BUSINESS MARKETING IN A SUPPLY CHAIN

MANAGEMENT ENVIRONMENT: IMPLICATIONS

FOR MARKETING
ABSTRACT

Objectives/characteristics of supply chain management are compared to marketing

definitions. General conclusions for marketing: importance of mutual trust is increased,
and marketer loses some autonomy and must be prepared to submit marketing process
decisions to a joint team process involving seller, buyer and intermediary parties such as
distribution channel members.

INTRODUCTION

In the world of business procurement and purchasing ,the term "supply chain
management" is heard with increasing frequency. A supply chain has been defined as,
"encompassing all activities associated with the flow and transformation of goods from
the raw materials (extraction) stage, through to the end user" (Handfield and Nichols
1999). Supply chain management has been defined as "a systems approach to managing
the entire flow of information, materials, and services from raw materials suppliers
through factories and warehouses to the end-customer (Leenders and Fearon 1997).
Obviously, from these definitions, supply chain management is a broadly encompassing
concept that can include basic marketing elements such as product, price, place
(channels), and communications (promotion). However, while supply chains exist in both
manufacturing and service organizations, the concept is generally applied to physical
products that have to be handled, assembled, or physically processed in some way, and
not as often to services or products that have a large service component. Typical
discussions of supply chain management are presented in the context of manufacturing
situations, as for example by Ganeshan and Harrison (1995). Because supply chain
management is often presented in the purchasing or logistics management literature (e.g.
Cooper and Ellram 1993, Ellram 1994, Kranz 1996), one may be inclined to conclude
that it is most often initiated by the buying rather than the selling entity. Thus it may be
dismissed as having little potential importance to marketing because it appears to be
simply a new purchasing technique that may have limited impact on marketing. However,
almost all of the descriptions of how supply chain management works include as a
primary characteristic that buying, selling, and other involved organizations such as
transportation and distribution channels, must work together closely, usually as part of
cross-functional and cross-organizational teams (Monczka, Trent, and Handfield 1998).
Therefore, supply chain management appears to be a concept that marketing can neither
afford to ignore nor wait for buyers to initiate.
OBJECTIVE

A number of articles have been written about the concept of supply chain management
but little has been published on the implications of supply chain management for
marketing. The objective of this paper is to overview implications for the marketing
process that have been reported by others and to draw additional implications. An
additional objective is to develop recommendations for actions that marketing
organizations should take to benefit from participation with customers and suppliers in a
supply chain management environment. Since this is an overview, only general
implications and recommendations will be developed.

APPROACH

To explore the marketing implications of supply chain management, we will compare

supply chain management, as defined by its objectives and characteristics, to to key
elements of the marketing process. To make this practical in a rather short paper we will
use a simplified list of the objectives and characteristics of supply chain management as
descriptive of the supply chain management environment. We will also use a somewhat
simplified list of marketing process elements. Following discussion of implications,
recommended marketing actions will be developed and conclusions drawn. Since the
objective of this paper is to develop implications and recommendations from a review of
current knowledge and from comparing the concepts of supply chain management and
marketing, no new primary data are presented.

REVIEW AND ANALYSIS

Objectives of Supply Chain Management

The literature on supply chain management presents varying information on the

objectives of supply chain management (e.g. Cooper and Ellram 1993, Leenders and
Fearon 1997). However, the essence of them seems to be:

• Manage the supply chain as a single entity

• Seamless flow of materials, money, and information
• Reduce costs throughout the supply chain
• Reduce cycle time in processes and in product development
• Improve customer satisfaction

Characteristics of Supply Chain Management

Also, the characteristics of situations where supply chain management has been applied
have been found to include (e.g. Cooper and Ellram 1993):

• Focus on total landed cost

• Sharing of information and risks
• Measurement of improvement
• Joint planning of supply systems and initiatives, team approaches
 • Fewer vendors and carriers, longer-term relationships
• Minimum overall inventory investment

After combining some of the seemingly related items, the supply chain management
objectives/characteristics to be used for comparison to elements of the marketing process
are as follows:

Supply Chain Management

Objectives/Characteristics

• Manage the entire supply chain process as a single entity

• Reduce total supply chain costs
• Reduce cycle time in processes and in product development
• Improve customer satisfaction
• Joint planning, share information and risks, team approaches
• Fewer suppliers/parties involved in the supply chain, longer-term relationships
• Minimum inventory investment throughout the supply chain

Marketing and the Marketing Process

Because supply chain management involves the integrated management of the entire
supply chain from raw material to end user, marketing may be involved in two types of
situations vis-a-vis supply chain management: (1)Marketing's firm may be a supplier into
a supply chain managed business situation or, (2)Marketing's firm may be the buyer or
customer in a supply chain managed business situation. The classic marketing situation,
or course, would be the first one where marketing's firm is the supplier. Most discussion
will be with regard to that situation. "Marketing" has been defined by the AMA as, "the
process of planning and executing the conception, pricing, promotion, and distribution of
ideas, goods, and services to create exchanges that satisfy individual and organizational
objectives"(American Marketing Association 1985), and by others, for example, as the
discovery of needs and the satisfaction of them through exchange (Berkowitz, et al 1994).
The following simplified list of marketing process elements will be used for the analysis:

