopher 2000). It is
different from leanness of supply chain. Leanness is about managing more with less infrastructure. Agility
is needed in markets with low volume, high demand volatility and high need for variety. Leanness works
best in high volume, low variety and predictable markets. For example, Zara, Spanish fashion company,
uses an agile and lean hybrid supply chain management strategy.
6. Building an Integrated Demand and Supply Chain System
How to Do it.
How can a company create a truly integrated demand and supply chain system and practice integrated
demand and supply chain management (IDSCM)? It may want to follow a systematic procedure
comprising the following steps (see Figure 4).
1. Perform a marketing and supply chain audit. In this step, the firm needs to understand its customer
value drivers, customer requirements, customer relationship management process, supply chain
infrastructure, and the points of linkage and disconnect between SCM and CRM.
2. Set IDSCM vision and goals. The company should set up the long-term and intermediate goals far
IDSCM by linking them with the company's overall financial goal.
Attention must also be paid to the
existing goals of CRM and SCM.
3. Do a gap analysis and identify the gaps. In this step, the firm should perform a thorough analysis of the
gaps between the IDSCM goals and its positions in marketing and supply chain management as revealed
by the marketing and supply chain audits. The identified gaps should serve to highlight the nature of the
task in formulating an IDSCM strategy. The company should identify its strong points and weak areas.
4. Formulate an IDSCM strategy. This is a critical step because it decides the company's approach to
integrate its demand and supply chains and sets up the road map for implementation. The firm should
decide how it should pursue excellence in SCM and CRM and how new value propositions can be
identified in tile demand-supply chain system. The focus should be on developing an approach to
synchronize supply and demand.
5. Design IDSCM initiative and plan training. Following the IDSCM strategy, the firm can identify the
important initiatives to implement strategy. These initiatives may range from systems integration to the
development of a new inventory planning system. These initiates help build the demand-supply chain
infrastructure. Training is key to successful implementation of these initiatives, so it should be given top
priority.
6. Set up an implementation schedule. The company should prioritize the initiatives and set up a logical
sequence of initiatives. Some initiatives can be undertaken in parallel such as identification of value
propositions among both supply and demand chains.
7. Develop metrics. This is a critical aspect of implementing the integrated system. Unless the right
measures are developed and tracked, the investment in such a system cannot be evaluated. The
development of metrics is a continuous process and should be improved over time.
8. Track result and revise goals. The company's performances in the measures developed will have to be
tracked against certain benchmarks. These benchmarks could be based on either company's IDSCM goals
or competitors' measures or both. Based on the results, the company can redesign the integrated customer
value.
Figure 4: Implementing Integrated Demand and Supply Chain Management(IDSCM)
By deeply understanding their customers' lifetime potential, requirements, and servicing costs,
companies can design and manage their manufacturing and distribution systems to ensure that each
customer is paired with the right capabilities from suppliers, manufacturers, distributors. retailers, and
logistics providers to maximize customer loyalty and profitability. By combining the most effective tools
and technologies for supply chain and customer management and optimization, and global tracking of
performance, manufacturers can create a digital integrated demand and supply chain whose capabilities
continually improve. Effectively managing this cycle creates competitive advantage in real time.
Conclusion
As companies constantly seek competitive advantage, they are looking to the integration of marketing,
CRM and supply chain management as a means to attaining such advantage. The Internet is enabling the
extension of SCM and CRM to an integrated demand-supply system. Such an integrated system can be
approached in two major ways, namely, simultaneous excellence in SCM and CRM and pursuit of new
value propositions. Companies can develop and manage an integrated demand-supply chain through a
systematic procedure starting with audit of their demand and supply chains and ending with monitoring
results and control. The future of the integrated chain is likely to become more complex due to evolution
of e-marketplaces. The key ingredient for success with an integrated demand and supply chain is fast and
accurate information flow in a wide array of areas ranging from procurement to customer service. The
ability to react quickly to market changes and adjust procurement, production, inventory, transportation
and customer service systems is key to reducing costs and increasing revenues. This ability will help
companies achieve higher profitability and greater return on assets in the long run.
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