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April 2009
Many industrial companies reach their final Construction Materials Supply Chain
markets through “Long Chains”. Chain
Material
This is the case, for example, of most materials
Supplier
producers : what they sell is not used by their direct
customers, those who pay their invoices. Instead,
their production is re-sold or incorporated
into their customer’s production, and only one or
several steps further are their products finally Distribution
bought, used, appreciated by final users.
Processing
Construction materials is definitely a “long-chain”
sector, with perhaps one of the most complex set
Product
of participants to the market access chain channel.
Manufacturing
The scheme on the right is inspired from the case of
steel construction products. Several levels and types
of distribution chains are involved (steel service
Secondary
centers, stockists, local steel retailers, general distribution
construction materials distribution, HVAC
distribution, etc.), as well as steel
processors and product
Assembly
manufacturers. This upstream Standards,
Prescription
part of the chain in turn sells Regulations, Mounting
Design
to the building trade : builders norms
Engineering
and their subcontractors.
Developers and non-occupying owners form the next Builder
part of the chain, which... does not even end with
actual users of the building, since recycling / reuse of
construction materials is now an issue to Developper
The construction industry example is self-explanatory. Even beyond the chain of buy and sell market
transactions, it is governed – as any other industry – by standards, regulations and norms. It also includes
participants with strong influence powers : architects, structural and other engineers, consultants, quantity
surveyors. These are also integral part of the chain, even if they never buy or sell any products.. Who in this
whole system, is “the customer”? To whom should I ask their market needs and demands ?
To make things even more complex, construction supply chains have little in common from country to country,
the construction industry being mostly national. Within each country, construction supply chains differ
significantly by building type : large landmark buildings, industrial buildings, office buildings, collective and
individual housing – each of these is a world in itself. Lastly, supply chains are not the same across building
functions : foundations, structure, roofing, walls, façades, doors and windows, partitions, HVAC, sanitary.. all
these come from different channels.
Purchasing decision-making in such a context, results from of a very complex set of processes.
In some cases, the process is simple : to buy steel roof tiles in small quantity, a small builder might go to the
next general construction materials store, himself shelving products from the major national suppliers. In other
cases, it is extremely complex : between the early sketches of an airport to the actual purchase of specially
processed beams, there are years of work and dozens of different decision points.
Seen from the materials suppliers point of view, this poses a daunting marketing challenge. One attitude
consists in closing your eyes to all this complexity, and sell to your direct customers without much further soul-
searching. This undoubtedly is the best approach to reduce the costs of a commercial organization, and for this
reason quite a tempting one. Hopefully, closing the eyes strongly enough will even divert attention from the
untapped business potential out there. But certainly it is not the best approach to develop value for the
company, and reap the most from market potential.
We believe there is a lot to gain in exploring the value potential in long supply chains, rather than giving up at
the mere sight of their complexities.
Here are some of the pitfalls of selling to Long Chains. These and surely others – those specific to your own
situation – pose formidable challenges to marketing and sales organizations.
Weak differentiation
Upstream producers sometimes misperceive the differentiating quality of their offerings. For example,
construction-grade steel is quite a basic product for modern plants, but secondary services and
attributes such as response to short-notice volume requests, technical user support, structural
engineering software, etc. can make a big difference – provided the producer is conscious of the need.
Technically-oriented producers often overlook such service differentiation factors. Conversely, efforts
from the factory to chase the last percentage point in some category of defects might not be valued by
the market.
Complexity cliff
In the steel construction materials case described above, analysis of the major market channels
resulted in 50 opportunity areas, each with a different chain, a specific set of participants, etc. Which
marketing service can possibly deal with 50 market segments in parallel?
Dealing with Long Chains requires specific approaches, adapted to each supplier and market conditions. The
key is to start and tenaciously sustain a collective process of learning and channel-building. This process will
lead to better knowledge of your markets, a better focus of development and marketing efforts, an enlarged
horizon of value creation opportunities, and finally open up opportunities for establishing market leadership
positions.
We listed below a sample of generic lessons, learned from our experience in dealing with long market access
chains. Of course your own situation might offer other lessons.
Upstream producers have a natural tendency to segment their markets by product families, or
perhaps by distribution channels. When researching long chains, forget it – at least for a start. Look at
your markets from the eyes of the final user, and segment it according to final use. Sometimes the
distance is too long : most owners of an apartment flat, for example, really have no clue about which
rebars hold their building together (except if they live in an earthquake-stricken city and have seen
buildings with poor reinforcement tumble down). In this case, move up in the chain. Perhaps the
builder ? Or the structural engineer ? Start with the first step in the value chain, starting from final use,
which perceives the functional value (the benefits) of your product; and continue upstream.
Proceeding this way you will uncover the real functioning of things, and why and how your product is
bought.
Early in the process, form multi-functional sector teams who will explore your market access channels
and formulate the core of your marketing strategies. Representatives from factories, research &
development, technical support, logistics can all contribute.
A common difficulty here, perhaps surprisingly, is to involve the sales organization itself. Salespeople
live in a world of reality, of pressure on time and money; they fight for results. Long Chain marketing
meetings will appear to them as a waste of time and perhaps also, as a threat to the balance of their
established relationships with their customers.