Marketing Process Elements

• Find needs/situation assessment/analyze opportunities /select market targets

• Set goals/determine measurements
• Determine product application or develop product
• Plan programs/determine marketing strategies
• Channels/distribution
• Promotion/communication
• Pricing/profitability
• Program implementation
• Measure results/compare to plan/determine customer satisfaction
• Proceed, change plans, take corrective action
Each of these marketing process elements will be discussed in terms of potential
implications from the supply chain management items.

Find Needs, Assess Situation, Analyze

Opportunities, Select Market Targets

The marketer needs to be aware, in selecting target markets, of those where supply chain
management is or may be a major technique. Not all products are good candidates
because of the cost of planning and managing a supply chain environment. From the
point of view of the buyer, products that are good candidates for a collaborative
relationship with suppliers (such as supply chain management) include those which are
difficult to obtain or which are somehow important or critical to the buying company in
some way (Monczka, Trent, and Handfield 1998). A more complete list of likely
candidate product types is contained in Handfield (1993). By studying the characteristics
of products that are good candidates for supply chain management, marketers who are
interested in that type of arrangement can identify and target specific customers and
products in the marketing planning process. To pursue or participate in such markets, the
marketer needs to be prepared to do business in the supply chain manner, e.g. short cycle
times, continual emphasis on reducing costs, joint planning and information sharing, and
likely being one of a few suppliers or a sole supplier. Buyers will also be looking for
long-term relationships to reduce on-going relationship and operating costs and to
facilitate cooperation, quality, and process control. In a recent study, Keep, Hollander,
and Dickinson (1998) found from analysis of historical business situations that there are a
number of forces that impinge on long-term business to business relationships. Some of
these include: market growth, need of one party or the other for information or some type
of expertise that the other party has, barriers to entry that prevent the buyer from
vertically integrating, and economies of scale.

Set Goals, Determine Measurements

Setting goals and measuring results against goals is normal practice in both supply chain
management and in marketing. In a supply chain management environment, goals and
measurements will be determined, at least to some extent, by joint planning and decision
making. This will usually involve a team consisting of the buying organization,
intermediate organizations, e.g. transportation and distribution channel members, and the
marketer. One advantage for the marketer of a joint goal setting and measuring process is
that goals and measurements on which everyone agrees should ease the marketer's ability
to gauge customer satisfaction and to take preventive or corrective action in a timely
manner.

Determine Product Application or Develop Product

Product application will, to achieve the supply chain management goals of reduced costs,
reduced cycle times, improved customer satisfaction, and single-entity management, also
be subject to joint team planning and sharing of information and risks. More parties will
likely be at the planning table than in the classic marketing situation. All will have some
input that may affect the product in some way. The "product" may have to be more
broadly defined to include services. For example, a supplier and marketer of packaging
materials may need to offer the capability to fill the packages with product supplied by
the buyer of the packaging or by a third party. The product may have to be redesigned in
some way, perhaps customized, standardized, or simplified. If new product development
is needed, it will likely be done, at least in part, by a product development team that will
include participation from the buying firm and other supply chain members, perhaps even
the buyer's customer. Product development may also have to be done more quickly than
in a non-supply chain environment to meet the customer's reduced cycle time
requirements due to competition in the customer's marketplace.

There are also advantages for the marketer in these situations. Participation in product
development and getting input from the buyer's customer should help the marketer to
assure that the right product will be developed and that there is no misunderstanding of
expectations for product performance, cost, or quality. Participation in product
application decisions will help the marketer to assure that the product is being correctly
applied and prevent customer dissatisfaction from misapplication or misuse.

Plan Programs/Develop Marketing Strategies

The planning of marketing strategy and programs to implement marketing strategies in

general in a supply chain management environment would, for the most part, be the
responsibility of the marketer. However, many of the details would be subject to a joint
team planning process involving the customer, various intermediaries, and perhaps the
customer's customers. Some implications are discussed in the following sections:

Marketing Channels/Distribution

Channels and distribution for customers in supply chain management environments will
likely be the subject of joint planning, goal setting, and measurement. The goal of
management of the supply chain as a single entity will require all significant channel
participants be part of the joint planning team. Order entry, order fulfillment,
transportation, inspection, storage, handling, delivery, and receiving processes will be
analyzed. Channel processes and participants may be eliminated, changed, or added
through the joint planning process to achieve the goals of management as a single entity,
reduction of costs, reduction of cycle time, or reduced inventory investment. The
opportunity for the marketer to participate in the planning of these processes and
relationships allows for input as to what may be realistic as compared to what is
theoretically or idealistically desirable. An example would be a situation where the
customer's desired receiving process would subject the product to excessive handling that
may damage the product before it reaches the point of use. The marketer's knowledge of
how much handling the product can stand would provide the basis for suggestions to
either reduce the amount of handling or change the packaging of the product.
Promotion/Communications

