SUPPLY CHAIN MANAGEMENT:
An Organizational Competency
INTRODUCTION TO THE COURSE
http://awhitebread.ba.ttu.edu
alan.whitebread@ttu.edu
ALAN L. WHITEBREAD
IB 3353
• Learning and doing in a business
environment – always prepared!
• 4 TESTS
• EXERCISES / HOMEWORK
• No make-up tests! No extra credit!
COURSE STRUCTURE
•
•
•
•
Business environment
Read ahead to prepare for class everyday
Attend class AND take good notes
Analyze, create, learn, understand, and
apply [versus memorize]
• Form opinions based on facts and analysis
• Participate
– Some in-class activities
– Your comments and questions
KEY LEARNING OUTCOMES
•
Understand the four major basic parts of supply
chain management.
–
understanding markets and supply chains,
–
supplier management and supplier relationships,
–
the role of the focal firm, its strategy and systems, and
–
marketing channels of distribution and channel
relationships .
•
There are many concepts and theories that are
relatively easy to understand at a high level but
are very complex and difficult to implement.
•
New product development [NPD] is critical to the
continuing success of the firm and the role SCM
has in the NPD cycle.
YOUR CAREER SUCCESS DEPENDS
ON being
•
•
•
•
•
INDIVIDUAL & TEAM SUCCESS
ON TIME
UNDER BUDGET
ABOVE PLAN
NO EXCUSES
• EVERY TIME!
LEARNING OUTCOMES AND YOUR
CAREER SUCCESS
•
Begin to understand the many forces that cause
changes to marketing programs around the world.
–
Culture
–
Business practices and legal systems
–
Governmental issues and procedures
SUPPLY CHAIN MANAGEMENT
SECTION 1
Understanding the Market – Supply Chain Relationship
1 – UNDERSTANDING AND CREATING VALUE
ALAN L. WHITEBREAD
KEY LEARNING OUTCOMES
•
Understand the four major basic parts of supply
chain management.
–
understanding markets and supply chains,
–
supplier management and supplier relationships,
–
the role of the focal firm, its strategy and systems, and
–
marketing channels of distribution and channel
relationships .
•
There are many concepts and theories that are
relatively easy to understand at a high level but
are very complex and difficult to implement.
•
New product development [NPD] is critical to the
continuing success of the firm and the role SCM
has in the NPD cycle.
WHAT IS SCM TODAY?
It is the seamless end-to-end management of a
complex set of decisions requiring the exchange and
flow of information, products, services, and money.
Simply put,
BUSINESS ENVIRONMENT
Regulatory compliance and corporate governance
Ethical, government
Risk Management
Customer, planning, quality, research, supplier, systems
Human Resource Development
Staffing and compensation
Education and skill development: change, education, professional development, team
Information Technology
Knowledge Management, MRP/ERP, JIT
Sourcing
Inventory & Logistics
Customer Relationships
Supplier Relationships
Payments
Order fulfillment
Procurement
FIRMS USING SUPPLY CHAIN
MANAGEMENT
The Aromatics (Thailand) Public Co. Ltd.
plus every other company, governmental agency, and
organization.
SUPPLY CHAIN MANAGEMENT
Mining companies –
Manufacturers – Suppliers
– Assemblers – Services
MARKETS
Consumers:
Customers
Prospects
Suspects
FOCAL FIRM
NEW PRODUCT
DEVELOPMENT
Resellers of all
kinds or final
purchasers
Final
purchasers
of Resellers
SUPPLY CHAINS ARE
INTERDEPENDENT
MARKET
Consumers:
Customers
Prospects
Suspects
CUSTOMERS
SUPPLIERS’
SUPPLIERS
If you change one thing in a supply
chain, you know that one or more
other things will be affected. So
you must make decisions for the
good of the entire supply chain, not
for a specific area.
For instance, the system losses in
all other areas may greatly exceed
the benefit to the one area. This
causes the supply chain to lose
efficiency.
MAJOR BENEFITS OF SCM
•
is due to the timely flow of
information, products and services, and money.
•
is driven by the focal firm’s
specifications, and requirements for their suppliers.
•
is a result from the close
working relationships between your suppliers, your
customers, and the focal firm.
•
results from the improved
customer and supplier responsiveness and faster
NPD.
MAJOR BENEFITS OF SCM
•
are driven throughout the
system with critical systems like Total Quality
Management [TQM].
•
is required to minimize
delays, inventory levels, and total cost structures.
•
as you build closer and more
effective relationships.
• From here on, the term products will mean products,
and/or services, or any combination of products and
services.
SUPPLY CHAIN SUCCESS:
Some hard questions
• Who are we?
• How do or should we …
–
–
–
–
Fit competitively?
Understand customer behavior at all levels?
Understand customer needs and wants?
Understand which competencies, technologies,
and processes are required?
– Understand the role of power in the supply chain?
– Gain a detailed understanding of costs from a
simple operation through to total system cost?
FILLING THE GAPS
•
•
–
–
–
–
–
When?
Where?
How many?
In what mix?
Delivered how?
–
–
–
–
–
When is it made?
Where?
How many?
How is it scheduled?
How is it delivered?
DEMAND PULLS ALL PRODUCT!
B2C
B2B
Suppliers
Manufacturers
B2C is business-to-consumer.
B2B is business-to-business.
Warehouses or
Distribution
Centers
Resellers
B2B or B2C
Consumers
Planning and forecasting accuracy are critical as any delay in the system has a ripple effect!
That ripple effect costs members time, money, and damaged relationships.
EMPOWERED CUSTOMERS
• Customers have quick access to extensive product
and pricing information.
• Consumers are increasingly demanding
–
• Consumers are demanding more and better
services.
•
CREATING CUSTOMER VALUE
These are some of
the tools available to
you to create and
increase customer
value. A great SCM
system will strive to
add value
throughout the
supply chain with
everything it does.
Benefits
Quality
Innovation
Cost
Delivery
Flexibility
• Benefits are the reason we buy everything!
