Supply chain management and marketing are inextricably linked, write DR MYLES WAKEHAM and CARL WAKEHAM. Organisations should use their supply chain management capabilities and capacities as a basis to support and build their brands and ultimately strengthen their marketing mix strategies.
Supply chain management (SCM) is the process and activity of sourcing requisite inputs that an organisation requires to create need-satisfying products and service, and the ultimate delivery of such offerings to targeted customers such as businesses, intermediaries (retailers and wholesalers) and consumers.
SCM is the inter-woven co-ordination and integration of the flow of materials, information and money and includes the various logistics activities, the transformation process (operations) and finally, business processes. Without effective SCM, organisations cannot deliver on the promises that they make to their customers; nor can they deliver superior value and cost reduction, which represents the mantra of effective and efficient SCM.
Poor supply chain management results in the failure of all organisational strategies, including the marketing strategies that are designed, implemented and controlled to appease the needs of up and down-stream supply chain partners and customers.
Marketing, on the other hand, is the activity, set of institutions and processes for creating, communicating, delivering, and exchanging offerings that have value for targeted customers and society at large. It is therefore focused on anticipating customer needs and then satisfying them and that of the organisation by creating and selling need-satisfying offerings.
SCM focuses on the efficiency of supply by reducing costs, and the effectiveness of supply by generating superior customer service and value relative to competitor endeavours. Marketing, however, is more focused with the demand side of an organisation, although it has a major influence on product design, and therefore is also strongly related to the inputs of operations, which are converted during the transformation process into finished goods and services.
The synergies between marketing and SCM are therefore strong as collectively they can be used to create a sustainable competitive advantage by boosting customer value, reducing costs and by providing better-than-foe customer-centric service, which, can translate into increased revenue and profits. In essence, the co-dependence of SCM on marketing and vice versa is so close that without SCM, marketing strategies will never be realised as SCM has a powerful influence on all four of the marketing mix variables, namely, product, price, promotion and distribution (place).
In terms of the four Ps, marketers produce products that are desired and needed by customers at a price that that they can afford and which will provide value-for-money. They use promotion to create awareness of their offerings, then attempt to generate product trial and re-trial so that their customer may hopefully morph into loyalists and product and brand advocates. An important additional aspect of the marketing mix is place (distribution), which allows marketers to deliver the right product, to the right person, at the right place, at the right time, in the right condition, in the right quantities and at the right price. In reality SCM provides time, place and possession utility whereas marketing facilitates form utility as it is associated with the conceptualisation, design and the development of physical offerings.
The great divide
The major problem with the great divide between SCM and marketing in many organisations is that supply partners, and particularly manufactures, have scant visibility of the demand side of the business. This leads to inaccurate forecasting, the underutilisation or overloading of organisational capacity, the carrying of too much or too little stock (resulting in either increased carrying costs or stock outs), an escalation in costs and finally poor service delivery. The argument for combining supply chain management and marketing is a compelling one as marketing endeavours have a significant impact on SCM.
For example, pricing, promotion, as well as product mix variables impact profoundly on supply chain costs and delivery times; whereas, supply chain costs strongly influence organisation’s profitability, which could result in a drop in product innovation and revenue. Therefore, if organisations integrate SCM with marketing they can outperform their competitors on a wide range of performance criteria such as revenue growth, market share, customer service, customer acquisition and retention and return on assets (ROA).
There is little debate that marketing’s strength lies in understanding consumer behaviour and the factors, which affect the way in which customers perceive value. Its strength also lies in the uncovering of the differing needs of various customer groups (market segments), the translation of them into product and service bundles to meet those differing wants and needs by means of the facilitation of customised products and services production and the marketing of the offerings through customer value propositions.
If both sides of supply and demand are individualised and separated, the supply side will view demand as having an external origin and will fail to recognise that demand is influenced by the organisation’s customers pull and interface. In addition, if consistent and timely information does not flow from the downstream customer to the supply side of the equation, the organisation will not be able to respond to the differentiated needs of individual customers and customer segments.
Differentiated demand for products and services is a key input to supply chain management as without these outputs there will be little need for SCM. The consequences of such information gap are substandard product and service development, and ineffective product and service delivery. Stock-outs caused by the mismatch between the demand and supply and the high price of products due to inefficient supply chain management will definitely have a serious impact on the brand’s reputation and as importantly revenue and profits.
The impact of SCM on the marketing mix
The impact of SCM on the marketing mix variables, as asserted before, is profound. From an offering (product or service) perspective, the organisation needs inputs such as raw materials, components, spare parts, energy, information and other required injections that are required to produce stock and services.
Supply chain facilitates such inputs by selecting qualified and reliable suppliers who provide affordable materials for the transformation of customer-needed outputs. Procurement, which is an important SCM function, ensures the end quality of the final offering by bringing in quality raw materials and other requisite augmentations. An integral part of a product is the brand under which it falls.