Marketers who so desire should use their promotion and communication abilities to seek
opportunities to participate in markets that involve supply chain management. Once in a
supply chain management arrangement, communication between all participating parties
becomes extremely important to assure smooth operation of the arrangement. Promotion
is also important; perhaps not in the traditional product promotion sense, but as
promotion of the marketers interests and point of view in the joint planning and
implementation teams involved in supply chain management. The need for traditional
product promotion to the established supply chain management customer (with its
associated advertising or other communications) should be minimal. Marketers should be
able to save costs incurred for such activity after the supply chain arrangement has been
implemented. Some research has found this to be the case (Kalwani and Narayandas
1995). One implication of such potential marketer cost savings is that the joint supply
chain management planning team may anticipate such savings and may wish to include
them in determining purchase prices, particularly if prices are to be cost-based.

Pricing/Profitability

The usual considerations in setting prices such as value to the buyer or market prices may
or may not apply in a supply chain situation. Some influences on what the determining
factors will be include the relative importance of the product to the buyer, the relative
market share represented by the buyer, and whether or not the product is a commodity or
specialty product. In some supply chain situations, the buyer desires only a cost-based
price. In other situations, for example if the product is a commodity that can be obtained
from many suppliers, the price may be driven by market prices. If the product is a custom
item, the price may be cost-based but may include considerations for development costs.
The ultimate price in such situations may depend on the negotiating skills of the buyer
and seller. The buyer may be willing to share development risks by paying development
costs or by assuring a market for the product once it has been developed. Such
considerations will affect the price that the marketer needs to obtain. In any case, pricing
will likely not be at the sole discretion of the marketer. Another implication, particularly
in costbased pricing situations, is that there may be a need for sharing of cost data. Cost-
based pricing, risk sharing and data sharing all have implications of mutual trust between
seller, buyer, and other participants. Trust becomes extremely important in dealing with
these and other issues in supply chain management.

Program Implementation

Program implementation also implies a high degree of mutual trust. If a process is to be a

seamless one, each participant must be capable of being trusted by the other participants
to do their part correctly and on time. If development of new products or expansion of
product scope is involved, additional cooperation and trust is required, particularly if
some form of risk-sharing is involved. A number of research studies have been done
concerning trust in the business marketing environment. For example, Donley and
Cannon (1997) found that some of the things that aid a buyer to develop trust in a
supplier include: supplier size, supplier's' willingness to customize products, expertise of
salesperson, and salesperson's likability, similarity of interests and values with buyer, and
frequent contact with buyer. They also found that the consequences of trust in a supplier
improved the chances of consideration and selection of a supplier. However, they found
that supplier performance, buyer experience with supplier, and current supplier had more
impact than trust on supplier selection. In other words, trust appears to be a necessary, but
not sufficient condition for supplier selection. In another study (Smith, Barclay 1997) it
was found that in selling partner relationships organizational differences such as
reputations, strategic horizons, and goals effected mutually perceived trustworthiness
which, if positive, led to mutually trusting behaviors. While this example is not a buyer-
seller relationship, it identifies some characteristics that can affect trust and trusting
behaviors between different business entities.

Measure Results/Compare to Plan/Determine Customer Satisfaction

Results measurement, comparison to plan, and the determination of customer satisfaction

in a supply chain environment would be jointly performed and evaluated by the supply
chain team. Because the supply chain management team has jointly determined the goals
and the basis and process for measurement, there should be no surprises or major
disagreements when the evaluation time arrives. It is important that marketers assure
themselves that the goals, measurements, and measurement process are fair and equitable
to them and their organizations, that they obtain whatever information they need to
operate and control their part of the supply chain, and that some type of dispute resolution
process is included.