• Benefits
– May be
– Must be
– Must always
• Delivering meaningful benefits and exceeding
customer expectations are the keys to customer
satisfaction in every step of the supply chain.
QUALITY TO THE END-USER
•
David Garvin identifies the following factors that
comprise quality.
1.
of the products
2.
of the products
-
3.
of the products
4. Conformance to standards and specifications
5. Durability of the products
6. Serviceability of the products
-
7. Aesthetics of the products
-
8. Perceived quality of the products
ADDITIONAL ASPECTS OF QUALITY
•
•
•
• Service level
•
• Product Flexibility
• Delivery
•
QUALITY: MANUFACTURING
• Productivity
– Improve current processes
– Develop innovative processes
• Strategic locations
– If you had a product that would be sold frequently to most
adults in the U.S., how would you get enough inventory in
the right places to service customer needs?
– How do the differences between a sophisticated and an
unsophisticated product affect service levels of the
locations?
• Supply chain management in place
QUALITY: DESIGN AND
SPECIFICATIONS
•
•
•
•
Design to meet
Design to meet
Design for
Exceed standards organizations specifications
QUALITY: PROCESSES
• Works right the first time and every time!
•
– A batch lot sampling approach to quality [percent
defective]
– At a customer specified level
– Standards might include
• Mil-Std-105E; ANSI/ASQC Z1.4-1993 and 2003; ISO 28591 [1999]
– It is frequently found in
• food, pharmaceutical, medical device, communications,
apparel, software, and many more industries.
QUALITY: PROCESSES
•
are used when a
process variable is counted rather than measured.
Here’s how its done.
– Calculate the mean [average] for the variable.
– Calculate the standard deviation [σ ]for the
variable.
– The control chart limits for an acceptable product
= Mean ±σ
QUALITY: PROCESSES
•
– A statistical approach to quality
– It is frequently found in
• communications, financial services, healthcare, many
manufacturing firms, and others.
• Supplier rating / categorization
– Suppliers are rated / categorized and each
supplier level has its minimum requirements
– Ship-to-stock is generally the highest level of
supplier. They will ship products in your
packaging directly into your inventory for
shipment to your customers.
QUALITY: SERVICE
• Exceeding service expectations is the key to value
realization. Value realization is the customer
perception of your worth versus your cost.
– You purchased something for its perceived
benefits.
– It performed better than expected.
– It was a better value than you initially thought.
– What are you likely to do?
• Service must be seamless for the customer!
QUALITY: COST
• Continuous improvement drives process efficiency!
• The International Metric is Landed cost [LC]
LC = Standard Cost + Transportation1 +
Insurance + Duties + Other Fees
1
Inland location to outbound port + port fees +
transportation to inbound port + port fees
QUALITY: FLEXIBILITY
• The outstanding firm has these characteristics.
– Change is embraced and indigenous to all
processes.
• Any process can always be improved.
– It can easily handle shorter lead times, special
requests, unexpected events, and varying quality
specifications.
– It employs sophisticated information systems and
highly developed processes are in place.
– The thrust of the organization is to
QUALITY: DELIVERY
•
• Correct products shipped
• Correct quantities [exact amounts, no partial orders
unless requested by the customer]
• Correct
• Correct order
• An automotive supplier may be required to provide parts for
the truck in the order they need to go to the assembly line.
QUALITY: INNOVATION
•
– Suppliers can provide excellent advice. Get them
involved early and you may get a nice surprise.
• Joint teams with hand-picked members from each
entity address
–
– Design
•
– Process improvement
– Cost reduction
– Major opportunities or problems
CUSTOMER SATISFACTION …
1.
is based on the perceived benefits, the
performance of the product and/or service, and the
quality of the organization[s] that support it
relative to customer expectations; and
2.
It depends on understanding customer needs and
wants then providing solutions with meaningful
benefits, and
3.
It must become deeply ingrained into the corporate
culture.
CUSTOMER SATISFACTION AND
EXPECTATIONS
• Customer expectations must be managed so
benefits always exceed them! Overcommitting only
leads to disappointment and customer
dissatisfaction.
• Customer expectations are the bases for customers
measuring their satisfaction.
• Increased customer satisfaction leads to increased
brand loyalty.
THE VALUE OF CUSTOMER
SATISFACTION
• SCENARIO 1
– Benefits greatly exceed expectations = Very satisfied
customer
• Customer is loyalty and recommending
• SCENARIO 2
– Benefits exceed expectations = Satisfied customer
• Customer is less loyal, provides a weak if any
recommendation
THE VALUE OF CUSTOMER
SATISFACTION
• SCENARIO 3
– Benefits meet expectations = customer is indifferent
• Customer is neutral, not recommending you
• SCENARIO 4
– Benefits are below expectations = Dissatisfied customer
• Customer is not loyal, not recommending you
• SCENARIO 5
– Benefits are far below expectations = Very dissatisfied
• Customer will not purchase from you again. Customer
shares their bad experience others.
CUSTOMER SATISFACTION
• Metrics – ways to measure customer satisfaction
– Percent on-time delivery
– Percent of order complete
– Percent defective products
– Speed of response
• Product / service gaps
– What products / services are we missing?
CUSTOMER-CENTRIC STRATEGY
• All supply chain activities are a result of a
customer buying or wanting to buy a product
and/or service.
• A customer-centric strategy asks
– What are the real needs of our
• customers?
• customer’s customers?
• ultimate end-use customers?
– What
• information must be shared, and
• capabilities developed, through the supply chain to meet
these needs?
– How can we improve the overall supply chain’s
customer fulfillment capabilities?
CUSTOMER-CENTRIC STRATEGY
• A firm likely has different customer segments with
different service expectations within a target market
segment.
• In addition to customer segments, very large
accounts are likely to have specific individual
service requirements.
MARKET SEGMENTATION AND
CUSTOMER-CENTRIC STRATEGY
• Market segmentation is the identification of
unique groups or sets of customers and
prospects who possess similar
characteristics or needs.
