Demand Supply Chain

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IMDS 111,2
Demand-supply chain management: industrial survival recipe for new decade

Per Hilletofth
vde, Sko vde, Sweden School of Technology and Society, University of Sko
184
Received 3 August 2010 Revised 15 September 2010 Abstract Accepted 1 October 2010
Purpose The purpose of this paper is to enhance the current understanding and knowledge of the demand-supply chain management (DSCM) concept by determining its elements, benets, and requirements, and by illustrating its occurrence in practice. Design/methodology/approach This research has utilized a literature and case study research strategy. The case study has involved an international manufacturing company from the appliance industry. Empirical data have been collected mainly from in-depth interviews with key persons representing senior and middle management in the case organization. Findings This research has established that the main elements of DSCM include market orientation, coordination of the demand and supply processes, viewing the demand and supply processes as being equally important, as well as value creation, differentiation, innovativeness, responsiveness, and cost efciency in the demand and supply processes. It has also been revealed that the main benets of DSCM include enhanced competitiveness, enhanced demand chain performance, and enhanced supply chain performance, while the main requirements of DSCM include organizational competences, company-established principles, demand-supply chain collaboration, and information technology support. Research limitations/implications This research is explorative in nature, and more empirical data, from similar and other research settings, are needed to further validate the ndings. Another limitation of the research is that it is limited to one Swedish company; however, the involved case company has a large international presence and is among the top three in its industry, which provides some ground for the generalization. A nal limitation of the research is that the involved company only represents one industry. Practical implications This paper provides insights useful to researchers and practitioners on how to develop a demand-supply oriented business. It highlights that rms should organize themselves around understanding how customer value is created and delivered and how these processes and management directions can be coordinated. The demand and supply processes have to be considered as equally important and the rm needs to be managed by the demand side and supply side of the company jointly in a coordinated manner. Originality/value The need to coordinate the demand and supply processes has been emphasized in both the demand and supply chain literature but still remained relatively unexplored; thus, this paper contributes by investigating this matter further. Keywords Demand management, Supply chain management, Sweden, Manufacturing industries Paper type Case study
Industrial Management & Data Systems Vol. 111 No. 2, 2011 pp. 184-211 q Emerald Group Publishing Limited 0263-5577 DOI 10.1108/02635571111115137
1. Introduction The notion that companies have both a demand and supply chain that requires active management to maximize effectiveness and efciency is well recognized (Canever et al., ttner et al., 2007; Walters, 2008). There is no major difference between the demand 2008; Ju and supply chain when it comes to the chain of organizations involved, from customers to suppliers, but regarding the processes considered (Hilletofth et al., 2009). The demand chain comprises all the demand processes necessary to understand, create, and stimulate
ttner et al., 2007; Walters and Rainbird, 2004), customer demand (Charlebois, 2008; Ju and is managed within demand chain management (DCM). The supply chain, on the other hand, comprises all the supply processes necessary to fulll customer demand (Gibson et al., 2005; Lummus and Vokurka, 1999; Mentzer et al., 2001), and is managed within supply chain management (SCM). In this sense, the demand and supply chain often can be seen as different perspectives on the same chain of organizations (Jacobs, 2006). Despite the fact that DCM and SCM are of fundamental importance to every organization, one of them is usually prioritized in many companies (Hilletofth et al., 2009), and they also tend to be dealt with separately. Thus, a demand- and supply-led business ttner et al., 2007). Companies embracing model can be distinguished in most industries (Ju the demand-led business model (demand chain masters) focus on coordinating and managing the demand processes (DCM) to obtain a competitive advantage by providing superior customer value while companies embracing the supply led business model (supply chain masters) focus on coordinating and managing the supply processes (SCM) to obtain a competitive advantage by providing comparable customer value at lower cost. Irrespective of business model, the dominating side of the company tends to set the business agenda (what to sell, where to sell, and how