Proceed, Change Plans, Take Corrective Action

As the results of the supply chain management arrangement are periodically reviewed
and compared to plan, the supply chain management team jointly considers what, if any,
action is necessary. Of course the buying company, as the customer that needs to be
satisfied, is the key to the entire arrangement. If the arrangement is generally working
well and goals are being met, most supply chain management teams apply the concept of
continuous improvement and try to determine how to improve the arrangement. If there
are problems and supply chain performance goals are not being met, the management
team needs to determine what action to take to bring results into line with the plan. In
either case, all members of the supply chain must be prepared to make and receive
suggestions from each other. The marketer, as the supplying company member of the
team, would be looked to for improvements to the product itself, including such aspects
as its features, quality, cost, and design. The marketer must always be thinking of ways to
improve the product's value to the buyer and to improve any product-related aspect of the
supply chain. The marketer will often have other customers for the same product and for
other products. Therefore the profitability of products sold in supply chain environments
must be evaluated against that of alternate distribution environments and the marketer's
strategic business plan.
CONCLUSIONS AND RECOMMENDATIONS

Two implications of particular note appear to emerge from this analysis. The first is the
importance of mutual trust and cooperation between buyer, seller, and distribution
channel members. Trust was specifically mentioned in the discussion of several of the
marketing process elements but appears to be a key to successful application of the entire
concept. The second is the team environment in which many decisions are made in a
supply chain environment. The marketer does not have as complete control of many
aspects of the marketing process in a supply chain management environment as in a more
traditional transaction-type environment.

When seeking marketing opportunities and selecting targets, marketers should become
familiar with the supply chain management buyer-seller environment. They should also
become familiar with the types of products and product situations that are prime
candidates for supply chain management. Marketers must learn how to operate in a team
environment with customers and channel members to set goals and determine
performance measurements, ensuring that the goals and performance measurements are
realistic from their point of view.

The definition of "product" must be flexible and expandable to fit with the needs of
customers and channel members. Product development for supply chain applications will
most likely be done in a team environment.

Marketing programs and strategies for distribution, promotion, and pricing will have to
meet the needs of the entire supply chain and will need to be developed either jointly or
at least in consultation with other supply chain members. In some cases the supply chain
environment may dictate a particular strategy or program.

Because trust is very important in successful operation of supply chains, marketers

should not participate in supply chain situations with other members that they cannot
trust.

Marketers must be able to review program results and determine corrective action in a
team environment where they may not have direct control over all corrective actions that
may need to be taken.

Finally, if a marketer's own organization is the buyer or customer in supply chain

management arrangements, marketing can learn from such situations and, after they have
participated in supply chain management as a seller, contribute expertise to them.

ADDITIONAL RESEARCH

This discussion has provided an overview of the relatively new business environment
known as supply chain management. The implications for marketing identified in this
overview should be studied in more depth in individual supply chain management
situations that have been in existence long enough to have results to evaluate. The results
of such study would provide information on the relative importance of the various
implications identified here and my result in identification of additional significant
marketing implications of supply chain management.

REFERENCES

"AMA Board Approves New Marketing Definition," Marketing News, (March 1, 1985),
p. 1.

Berkowitz, Eric N., Roger A. Kerin, Steven W. Hartley, and William Rudelius (1994),
Marketing, 4th ed., Richard D. Irwin.

Cooper, Martha C., and Lisa M. Ellram (1993), "Characteristics of Supply Chain
Management and the Implications for Purchasing and Logistics Strategy," International
Journal of Logistics Management, 4, No. 2.

Doney, Patricia M., and Joseph P. Cannon (1997), "An Examination of the Nature of
Trust in Buyer-Seller Relationships," Journal of Marketing, 61, No. 2, (April), pp. 35-51.

Ellram, Lisa M. (1994), "The What of Supply Chain Management," NAPMInsights,

(March), pp. 26-27

Ganeshan, Ram, and Terry P. Harrison (1995), An Introduction to Supply Chain

Management, Department of Management Science and Information Systems, Penn State
University, http://silmaril.smeal.psu.edu/misc/supply_chain_intro.html

Handfield, Robert B. (1993), "The Role of Materials Management in Developing Time-

Based Competition," International Journal of Purchasing and Materials Management,
(Winter), pp. 2-10.

Handfield, Robert B., and Ernest L. Nichols, Jr. (1999), Supply Chain Management,
Prentice-Hall.

Kalwani, Manohar U., and Narakesari Narayandas (1995), "Long-Term Manufacturer-

Supplier Relationships: Do They Pay Off for Supplier Firms," Journal of Marketing, 59,
(January), pp. 1-16.

Keep, William W., Stanley C. Hollander, and Roger Dickinson (1998), "Forces
Impinging in Long-Term Business-to-Business Relationships in the United States: An
Historical Perspective" Journal of Marketing, 62, No. 2, (April), pp. 31-45.

Krantz, Steven (1996), "Supply Chain Management, What Is It?," Purchasing Today,
(October), p. 4.

Leenders, Michiel R., and Harold E. Fearon (1997), Purchasing and Supply
Management, 11th ed., Richard D. Irwin.
 Monczka, Robert, Robert Trent, and Robert Handfield (1998), Purchasing and Supply
Chain Management, South-Western.

Smith, J. Brock, and Donald W. Barclay (1997), "The Effects of Organizational

Differences and Trust on the Effectiveness of Selling Partner Relationships," Journal of
Marketing, 61, No. 1, (January), pp. 3-21.

View publication stats