If your sales organization hesitates, insist. Do involve them from the start. If you don’t, they’ll come
back later with questions, inertia, new obstacles;
Sector teams should not have formal authority beyond organizing their own work : in the end, the
responsibilities of the commercial line organization should be respected. But their members should
have relevant influence in their own field. Sector teams produce knowledge, cooperation, action
proposals, innovation ideas; it’s up to the operational organization to act. To ensure coordination,
they should report regularly at a proper level – e.g. Marketing Committee for work progress and BU
(Business Unit) executive committee for major recommendations and strategy proposals.
Of course, as for any cross-functional team, proper teamwork training and coaching should be offered.
Long Chain Marketing specifics also justify a short team briefing on interview skills and market
analysis.
A side benefit of such an internally-driven organization is its collective learning, team-building and
recognition effects. It happens that although a sector team does not generate any significant new
actionable proposal, participants find it so useful that they turn it into some form of permanent
“market team” afterwards, in order to keep the momentum going. In complex organizations, ensuring
dialogue between functions is a rare and valuable occasion.
The temptation to use outside consultants to research markets is universal. They are neutral, they are
supposed to know many things, they can focus on our questions. Well, it can work. I have been both a
market consultant and a marketing executive at different stages of my career. Remember : if you and
your people don’t understand your complex market access channels, who else on earth would have
any reason to know more? If you can, hire real experts. But the best broad-base consultants will
merely ask your people, and put this in good form. Why not, but then let’s use them as members of a
team and give proper recognition to all.
Now is the time to send your newly Example : Safety road barriers for motorways
formed sector teams out in the field
for some real work. The objective
here is to describe and understand
the various steps of the chain.
1
Following a systematic framework covering e.g. function, performance attributes, logistics, service, price of
ownership, …
In this phase, creativity should be stimulated to identify value creation opportunities at each stage of
the market access chain. The knowledge gained in the research phase is a guide and reference base
against which ideas can be created, typically in creativity workshops, and prioritized.
Value-creation should be understood in a broad sense. Anything that helps your products solve
somebody’s problems should be included. Opportunities may appear under the form of new
information / communication offered; new services; optimized products, packaging, technical support;
new environmental / recycling performance features; etc..
Value Creation Opportunities need not be readily feasible / available in the supplier organization.
Indeed, third-party players might well be included in the picture at later stages.
The rules of creative processes apply here. Favor quantity in idea-generation, to obtain quality in the
end; apply thorough idea evaluation mechanisms to prioritize and allocate investment. It is here
hypothesized that a sound market product launch process is established within your company; a
whole other subject..
Nobody would appreciate investing its time and money, see their idea succeed on the market, but
finally see the benefits going to competitors. This can however happen, whenever value creation
opportunities do not lend themselves well to IP (Industrial Property) protection.
Technical and Commercial barriers should also be envisaged. In the steel safety barrier case described
above, copying grade and thickness optimization would technically take some time. Close
coordination between sales and marketing is a must – sales teams should be kept well-informed and
put in a position to exploit marketing action quickly.
This is the key to success, the “magic” and equally risky element in the Long Chain marketing
framework. Since no upstream producer can possibly master and control all steps and members in its
market access chains, it is often led to delegate this role to a set of carefully empowered partners.
Indeed, they – your downstream customers – are infinitely better placed and competent than you are
yourself, to act within the scope of their specific position in the chain.
“Partnership” is a big word, sometimes a hollow phrase for “I want your money”. Commerce is no
idealistic adventure. In this context, partnership is a joint investment into a commonly perceived
business opportunity. We could produce here complex matrices about the choice of ideal partners. In
real business life, partners should first and foremost be willing and able to walk this part of the walk
together, and feel confident with one another – that’s about it.
Money will be involved. Potential partners may attempt to take advantage of you, e.g. obtain better
prices in exchange for lipservice support to your new idea. Our advice here is to clearly disconnect
price discussions from partnership discussions. If you need to subsidize your customer, don’t do it
through prices : it would distort market realities and lead both of you onto erroneous paths. If the
business model is not viable, let’s discover it as soon as possible.
Concretely, market development partnerships may involve financing conferences, exhibitions,
communication material, advertising; conducting joint research; support financing of new equipment;
Partnership often takes the form of contracts at some point. But often, the first moves and
commitments will happen on the basis of trust, intuition, and the courage of taking some risk.
FINAL WORD
In this short paper we have tried to share some of the lessons gained from our experience , mostly in several
sectors of the steel industry.
While our experience shows that Long Chain marketing can bring fruitful business benefits through specific
projects and optimization actions, there is also a hidden treasure in it.
Gathering multi-functional teams, researching the ultimate destiny of our products, promoting creativity and
innovation : this whole process is an extraordinary opportunity for learning, individually and as an
organization. It is an excellent way of sharing information, strategies and a sense of common purpose among
the teams.
Contact :
Pascal Ponty
pascal.ponty@nextmove.fr
www.nextmove.fr