For example, Toyota as a world-renowned brand has several products under its ‘umbrella’ namely Corolla, Tazz and Fortuna etcetera. With brand strategy in mind, it is not possible to build a successful branding strategy by solely focusing on logos, slogans or advertising campaigns while ignoring the role of supply chain management.
Organisations should use their supply chain management capabilities and capacities as a basis to support and build their brands and ultimately strengthen their marketing mix strategies. It can ensure that the organisation’s brand is not undermined by fulfillment deficiencies in the supply chain. SCM has the strong impact on the organisation’s marketing mix strategy as it greatly influences brand promise, the customer buying experience and overall customer value proposition.
Hence, an organisation’s brand promise must align with its supply chain management capabilities. It is necessary for marketing managers to pay more attention to their supply chains. They must be accountable for aligning the product and brand promise with the organisation’s supply chain management capacity and capability, as it has a powerful impact on its customer value proposition.
SCM also has a marked influence on price as procurement, transportation and warehousing ensure that the aforementioned inputs are secured as inexpensively as possible and when and where the buying organisation needs them. As the final price of goods include fixed, variable and semi-variable costs, plus the requisite level of margin, if SCM input costs increase, the price of goods and services will likewise escalate, which could drive customers away to opposition offerings.
It could also reduce profits of the organisation if it bears the escalation. Transportation, as stated before, essentially provides time, possession and place utility, which could have a dramatic impact on price if fuel prices in RSA continue to increase and if interest rates rise, which could affect the lease payments of capital goods such as trucks, warehousing and so on.
SCM is already involved in the organisation’s place element of its 4Ps. Distribution includes (amongst other logistics activities), warehousing, customer service and transport. Warehousing comprises of activities relating to the space needed to hold or maintain inventories. Goods must be stored for later sales and consumption, unless customers need them immediately.
Generally, the greater time lag there is between production and consumption, the larger the amount of inventory is required. If a business can consistently provide its customers with the desired quantities and quality of offerings, where and when they are needed, it can gain market share over its competitors. A business might be able to sell its offerings at a lower price as a result of logistics efficiencies or provide a higher level of customer service as a result of logistics effectiveness or both; thereby gaining a competitive advantage. Tied in with warehousing and customer service is the important logistics activity of transportation.
Once the product is released from the warehouse, it needs to be distributed, based upon its distribution strategy (sole, limited and intensive). Transport as can be expected is needed to get the offering to the targeted customer, be it a business, an intermediary or a consumer. Warehousing ensures that the right quantity and quality of final goods are delivered post production, which ensures that customer service is being generated. Therefore, SCM plays an important part not only in the storage and delivery of the final good but also the transportation of inbound inputs, which are needed by production/operations to create end products for the consumer.
Although not sufficiently recognised and acknowledge, the last P in the marketing mix, namely, promotion and SCM should have a strong interface. Much promotion that is undertaken by organisations tends to concentrate on the features, advantages and potential benefits of a product or brand and very little is used to promote the services which should accompany the brand, namely on-time-in-full delivery.
Synergy between SCM and promotions
Many organisations lack the synergy between SCM and promotions. A central aspect of many organisations’ marketing communication strategies is to issue pamphlets, direct mail and advertisements to attract customers to stores (a pull strategy). Such promotion normally increases store traffic but if the marketing drive is not supported by SCM, customers might find that the items on sale are not there and could leave the retail outlet disgruntled and dissatisfied.
This is particularly the case when marketing goes on a two-for-one campaign to find that production and logistics cannot keep up with the surge in unexpected demand. There is a threat that after repeated experiences of this nature, customers might ignore promotion campaigns and even migrate to retail outlets that offer more reliable service and product access.
There is strong emerging evidence that the way a marketing mix strategy is designed and the way in which organisations support it with their supply chain management capabilities can be a real source of competitive advantage or a marketing and SCM nightmare. The success of an organisation’s marketing mix strategy depends on fulfilling the promise of delivering the right product to the right place at the right time.
An organisation’s SCM strengths, capacities and capabilities can make or break its ability to fulfill a promise that is made to its customers. As a result, SCM has a powerful impact on the success or failure of its marketing mix strategy. Organisation’s, irrespective of what they produce (product or service), should regard supply chain management as a market strategy differentiator, a customer service differentiator or as a profit center, as opposed to strictly a cost of doing business. SCM should therefore be seen not as a cost but rather as an investment in the brand and the organisation as it assists to enhance ROI.
Supply chain managers should have clear understanding of the SCM and marketing interface and their roles in the effective execution of their organisations’ marketing mix strategies. In short, marketing managers should know their organisations’ supply chain management capacities and capabilities and their limitations while supply chain managers should know the firm’s brand promises and marketing strategies, and as importantly their roles in fulfilling them. By doing this collectively, its transforms the organisation from a mediocre institution to one that is customer-focused and demand driven.
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