to sell), while the other side supports it (Walters, 2008). The difference between these business models is the choice of emphasis and both of them can be appropriate depending on market characteristics (Christopher et al., 2006), as well as on how the company would like to compete (Hilletofth and Hilmola, 2008). However, companies utilizing these restricted business models can experience major difculties by focusing too much on either the demand side or supply side of the company (Walters, 2006a). A demand chain strength that is not linked to a supply chain strength may result in a high-cost base, as well as slow and inefcient product delivery; while a supply chain strength that is not linked to a demand chain strength could result in sub-optimal new product development (NPD), lack of product differentiation, and ttner et al., 2007). Hence, it can be argued that DCM and ineffective product delivery (Ju SCM always should be coordinated (Sheth et al., 2000), even in markets where cost efciency is the basis for competitive advantage. The choice of management orientation does not take away the fact that the supply and demand logic must be balanced one way or another (Jacobs, 2006), and this has grown to be even more important in todays new market environment (Hilletofth et al., 2009). Some suggestions on how to create this customer-oriented and integrated (or demand-supply oriented) business model have been proposed. In essence, it is suggested that either the responsibilities of DCM or SCM should be extended to facilitate coordination between the demand and supply processes (Cooper et al., 1997; Lambert and Cooper, 2000; Mentzer et al., 2001; Srivastava et al., 1999; Williams et al., 2002). Another suggestion is that DCM and SCM instead should focus on their area of expertise and become coordinated with each other at a overlying or macro-level (Canever et al., 2008; ttner et al., 2006; Rainbird, 2004; Charlebois, 2008; Hilletofth and Ericsson, 2007; Ju Walters, 2008), and in this research work, this approach is entailed demand-supply chain management (DSCM). The goal of DSCM is to gain a competitive advantage by providing superior customer value at lower cost, and this is achieved by organizing the company around understanding how customer value is created cost efciently (managing the demand chain), how customer value is delivered cost efciently (managing the supply chain), and how these processes and management directions can be coordinated.
Demand-supply chain management 185
IMDS 111,2
186
The underlying principle of DSCM, coordination of the demand and supply processes, is well established (Canever et al., 2008; Charlebois, 2008; Hilletofth and Ericsson, 2007; ttner et al., 2007; Walters, 2008). However, it can argued that there is a lack of research Ju examining the concept, for example, how the demand and supply processes inuence each other, how they can be coordinated, what benets that can be obtained by coordinating them, and what the requirements are to succeed with the coordination ttner et al., 2006; Mentzer et al., 2001). Moreover, there is a lack of (Hilletofth et al., 2009; Ju conceptual foundation since most of the research works only are based on best practice ttner et al., 2007; examples, although notable exception exists (Hilletofth et al., 2009; Ju Walters and Rainbird, 2004; Walters, 2008). Another shortage is that most DSCM research steam from the supply chain eld (Childerhouse et al., 2002; Lee and Whang, 2001; Rainbird, 2004; Vollmann et al., 1995), although selected citations from the demand ttner et al., 2007). This implies that the chain eld can be traced (Charlebois, 2008; Ju concept and application of DSCM is still in its infancy and needs to be researched further. The purpose of this research is to enhance current understanding and knowledge of the DSCM concept by determining its elements, benets, and requirements, and by illustrating its occurrence in practice. The specic research questions are: RQ1. What key elements characterize the DSCM concept? RQ2. What benets can be gain by adopting DSCM? RQ3. What are the requirements to succeed with DSCM? The concept is examined through literature review and a case study including a Swedish manufacturing company that operates on an international basis in the appliance industry (to remain anonymity here called Alpha). Empirical data have been collected from several sources during the four-year period of 2006-2009. The remainder of this paper is structured as follows: to begin with a theoretical framework of DSCM is presented in Section 2. After that, the research methodology is discussed in more depth in Section 3. Thereafter, the case study ndings are presented in Section 4 followed by an analysis of the research ndings in Section 5. Finally, the research ndings are discussed and concluded in Section 6. 