• Market segmentation is the basis for
– understanding the needs of market segments,
–
– developing market segment profiles,
–
– determining an effective marketing mix, and
–
CUSTOMER ANALYSIS
• To complete a thorough customer analysis, you
need to be able to answer these questions.
– What do each of our tiers of customers need to
succeed?
•
•
• …
•
CUSTOMER SEGMENTATION
• Your customer analysis by tiers from the previous
slide may provide some interesting insights.
• You may also need to analyze customer types within
tier
– For example, if a tier is B2B distributors it would
be best to understand their needs by type of
business they are in like electrical, MRO, medical,
etc. They are likely to have some important
differences.
CUSTOMER SEGMENTATION
• Types of customers within tiers
–
• “20% of your customers provide 80% of your sales” –
but you have the ability to manage the mix.
•
– “A” customers are the largest and should receive the best
service.
– “B” customers are the next largest and should receive
sufficient service to grow.
– “C” customers are the smallest and should be serviced
with a minimum of resources [transactional accounts].
Possible candidates for direct marketing activities.
– Just make sure your customers are never told they are a
“B” or a “C” customer!
CUSTOMER SEGMENTATION
• As you do your customer segmentation make sure
you also define expected service levels.
– Examples of things to consider could include
•
•
•
•
– ?
Communications: frequency, levels, …
Role of teams
Information systems
Processes
EVALUATING CUSTOMERS
• What are the best measures for evaluating
customers for our firm?
– Net sales, profits, growth prospects, …, ?
• What tools can we use to measure this?
–
• Ties specific costs directly to the customers that create them.
• Used to identify the profitability of a business relationship.
– Customer Relationship Management [CRM]
• Used to create customer profiles that capture buying habits
and determine customer profitability.
• Many firms have a lot of work to do to incorporate
relationships and tie this to an efficient direct marketing
campaign.
– These must be balanced with customer
opportunity for growth in revenue and profit!
CUSTOMER SERVICE GAPS
• Our customers continually evaluate us and we must
exceed their expectations in all areas to not suffer
from a customer service gap.
• Customer service gaps can exist in
–
–
–
–
–
Speed of response
Quality of response
Not delivering as promised
Poor or untimely information flow
?
MARKETING DEGREE:
Emphasis in Supply Chain Management
•
•
•
•
•
MKT 3353 Supply Chain Management
MKT 4358 International Marketing
MKT 4370 Logistics Management
MKT 4371 Logistics Analytical Methods
IB 4361 International Commerce
See my website for the brochure or your advisor for
degree plan information.
http://awhitebread.ba.ttu.edu
SUPPLY CHAIN MANAGEMENT
Online/Distance Learning Course
SECTION 1
Understanding the Market – Supply Chain Relationship
2 – THE SUPPLY CHAIN: AN OVERVIEW
ALAN L. WHITEBREAD
THE FIRM’S ENVIRONMENTS
- Competitive
-Corporate culture
- Cultural
- Functional and crossfunctional relationships
- Economic
- Legal
- Political
- Reward systems
- Strategic priorities
- Comparative
advantages
-Core competencies
- Overall
competitiveness [key
success factors]
SUPPLY CHAIN MANAGEMENT
FIRM’S
ENVIRONMENT
MARKET
POSITION
STRUCTURE &
OPERATIONS
[SCM]
THE PROCESS IS SOUND.
THAT IS WHY WE USE CONTINGENCY THEORY.
CONTINGENCY THEORY
• Contingency theory sets the framework to
evaluate alternatives using scenario
planning.
• Every good executive and manager is
continually aligning the firm’s resources to
take advantage of opportunities in the
marketplace.
• The central question a supply chain manager
must continually answer is …
–
TREE DIAGRAM
What will they do?
?
Underdeveloped
Nations:
Rapid increase
in population
Poorly educated
What will they buy?
Lack of water
?
Lack of food
Very poor
infrastructure
…
Normal
increase in
population
SUPPLY CHAIN MANAGEMENT
• requires
– a common understanding by all entities [levels or
tiers] of supply chain objectives;
– an understanding of all individual entity roles;
– the ability to work together across entities, functions,
and levels of responsibility;
– the flexibility to adapt in a timely manner to various or
unpredictable situations, and,
– the desire to create and deliver products and services
that provide excellent customer value.
SUPPLY CHAIN MANAGEMENT
MARKETS
Consumers:
Customers
Prospects
Suspects
CUSTOMERS
SUPPLY CHAIN MANAGEMENT
Entities and their Roles
PLUS – Information Requirements – Flows and Processes – Repelling
Competitive Thrusts – Building Relationships
SUPPLIER’S
SUPPLIERS
SUPPLIERS
FOCAL
FIRM
CUSTOMERS
CUSTOMER’S
CUSTOMERS
THE SUPPLY CHAIN AT WORK:
A product flow view
DEALERS
STEEL
UPSTREAM
DIRECT
FORD, GM
RENTAL
CONSUMERS
BUSINESSES
COMPANY
SUPPLIER
SUPPLIER
CHRYSLER
AGENCIES
CONSUMERS
3RD
TIER
2ND
TIER
1ST
TIER
FOCAL FIRM
Manage all other tiers.
STEEL
FASTENERS
RADIATORS
VEHICLES
FLEETS
SPECIAL
VEHICLES
SCM:
• INFORMATION
–
–
–
–
Market research
Supplier research
Process or system research
Technology research
SCM:
PULL AND PUSH INFORMATION
FOCAL FIRM
CUSTOMERS
SUPPLIERS
Suppliers accessing Wal-Mart’s store data.
RESELLERS
SUPPLIERS
FOCAL
FIRM
CUSTOMERS
Toyota suppliers advising deliveries will be short due to the earthquake.