2. Demand-supply chain management The need to coordinate the demand and supply processes has been emphasized in both the demand chain as well as the supply chain literature. From a demand chain perspective, Flint (2004) argues that effective marketing strategy implementation requires SCM, since it includes the distribution part of the strategy. Likewise, Sheth et al. (2000) emphasize, in their customer-centered marketing approach, the need for DCM to be in charge of SCM. They argue that in environments with increasing diversity, in customer needs and requirements, companies must rapidly adjust their supply to meet demand. Moreover, Kumar et al. (2000) suggest that market-driven companies can gain a more sustainable competitive advantage by not only providing superior customer value propositions, but also by having a unique business system to support it. By business system, they mean the conguration of activities required to create, produce, and deliver the customer value proposition, which clearly refers to SCM. Furthermore, Srivastava et al. (1999) dene SCM, NPD, and customer relationship management (CRM) as the three core business processes which contribute to creating and delivering customer value. They argue that
the role of DCM is to connect these processes; however, they also admit that while it will have a leading function in managing customer relationships, its role in SCM is restricted to communication and direction. The authors emphasize that the processes have to be integrated; however, the integration itself is not discussed. Similarly, Payne and Christopher (1994) argue that CRM and SCM processes have to be integrated to provide high levels of product availability and variety in a cost-efcient manner. While the authors provide guidelines for the processes separately, the integration is depicted at a highly abstract level. Interestingly, the stream of research in the demand chain eld which recognized the move towards network competition at the beginning of the 1990s redened and extended the role of marketing, but did not acknowledge the need for a closer integration with SCM (Achrol and Kotler, 1999). Within the supply chain literature, many authors who aim to describe SCM refer to the importance of coordinating demand and supply processes by incorporating various demand processes in the SCM denition. For example, Cooper et al. (1997) and Lambert and Cooper (2000) dene SCM as the integration and management of key business processes across the supply chain. They outline three demand processes: CRM, customer service management, and demand management. Mentzer et al. (2001) also build their model of SCM on the inter-functional coordination of processes spanning demand and supply functions. They suggest the investigation of how the demand and supply processes can be effectively coordinated within a company and across the supply chain as an area for future research. Similarly, Bechtel and Jayaram (1997) suggest a research agenda for SCM and emphasize the need for the supply chain to begin with the customer. They propose that a better term would be seamless demand pipeline, where the end-user and not the supply function drive the supply chain. Lee (2001) emphasizes the problems of SCM acting separately from DCM. If the demand and supply processes are separated, supply will view demand as exogenous and will fail to recognize that demand is inuenced by the companys customer facing functions. Also, if consistent and timely demand information does not ow, the company will not be able to respond to the differentiated needs of individual customers and market segments. Fisher (1997) links the integration of DCM into SCM to the concept of the market mediation role of the supply chain. Within this role, the supply chain needs to ensure that the variety of products reaching the market matches what customers want to buy. Finally, Min and Mentzer (2000) stress the important role that DCM (e.g. market orientation and relationship marketing) plays in the implementation of SCM. Although DSCM is a relatively new concept, it has already been dened in several ways in the literature (Table I). At rst, it was introduced as a replacement of SCM and it highlighted issues such as market orientation, exibility, and responsiveness , 2002; De Treville et al., 2004; Vollmann and Cordon, 1998). However, these (Heikkila types of issues were also addressed within SCM and thus there were no major differences between them, and DSCM never gained approval in the academic community. More recently, it has been introduced as an approach to gain a superior competitive advantage by coordinating the demand and supply processes across intra- and inter-organizational ttner et al., 2007; Walters and Rainbird, boundaries (Hilletofth and Ericsson, 2007; Ju 2004). At the present time, it can be dened as the strategic coordination of the demand and supply processes within a particular company and across the demand-supply chain in order to provide superior customer value as cost efciently as possible (Hilletofth et al., ttner et al., 2007; Walters, 2008). 2009; Ju
IMDS 111,2
References Hilletofth et al. (2009)
Denition
188
Table I. Denitions of demand-supply chain management
The alignment of demand creation and demand fulllment processes across functional, organizational, and inter-organizational boundaries (p. 1181) ttner et al. (2007) Ju The concept that aims to integrate demand and supply oriented processes. Demand processes are all processes at the customer or market interface aimed at responding to customer demand through value creation [. . .] Supply processes comprise the tasks necessary for fullling demand (p. 381) Hilletofth and Ericsson The task of identifying the value packages for major customers and group (2007) those with similar requirements into specic market segments, for which a suitable supply chain is developed (p. 7) Rainbird (2004) An understanding of current and future customer expectations, market characteristics, and of the available response alternatives to meet these through deployment of operational processes (p. 242) A set of practices aimed at managing and coordinating the whole demand Selen and Soliman (2002) chain, starting from the end customer and working backward to raw material supplier (p. 667) Williams et al. (2002) The management of supply production systems designed to promote higher customer satisfaction levels through electronic commerce) that facilitates physical ow and information transfer, both forwards and backwards between suppliers, manufacturers, and customers (p. 692) Vollmann et al. (2000) A practice that manages and coordinates the supply chain from end customers backwards to suppliers (p. 82)
The goal of DSCM is to gain a competitive advantage by providing superior customer value at a lower cost. The emphasis is both on increasing revenues (effectiveness) by providing desirable products and tailored supply chain solutions and on reducing costs (efciency) by managing the demand and supply processes in a cost-efcient manner. In essence, it concerns coordination of DCM and SCM across intra- and inter-organizational boundaries (Figure 1). The underlying principle is that these management directions should be viewed as equally important and that neither one should rule single handedly ttner et al., 2006; Rainbird, 2004). The ultimate test of DSCM excellence is ( Jacobs, 2006; Ju a prot level that allows the particular company and the demand-supply chain as a whole to prosper in the long run (Hilletofth et al., 2009). The main elements of DSCM discussed in the literature are market orientation, coordination of the demand and supply processes, viewing the demand and supply processes as equally important, value creation in the demand and supply processes, differentiation in the demand and supply processes, innovativeness in the demand and supply processes, responsiveness in the demand and supply processes, and cost efciency in the demand and supply processes (Table II). Market orientation means that the organization and the entire demand-supply chain should be customer oriented and focus on creating and delivering superior customer value as cost efcient as possible , 2002; Hilletofth et al., 2009). To achieve this, the (De Treville et al., 2004; Heikkila company must be organized around understanding how customer value is created and delivered, and how these demand and supply processes can be coordinated (Esper et al., ttner et al., 2007; Walters and Rainbird, 2004). A prerequisite is that the company 2010; Ju views the demand and supply processes as equally important and manages the processes in a coordinated manner (Hilletofth et al., 2009; Langabeer and Rose, 2002; Rainbird, 2004; Walters, 2008). It is also important that value creation is considered
Suppliers
Focal company Demand chain management The management of the demand processes, within a particular company and across the demand chain, in order to understand, create, and stimulate customer demand as cost-efficiently as possible Demand processes
Market intelligence New product development Branding Marketing and sales
Retailers
Market (customers)
Demand creation (value creation)
Management levels Design (strategic level) Planning (tactical level) Execution (operational level) Competitive advantage (value and cost)
Coordination Supply chain management The management of the supply processes, within a particular company and across the supply chain, in order to fulfill customer demand as cost-efficiently as possible Supply processes Sourcing Manufacturing Management levels Design (strategic level) Planning (tactical level) Execution (operational level) Distribution
Demand fulfillment (value delivery)
Figure 1. Demand-supply chain management