SCM:
FLOWS AND PROCESSES
• FLOWS AND PROCESSES
– FLOWS
•
– PROCESS INTEGRATION
• Suppliers
– Upstream
• Focal firm
– Internal Integration
• Customers
– Downstream
• Complete
– End-to-End Integration
SCM:
FLOWS AND PROCESSES
– MAJOR PROCESSES [SYSTEMS]
• Suppliers
– Supplier relationship management
• Focal firm
– Demand management
– Manufacturing flow
»
»
– Order fulfillment
»
– Product development and commercialization
–
• Customers
–
– Customer service
»
SUPPLY CHAINS VS. VALUE CHAINS:
AN HISTORICAL PERSPECTIVE
SUPPLY CHAIN
LOGISTICS
The connected set of all
value-added business
entities and flows that
perform or support the
logistics function
required for production.
All discrete and
Interrelated activities
[regardless of ownership]
that seek to enhance
firm performance
Focus on upstream
supplier and producer
processes, efficiency,
and waste reduction.
VALUE CREATION
in every single event,
process, and/or system
from raw materials
through
customer satisfaction.
Focus on downstream
value creation for the
customer
SUPPLY [VALUE] CHAIN SUPPORT
ACTIVITIES
• Infrastructure
• Human resources
• Materials Management
– Purchasing or procurement function
• Technology development
SUPPLY [VALUE] CHAIN:
DIRECT ACTIVITIES
• Inbound logistics
• Operations
• Outbound logistics
• Marketing and Sales
• Customer Services
SUPPLY [VALUE] CHAIN GOAL
• To combine the support and direct activities to
create the greatest value as perceived by the target
market[s] segment[s].
EXTERNAL SUPPLY [VALUE]
CHAINS
• CUSTOMERS
• SUPPLIERS
• MARKETS
• STAKEHOLDERS
SUPPLY CHAIN PRINCIPLES:
• MAXIMIZE VALUE AT EVERY OPPORTUNITY FOR
ALL YOUR STAKEHOLDERS [PUBLICS].
EMPLOYEES
VENDORS
SHAREHOLDERS
CUSTOMERS
INTERESTED
PARTIES
WHO ELSE?
A SUPPLY CHAIN
• REPELLING COMPETITIVE THRUSTS
– Market [segment] share
– Large customers
–
–
–
SUPPLY CHAIN PRINCIPLES:
• Builds relationships
– Suppliers
– Focal firm stakeholders
•
•
•
•
•
•
Customers
Employees
Shareholders
Suppliers
Special interest groups
…
SUPPLY CHAIN MANAGEMENT
Online/Distance Learning Course
SECTION 1
Understanding the Market – Supply Chain Relationship
3 – INFORMATION [research for the supply chain]
ALAN L. WHITEBREAD
WHAT ARE THE COMMON GOALS OF
SUPPLY CHAIN MANAGERS?
• In rank order
–
–
–
–
–
–
–
Increase sales
Get more value from current investments
Reduce the amount of direct labor and material
Migrate to a higher percentage of variable cost
through outsourcing
SCM MANAGEMENT PROCESSES
1.
2.
3.
4.
5.
6.
7.
Customer relationship management [CRM]
Customer service
Demand forecasting
Inventory control
Order fulfillment
Manufacturing flow and scheduling
New product development &
commercialization
8. Procurement
9. Returns – Rework – Replace - Disposal
10. Supplier interfaces
THE RESEARCH PROCESS
Present the
findings
Collect data
Develop the
research
plan
Analyze the
data
INFORMATION
• What information do we need about our
external environment?
– Competitive
• Actions, new developments, new products, new
entrants, …
– Legal
• New laws, regulations, and procedures
– Cultural
• How do we appear to be native to this culture?
– Economic
• How well do we understand the impacts of economic
trends and cycles on our business[es]?
– Political
INFORMATION
• What information do we need about consumers
[markets]?
– Strategy analysis
– Market research
• What are their needs?
– New / existing business analysis
– Market segmentation / share
– How do markets view our competitors and their
offerings?
– ?
INFORMATION
• What information do we need about
suppliers?
– Capabilities
• Facilities, output, technological prowess, … ?
– Financial status and prospects [10K and 10Q]
– Management team and style
– How well do they comply with security needs?
– How well do they meet
standards
and compliance needs?
– What are there systems, processes, process
flows, …
–?
INFORMATION
• What information do we need about our organization?
– Competitively speaking, how do we fare technologically?
– Are processes and procedures as efficient as they can be?
• Inventory management and live inventory
– Do we have an above average supplier management
program?
– Do we have exceptional
• market segmentation?
• customer classifications?
– Have we implemented best practices throughout the
organization?
– How do we expand and streamline global operations?
– ?
INFORMATION
• What information do we need about our organization?
– Are we prepared to handle emerging key issues?
• The rapidly rising cost of transportation
• The falling or rising value of the dollar
• Technology challenges
–
• The challenge of energy efficiency?
• The challenge of becoming ecology friendly?
• ?
INFORMATION
• What information do we need about our
–
–
–
–
–
How do they want to purchase?
What are they really good at?
How good is our reseller selection process?
What do they need to become better?
?
INFORMATION
• What information do we need about our
–
–
–
–
–
How do they use our products?
What are their attitudes about …?
What do they like most about us?
Where do they perceive product and/or service gaps?
?
SUPPLY CHAIN MANAGEMENT
SECTION 1
Understanding the Market – Supply Chain Relationship
4 – MARKET DEFINITION, SEGMENTATION, AND TARGET MARKETING
ALAN L. WHITEBREAD
MARKET SEGMENTATION
• This is a multi-step process that must be done in a
sequence of six steps.
• It groups people or entities by their most important
attributes.
• It should determine unique [preferably] or nearly
unique segments where each segment will have its
own behavior pattern.
MARKET SEGMENTATION
- A SIX-STEP PROCESS MARKET
SEGMENTATION
What are the attributes with
minimal overlap?
MARKET
TARGETING
Which segments do we want
to pursue?
MARKET
POSITIONING
How do we want to be
perceived?