in both the demand and supply processes since competitiveness not solely is gained by desirable products, but also concern how products are delivered (Hilletofth and Ericsson, 2007; Vollmann and Cordon, 1998; Walters, 2008). The route towards superior customer value lies in the ability of the rm to differentiate itself from competition with regard to product and supply chain solutions (Esper et al., 2010; Hilletofth and Ericsson, 2007; ttner et al., 2007). Two of the most important opportunities for product and supply Ju chain differentiation are innovativeness and responsiveness (Canever et al., 2008; De Treville et al., 2004; Selen and Soliman, 2002). The main benets of DSCM discussed in the literature are enhanced competitiveness, demand chain performance, and supply chain performance (Table III). Competitiveness is enhanced with the ability to provide superior customer value at a lower cost, which may be achieved by simultaneous focus on value creation, differentiation, innovativeness, responsiveness, and cost efciency in the demand and supply processes in a coordinated manner (Canever et al., 2008; Charlebois, 2008; Walters and Rainbird, 2004). This, in turn, leads to improved protability due to increased revenues and reduced costs (Esper et al., ttner et al., 2007). Increased demand chain performance is 2010; Hilletofth et al., 2009; Ju achieved by increased innovativeness, responsiveness, and cost efciency in NPD, improved range and life cycle management, higher brand loyalty, more effective marketing efforts, and reduced costs in the demand chain (Rainbird, 2004; Walters, 2008). Supply chain performance is increased through more responsiveness, differentiated, cost-efcient product delivery, exible operating structure, reduced inventories, fewer stock outs,
190
IMDS 111,2
Elements
Market orientation Market driven (customer) Market segmentation Market intelligence Customer value oriented Coordination of the demand and supply processes Internally (intra-organizational) Externally (inter-organizational) Macro-management Viewing the demand and supply processes as equally important Neither demand nor supply focused Both involved in setting the business strategy Demand and supply chain strategy linked Senior management involvement Value creation in the demand and supply processes Desirable products (e.g. innovative, customized, and affordable) Differentiated supply chain solutions (customer service) Differentiation in the demand and supply processes Product differentiation Supply chain differentiation Innovativeness in the demand and supply processes Innovative product Innovative supply chain solutions Responsiveness in the demand and supply processes Reactive/rapid development of products Reactive/rapid replenishment of products
Cost efciency in the demand and supply processes Cost-efcient development of new products Cost-efcient replenishment of products
Table II. Main elements of demand-supply chain management

References Al-Mudimigh et al. (2004), Canever et al. (2008), Charlebois (2008), Childerhouse et al. (2002), De Treville et al. (2002), Hilletofth and Ericsson (2007), (2004), Esper et al. (2010), Frohlich and Westbrook (2002), Heikkila ttner et al. (2006, 2007), Korhonen et al. (1998), Langabeer and Rose (2002), Rainbird (2004), Jacobs (2006), Ju Selen and Soliman (2002), Vollmann and Cordon (1998), Walters (2006a, b, 2008), Walters and Rainbird (2004) and Williams et al. (2002) Al-Mudimigh et al. (2004), Canever et al. (2008), Charlebois (2008), Childerhouse et al. (2002), Esper et al. ttner et al. (2006, 2007), (2010), Frohlich and Westbrook (2002), Hilletofth and Ericsson (2007), Jacobs (2006), Ju Rainbird (2004), Selen and Soliman (2002), Walters (2006a, b, 2008) and Walters and Rainbird (2004) ttner et al. (2006, Al-Mudimigh et al. (2004), Esper et al. (2010), Hilletofth and Ericsson (2007), Jacobs (2006), Ju 2007), Langabeer and Rose (2002), Rainbird (2004), Walters (2006a, b, 2008) and Walters and Rainbird (2004) (2002), Hilletofth and Ericsson (2007), Jacobs (2006), Al-Mudimigh et al. (2004), Esper et al. (2010), Heikkila ttner et al. (2006, 2007), Rainbird (2004), Vollmann and Cordon (1998), Walters (2006a, b, 2008) and Walters Ju and Rainbird (2004) Canever et al. (2008), Charlebois (2008), Childerhouse et al. (2002), De Treville et al. (2004), Esper et al. (2010), (2002), Hilletofth and Ericsson (2007), Jacobs (2006), Ju ttner et al. (2006, 2007), Rainbird (2004), Heikkila Vollmann and Cordon (1998), Walters (2006a, b, 2008) and Walters and Rainbird (2004) Al-Mudimigh et al. (2004), Canever et al. (2008), Esper et al. (2010), Hilletofth and Ericsson (2007), ttner et al. (2006, 2007), Walters (2006a, 2008) and Walters and Rainbird (2004) Jacobs (2006), Ju Al-Mudimigh et al. (2004), Canever et al. (2008), Childerhouse et al. (2002), De Treville et al. (2004), Esper et al. (2002), Hilletofth and Ericsson (2007), Jacobs (2006), Ju ttner (2010), Frohlich and Westbrook (2002), Heikkila et al. (2006, 2007), Korhonen et al. (1998), Langabeer and Rose (2002), Rainbird (2004), Selen and Soliman (2002), Vollmann and Cordon (1998), Walters (2006a, b, 2008) and Walters and Rainbird (2004) Al-Mudimigh et al. (2004), Canever et al. (2008), Charlebois (2008), Childerhouse et al. (2002), De Treville et al. (2002), Hilletofth and Ericsson (2007), (2004), Esper et al. (2010), Frohlich and Westbrook (2002), Heikkila ttner et al. (2006, 2007), Korhonen et al. (1998), Langabeer and Rose (2002), Hines et al. (2002), Jacobs (2006), Ju Rainbird (2004), Selen and Soliman (2002), Vollmann and Cordon (1998), Walters (2006a, b, 2008), Walters and Rainbird (2004) and Williams et al. (2002)