1-Identify the bases for selection.
[Why are you splitting it this way?]
2-Develop a detailed market segment
profile for each one.
[Clearly identify attributes of each
segment.]
3-Select and develop measures of
target market attractiveness.
4-Select the best target market
segments to pursue.
5-Develop a market position for every
target market segment.
6-Develop the marketing mix for every
target market segment.
MARKET SEGMENTATION: BASES
MARKET SEGMENT AND TARGET MARKET
1+ CHILDREN
HISPANIC
TARGET
AGES 25-34
HOUSEHOLD INCOME
OVER $50,000
In this example, the key attributes are Hispanic, ages 25-34, with household income over
$50,000 per year having one or more children. The target market segment is the intersection
of all four attributes. It is the small colored area named TARGET.
[Oxford - MacDonald - video]
MARKET SEGMENTATION
- DEVELOP ATTRACTIVENESS MEASURES • WHY IS MARKET SEGMENTATION WORTH DOING?
– It provides for very targeted communications.
– It helps you provide products that fulfill needs and
wants.
– It allows you to respond to changing markets and
conditions.
– It makes your marketing more efficient.
• BUT, IF THE MARKET SEGMENTATION IS WRONG,
LITTLE SEEMS TO WORK WELL AFTERWARD!
MARKET SEGMENTATION
• Multiple market segments
When a firm uses the market segment approach it
usually has between three and eight market segments.
Market segments that are not nearly unique result in lack of
brand loyalty and consumers being less brand loyal
[cannibalization]. Venn diagram explanation.
• From 2009 to 2011 P&G is reducing the number of
detergent segments in the U.S. from 13 to 6.
Remember - the number of market segments is a
function of your market segmentation, not some
arbitrary range. The more segments you have the
more complex and expensive the marketing effort is
likely to be.
CONSUMER MARKET SEGMENTATION
METHODS – DEMOGRAPHIC [1]
REGION
Great Lakes, Southwest, Mountain
States, …
CITY SIZE
Major metropolitan areas [SMSA], small
cities [<100,000], …
DENSITY OF AREA
Urban, suburban, exurban, rural
CLIMATE
Temperate, hot, humid, rainy
“Lubbock’s leading radio station”
CONSUMER MARKET SEGMENTATION
METHODS – DEMOGRAPHIC [2]
CULTURE
American, Italian, Chinese, Mexican, …
RELIGION
Catholic, Protestant, Jewish, Moslem, …
SUBCULTURE /
RACE / ETHNICITY
African-American, Caucasian, Asian,
Hispanic, …
FAMILY LIFE CYCLE
Bachelors, young married, empty
nesters, …
GENDER
Male, female
CONSUMER MARKET SEGMENTATION
METHODS – DEMOGRAPHIC [3]
AGE
Various age groups that match the
Census Bureau categories
MARITAL STATUS
Single, married, divorced, living
together, widowed
INCOME
Under $25,000, $25,000-$34,999,
$35,000-$49,999, $50,000-$74,999,
$75,000-$99,000, $100,000 and over
- Census Bureau has more detail -
EDUCATION
Some high school, high school
graduate, some college, college
graduate, postgraduate
OCCUPATION
Professional, blue-collar, white-collar,
agricultural, military [Be careful,
subjective definitions like blue-collar
can lead to problems.]
CONSUMER MARKET SEGMENTATION
METHODS – PSYCHOGRAPHIC [1]
NEEDS-MOTIVATION
Shelter, safety, security, affection, sense
of self-worth
PERSONALITY
Extroverts, novelty seeker, aggressives,
low dogmatics
PERCEPTION
Low-risk, moderate-risk, high-risk
LEARNINGINVOLVEMENT
Low-involvement, high-involvement
ATTITUDES
Positive attitude, negative attitude
SOCIAL CLASS
Lower, middle, upper, …
CONSUMER MARKET SEGMENTATION
METHODS – PSYCHOGRAPHIC [2]
LIFESTYLE
SEGMENTATION
Economy-minded, couch potatoes,
outdoors enthusiasts, status
seekers, …
ATTITUDES, INTERESTS, & OPINIONS [AIO] for instance:
Spends 1+ hours per day on the Internet, heavy e-mail user
Buys on the Internet, goes to stores only as required
Professional, income above $75,000 per year
Belongs to multiple frequent traveler programs
The market profile should provide almost everyone that reads it a very
similar picture of the people in this target market segment!
CONSUMER MARKET SEGMENTATION
METHODS - BEHAVIORAL
USAGE, LOYALTY,
INNOVATIVENESS
Frequent flyer programs
OCCASION
Hallmark
U.S. CONSUMER COMMUNICATIONS
MARKET SEGMENT PROFILES
1.
Older [define age range [45+]], low communicator
[define [<1 hour per day on the phone]], low income
[define range or maximum [$15,000-30,000 per year]
2.
Middle-aged, higher income, empty nester [no children
at home], who talks a lot on the phone
3.
Technology interested [extensive user of several
communications modes], well educated, high
discretionary income
You must define every term so there is a clear
understanding of the profile!
B2C EXPECTED BUYER BEHAVIOR
• Exercise:
– Describe the expected buyer behavior profile of the
market for any current product.
– Use key items like demographics, psychographics,
purchasing patterns, quantity, the marketing mix,
classification of your product, and other relevant
items to generally describe how consumers would
purchase this item.
• ON YOUR OWN: Develop a buyer behavior profile for
college students purchasing pens for class use.
MARKET SEGMENTATION:
FILLING THE GAPS
CHANNELS OF DISTRIBUTION
3
4
2
MARKETS / SEGMENTS
PRODUCTS
SERVICES
APPLICATIONS
TWO LARGEST
TARGET MARKET
SEGMENTS
In this example, you have to decide which target market segments are good for your firm.
#1 needs a channel of distribution you are either not in or have a very weak position. That is
very hard to do. #2 and #4 are nice size. A large firm will attack #2, but #1, #3, and #4 may
be too small to be of interest. #3 is the hardest of all because it has channel and product
mix issues.
B2C TARGET MARKET SEGMENT
CRITERIA: Kotler’s 5 tests
• MEASURABLE
• Can I quantify the size of the market [segment]?
• ACCESSIBLE
• Can I access the market [segment] with my current
channels of distribution?
• SUBSTANTIAL
• Is the market [segment] large enough to be worthwhile?
• DIFFERENTIABLE
• Can our products be clearly differentiated?
• ACTIONABLE
• Does my company have the necessary staying power?
YOU ALWAYS NEED TO IDENTIFY A UNIQUE OR NEARLY UNIQUE
RESPONSE / BEHAVIOR PATTERN FOR EVERY SEGMENT!
LEVELS OF MARKET
SEGMENTATION
UNDIFFERENTIATED [MASS] MARKETING
The firm decides to ignore market segment differences.
One marketing mix
Same product to all segments
Salt
Sugar
Early Ford
DIFFERENTIATED [SEGMENTED] MARKETING
The firm decides to target several [large] market [s] segment[s]
Each market or segment has a marketing mix
Different products for each market segment
Proctor & Gamble detergents Current auto manufacturers
LEVELS OF MARKET
SEGMENTATION
CONCENTRATED [NICHE] MARKETING
The firm decides to pursue a larger market share of selected [smaller]
market segments, sub-segments, or niches
Different products to the [sub-]segments
Different marketing mix for each segment or sub-segment
SUV’s
standard to family to luxury
MICROMARKETING
Specialized products for individuals and locations
LOCAL MARKETING
[Brands, promotions]
Local chain grocery stores
INDIVIDUAL MARKETING
[1:1 marketing]
Amazon, Dell
#2 – DIFFERENTIATED MARKETING
•
A different marketing mix for each large
segment.
–
Marriott International [circa 2000]
•
•
•
•
Marriott Suites…………...Permanent vacationers
Fairfield Inn……………..……...Economy Lodging
Residence Inn………….……….....Extended Stay
Courtyard By Marriott………..Business Travelers
TRANSITIONED TO CONCENTRATED [NICHE]
MARKETING [beginning in 2008 -13
brands]
MARKET TARGETING:
CHOOSING A MARKET-COVERAGE STRATEGY
• Some questions about key factors to consider when
deciding on a market-coverage strategy include the
following.
–
–
–
–
–
What are the available company resources?
How much market variability exists?
What is the product’s life cycle stage?
How much product variability exists?
What is the typical behavior of the competition and
their actions/strategies?
CHARACTERISTICS OF BUSINESS
VERSUS CONSUMER MARKETS
BUSINESS MARKETS
CONSUMER MARKETS
Market
Structure
Geographically concentrated
Many types of markets [segments]
Fewer very-high volume buyers
Fluctuating, derived demand
Geographically dispersed
Mass markets
Small volumes
Primary demand
Products
Standard / complex / custom
Service[s] etc. are critical
Business applications
Engineering / Quality / Testing
involvement
Standard
Service etc. of some note
Personal use
No formal evaluation
Buyer
Behavior
Professionally trained
Multiple levels involved
Performance hurdles
Individuals purchasing
Some family influence
Social / psychological drives
Buyer-Seller
Relationships
Technical expertise
Amateur
Close interpersonal relationships
Impersonal
Long-term focus
Immediate / Short-term
May be very dependent on each other
CHARACTERISTICS OF BUSINESS
VERSUS CONSUMER MARKETS
BUSINESS MARKETS
CONSUMER MARKETS
Supply
Chains /
Channels of
distribution
Predominant
Often shorter [more direct]
Not seen by consumer
Usually indirect
Promotion
Often technical
Personal selling
Often involves resellers
Simple
Advertising
Price
Professional negotiating / purchasing
Volume sensitive
Complex formalized process
Competitive bid / Many strategies
Individuals limited purchasing skill
Little, if any, leverage
Simple process
N/A
Demand
Fluctuating, derived demand
Inelastic in the short-run
Volatile and discontinuous
Direct
Elastic
Limited volatility
THE ECONOMY AND NAICS
Every economy has a similar economic organizational structure.
GROW, BUILD, OR MAKE
Agriculture
GOV’T
SERVICE
Wholesale
Information
Finance
Mining
Retail
Real Estate
Professional
Utilities
Transportation
Construction
Manufacturing
SELL
Management
Administration
Entertainment
Education
Health
Accommodation
Other
Public
Administration
BUSINESS CLASSIFICATION
You can find NAICS details at www.census.gov
• NORTH AMERICAN INDUSTRIAL
CLASSFICATION SYSTEM [NAICS]
– SUPPLY-ORIENTED SYSTEM
– 20 SECTORS: 1,065 INDUSTRIES [in 2012]
– Compatible with
• NAFTA: 5 DIGITS + 6TH FOR COUNTRY CODE
• ISIC Rev. 3 [UN]
READING NAICS TABLES - PAGERS
• 51
Economic sector
» Information
• 511
Economic sub-sector
» Broadcasting and Telecommunications
• 5111
Industry group
» Telecommunications
• 51111 Industry group
» Wireless Telecommunications Carriers
• 511111 U. S. Industry specialized identification
» Paging
TYPES OF MARKETS
• HORIZONTAL MARKET
– Numerous NAICS codes define it.
• B2C – Inexpensive pens, pencils, pads of paper, …
• B2B – floor sweeping compound
• VERTICAL MARKET
– One or a few NAICS codes define it.
– May be very profitable [niche]
• B2C – $1,000 fountain pen
• B2B – CT scanner
BUSINESS SEGMENTATION
VARIABLES
Organizational
Characteristics
-Industry
-Size
-Channel
-Operating characteristics
Product[s] or
Process[es] or
Technology[ies]
-Level of technology
-Configuration
-Design
Buying Approach
-Centralization
-Functional involvement
-Partnering
Application[s]
of Products / Services
-What are they used for?
-How they are used?
BUSINESS MARKET
SEGMENTATION
• ORGANIZATIONAL CHARACTERISTICS
– GEOGRAPHIC
• How can I sell my new pen to ALL 400,000 businesses in
the Chicago area?
– DEMOGRAPHIC
• How do I get my resume to all firms with 500 or more
employees?
BUSINESS MARKET
SEGMENTATION MATRIX
MARKET (SEGMENT) NAME
Brief verbal description
INDUSTRY /
INDUSTRY /
INDUSTRY /
INDUSTRY /
SEGMENT NAME SEGMENT NAME SEGMENT NAME SEGMENT NAME
DESCRIPTION
DESCRIPTION
DESCRIPTION
DESCRIPTION
NAIC(S)
NAIC(S)
NAIC(S)
NAIC(S)
APPLICATION 1
PRODUCT 1
PRODUCT 2
APPLICATION 1
PRODUCT 1
PRODUCT 1
APPLICATION 1
APPLICATION 2
APPLICATION 3
You get the same result using products within applications or applications within products.
B2B TARGET MARKET SEGMENT
CRITERIA
1. MEASURABLE
– The degree to which you can measure buyer
characteristics
2. ACCESSIBLE
– The ability to focus on target market segments
3. SUBSTANTIAL
– The degree to which target market segments are large
enough and potentially profitable enough to pursue
B2B TARGET MARKET SEGMENT
CRITERIA
4. COMPATIBLE
-The extent to which marketing and business strengths
compare to current and expected competitive and
technology states
5. RESPONSIVE
-The extent to which target market segments respond to
elements of the marketing mix
POSITIONING: ESTABLISHING
CUSTOMER VALUE
• POINTS OF PARITY [POP] AND POINTS OF
DIFFERENCE [POD]
– RELEVANCE
• It must be relevant and important.
– DISTINCTIVENESS
• It must be distinctive – superior [actual or perceived] is
nice.
– BELIEVABILITY
• It must be believable and credible.
STARBUCKS POP AND POD
COMPETITOR
POParity
PODifference
Fast food chains /
convenience stores
Convenience
Value
Quality
Image
Experience
Variety
Supermarket brands
for home
Convenience
Value
Quality
Image
Experience
Variety
Freshness
Local café
Quality
Experience
Price
Community
Convenience
POSITIONING: ESTABLISHING
CUSTOMER VALUE
• POINTS OF CONTENTION [POC]
– Elements where there is disagreement as to how its
performance or functionality compares to the next
best alternative.
– Seen in comparison or negative advertising
• COMPETITIVE FRAME OF REFERENCE
– Comparative advertising
– Negative advertising
COMMUNICATIONS MARKET
EXERCISE
POINTS OF
…Parity
…Difference
Must be relevant and
distinctive and
believable
…Contention
ANDROID
IPHONE
SUPPLY CHAIN MANAGEMENT
Online/Distance Learning Course
SECTION 1
Understanding the Market – Supply Chain Relationship
5 – SYSTEMS THINKING AND SUPPLY CHAINS
ALAN L. WHITEBREAD
FUNCTIONAL ORGANIZATION
THINKING AND GOALS
PURCHASING
PRODUCTION
Metrics: Standard cost [SC], PPV
Metrics: SC / volume / automation
MARKETING
LOGISTICS
Metrics: Average unit price
[AUP]
Metrics: Inventory &
transportation
SUPPLY CHAIN MANAGEMENT:
PROCESS THINKING AND GOALS
•
– aligns decisions with corporate strategy, and
– coordinates actions across
• SCM is the maximization of value at every
opportunity from supplier’s supplier to the
customer’s customer.
• SCM requires a process thinking approach that
consists of sets of value-added flows and activities
in three areas.
–
–
–
SYSTEMS THINKING
•
• Systems thinking is the holistic process of
simultaneously considering both the
immediate outcomes and the longer-term
system-wide ramifications of decisions.
• It requires:
–
–
–
–
Information Availability and Accuracy
Teamwork
Metrics
Systems Thinking
INFORMATION
–
–
–
–
–
Bar Codes
Radio Frequency Identification [RFID]
Data Warehousing
Data-Mining
Materials Requirements Planning [MRP] or Enterprise
Resource Planning [ERP]
TEAMWORK
• Hand-pick teams to accomplish specific
objectives.
– Process improvement
–
– Cost improvement
–
• They may be
–
–
–
METRICS
• With a systems thinking approach we must be able
to quantitatively measure changes in processes as
well as the impact of any single change or set of
changes on the total system.
SYSTEMS THINKING
• Requires all firms and employees anywhere
in the supply chain to understand their place
in the larger chain.
• All entities must participate in
–
–
–
–
–
–
Establishing the core goal[s]
Defining systems and their boundaries
Determining the nature of the interrelationships
Determining the information requirements
Performing trade-off analysis
Evaluating and implementing system constraints
THE FIRM AS A VALUE-ADDED SYSTEM
•
Everything the firm does must be focused on
1.
2.
3.
increasing
building
strengthening
THE FIRM AS A VALUE-ADDED SYSTEM
– Core Competency
•
–
• The skills and processes that together seek to deliver
customer value at least equal to the most direct
competitor.
–
• The total value that the firm promises to deliver to the
customer.
STRATEGIC DIRECTION OF THE FIRM
[“THE CORE COMPETENCE OF THE CORPORATION” ARTICLE]
• CORE COMPETENCY
– The foundations [
] upon which you build
your business over a very long time. You need to compare
your core competencies with those of your competitors.
• THREE CORE COMPETENCY TESTS
•
–
•
–
•
–
KEY SUCCESS FACTORS
• NOT CORE COMPETENCIES
• YOU MUST DO BETTER ALL THE TIME TO
• Take a few moments now and apply the core
competency tests to the following and see
why they usually fail one or more of the
tests.
– Customer services
– Design
SWOT ANALYSIS
Your firm and your major competitors
IP
Low cost
structure
Market
position
STRENGTHS
OPPORTUNITIES
BUILD
EXPLOIT
Take advantage of the
firm’s strengths
LEVERAGE
CONSTRAINTS
Use the firm’s strengths
to offset competitive
threats
New markets,
channels
Acquisitions
VULNERABILITIES
Breadth of
offering
WEAKNESSES
THREATS
CORRECT
AVOID
Lack of
management
talent
Offset the firm’s
weaknesses
Weak finances
NPD
PROBLEMS
Counter threats
Rapidly
changing
market
New entrants
Government
regulations
SWOT:
EXAMPLE QUESTIONS
• STRENGTH
– What do we do better than others?
• WEAKNESS
– Where has performance declined?
• OPPORTUNITY
– What new trends [short-term and long-term] are
emerging?
• THREAT
– Is a major technology change underway or expected in
the industry?
COMPETITIVE ADVANTAGE OF THE FIRM:
PORTER’S THREE GENERIC STRATEGIES
Customer Perceived
Uniqueness
Focus on perceived
value.
Examples = ?
Low Cost Position
OVERALL COST
LEADERSHIP
STRATEGY
Hard to maintain
long term.
Examples = ?
Understanding and focus.
No direct battles with major competitors.
Examples = ?
STRATEGY AND SYSTEMS
FIRM’S
GOAL
→
INNOVATION
• Short conceptto-market cycle
time [autos]
• Technological
sophistication for
advanced
products [lasers]
• Unique service
options
DELIVERY
FLEXIBILITY
QUALITY
• On-time, exact
quantity delivery
• Availability
[inventory]
• High-quality
products and/or
services
• Customer
responsiveness
COST
LEADERSHIP
•
•
Optimize the
cost–service
level
Beware of “the
low cost
producer”
versus “among
the lowest cost
producers”
position
STRATEGY AND SYSTEMS
FIRM’S
GOAL
→
INNOVATION
Identify and
develop suppliers
who will provide:
• Design
expertise
• Technological
support
• Flexibility to
changes in
specifications
• Ample process
capabilities
DELIVERY
FLEXIBILITY
QUALITY
Identify and develop
suppliers who will
provide:
• Rapid, consistent
delivery
• Certified quality
• Full line availability
• Responsiveness
COST
LEADERSHIP
•
•
•
•
•
Identify and
develop
suppliers who
will provide:
Productivity
Low prices
[quantity price
discounts]
Learning curve
efficiencies
Scale / scope
economies
STRATEGY AND SYSTEMS
FIRM’S
GOAL
→
INNOVATION
• Work closely
with R&D
[concurrent
engineering]
• Support process
engineering
DELIVERY
FLEXIBILITY
QUALITY
COST
LEADERSHIP
• Shop floor control — •
due-date performance
• Shorten cycle times •
• Cross-train workers
•
• Extensive process
control
• Reduce inventories
•
•
Reduce
inventories
Increase
repetitiveness
Increase part
commonality
[modularity]
Utilize low-cost
labor
Increase
worker
productivity
STRATEGY AND SYSTEMS
FIRM’S
GOAL
→
INNOVATION
• Utilize
technology [bar
codes, GPS; EDI,
…]
• Automated
picking/packing
for customized
services
DELIVERY
FLEXIBILITY
QUALITY
• Use private fleet
•
and/or dedicated
contract carrier for ontime delivery
• Use IT to increase
responsiveness [MRP •
or ERP]
• Implement
•
comprehensive
quality approach
[AQL, Six Sigma, …]
COST
LEADERSHIP
Negotiate lowcost transport
[utilization,
multiple car
rates]
Minimize
inventory
Centralize
and/or
coordinate
decision
making
PROCESS ENGINEERING
• is the design of business processes using a
methodology to optimize each specific process.
PROCESS REENGINEERING
• is the
of business processes using
DECISION MAKING AND UNCERTAINTY
• Economic Value Analysis
– Requires you to have outcome steps and a probability
estimate for each outcome step.
– The Expected Value [EV] is the sum of the probability
of an outcome [Pn] times the value [Vn] of that
outcome.
EXPECTED VALUE EXAMPLE
You are deciding between two alternatives with the
following payoffs, states of nature, and probabilities.
Which alternative should you choose?
Alternative
Poor
Market
Good
Market
Great
Market
EV 1  (.25)(10,0 00)  (.55)(17,5 00)  (.20)(28,5 00)
1
10,000
17,500
28,500
EV 1  17,825
2
-10,000
15,000
47,500
EV 2  (.25)(-10,000)  (.55)(15,0 00)  (.20)(47,5 00)
Probability
25%
55%
20%
EV 2  15,250
DECISION TREE EXAMPLE
SUBSIDIARY PIECE PART PURCHASE OPTIONS
Buy from U.S.
100%
10.00 / 100% = 10.00
[10.00 landed
cost]
Subsidiary purchases
Buy from
qualified local
supplier
Net cost
96%
Net cost
9.80 / .96 = 10.21
[9.80 delivered
cost]
Manufacture the
product
[9.60 cost]
90%
Net cost
9.60 / .9 = 10.67
PROCESS MAPS
• A process is any activity that transforms an input set
into an output set.
• A process map is a visual representation that shows
all steps in the correct sequence that is required to
transform an input set into an output set.
• A process map should show
•
PROCESS MAP PROBLEM
Procurement
Input
Process
Output
[materials]
[manufacture]
[finished goods]
Output
Movement
Delay
Movement
[customer
receives
finished
goods]
[to customer]
[warehouse
inventory]
[to warehouse]
Process mapping has its own set of diagram symbols.
SUPPLY CHAIN MAPS
• Help to identify major linkages and bottleneck areas
with customers and key suppliers.
• Tools like a pipeline map may identify unnecessary
complexity or steps, thereby leading to
improvements in efficiency of the supply chain.
PIPELINE MAP EXAMPLE