Benets Enhanced competitiveness Value creation in the demand and supply processes Differentiation in the demand and supply processes Innovativeness in the demand and supply processes Responsiveness in the demand and supply processes Cost efciency in the demand and supply processes Superior customer value at a lower cost Revenue growth Cost reduction Improved protability Enhanced performance (demand chain) Responsive product development Innovative product development Cost-efcient product development Improved range management (life-cycle management) Reduced demand chain costs Improved brand loyalty (preference) Improved marketing efforts Enhanced performance (supply chain) Responsive product delivery Differentiated product delivery Cost-efcient product delivery Flexible operating structure Fewer stock outs Reduced inventories Less product obsolescence Improved customer service Reduced supply chain costs
References Al-Mudimigh et al. (2004), Canever et al. (2008), Charlebois (2008), Childerhouse et al. (2002), De Treville et al. (2004), Esper et al. (2010), Frohlich and Westbrook (2002), Hilletofth and Ericsson (2007), (2002), Heikkila ttner et al. (2006, 2007), Korhonen et al. Jacobs (2006), Ju (1998), Langabeer and Rose (2002), Rainbird (2004), Selen and Soliman (2002), Vollmann and Cordon (1998), Walters (2006a, b, 2008) and Walters and Rainbird (2004)
Al-Mudimigh et al. (2004), Canever et al. (2008), Charlebois (2008), Childerhouse et al. (2002), Esper et al. ttner et al. (2010), Hilletofth and Ericsson (2007), Ju (2006, 2007), Rainbird (2004), Selen and Soliman (2002), Vollmann and Cordon (1998), Walters (2006a, b, 2008) and Walters and Rainbird (2004)
Al-Mudimigh et al. (2004), Canever et al. (2008), Charlebois (2008), Childerhouse et al. (2002), De Treville et al. (2004), Esper et al. (2010), Frohlich and Westbrook (2002), Hilletofth and Ericsson (2007), (2002), Heikkila ttner et al. (2006, 2007), Korhonen et al. Jacobs (2006), Ju (1998), Langabeer and Rose (2002), Rainbird (2004), Selen and Soliman (2002), Vollmann and Cordon (1998), Walters (2006a, b, 2008) and Walters and Rainbird (2004)
Table III. Main benets of demand-supply chain management
less obsolete products, improved customer service, and reduced costs in the supply chain (Childerhouse et al., 2002; De Treville et al., 2004; Langabeer and Rose, 2002). The main requirements of DSCM discussed in the literature are organizational competences, company established principles, demand-supply chain collaboration, and information technology support (Table IV). The required organizational competences include market orientation, advanced market intelligence and segmentation, and excellence in and coordination between the demand and supply processes (Hilletofth et al., ttner et al., 2007; Walters and Rainbird, 2004). Company established principles 2009; Ju means that the demand-supply focused approach needs to be embedded into the organization, for example, DCM and SCM needs to be coordinated and be given equal attention (Canever et al., 2008; Esper et al., 2010; Jacobs, 2006). It is necessary that the senior management supports this view, and that the demand and supply chain strategies ttner et al., 2007; Langabeer conform to the overall business strategy (Esper et al., 2010; Ju and Rose, 2002). Demand-supply chain collaboration means that the actors across
IMDS 111,2
Requirements Organizational competences Market/customer orientation Sophisticated market intelligence Advanced market segmentation Prociency of the demand and supply processes Coordinated demand and supply processes Company-established principles Neither demand nor supply focused Demand and supply chain strategy linked Commitment from senior management Demand-supply chain collaboration Information sharing Trust and loyalty Relationship management
References Al-Mudimigh et al. (2004), Canever et al. (2008), Charlebois (2008), Childerhouse et al. (2002), Esper et al. (2010), Hilletofth and Ericsson (2007), ttner et al. (2006, 2007), Rainbird Jacobs (2006), Ju (2004), Walters (2006a, b, 2008) and Walters and Rainbird (2004) Esper et al. (2010), Hilletofth and Ericsson (2007), ttner et al. (2006, 2007), Rainbird Jacobs (2006), Ju (2004), Walters (2006a, b, 2008) and Walters and Rainbird (2004) Al-Mudimigh et al. (2004), Canever et al. (2008), Charlebois (2008), Childerhouse et al. (2002), De Treville et al. (2004), Esper et al. (2010), Frohlich (2002), Hilletofth and Westbrook (2002), Heikkila ttner et al. and Ericsson (2007), Jacobs (2006), Ju (2006, 2007), Korhonen et al. (1998), Langabeer and Rose (2002), Rainbird (2004), Selen and Soliman (2002), Vollmann and Cordon (1998), Walters (2006a, b, 2008), Walters and Rainbird (2004) and Williams et al. (2002) Al-Mudimigh et al. (2004), Canever et al. (2008), De Treville et al. (2004), Frohlich and Westbrook (2002), Hilletofth and Ericsson (2007), Jacobs ttner et al. (2007), Korhonen et al. (1998), (2006), Ju Langabeer and Rose (2002), Rainbird (2004), Selen and Soliman (2002), Vollmann and Cordon (1998), Walters (2006a, b, 2008) and Walters and Rainbird (2004)
192
Table IV. Main requirements of demand-supply chain management
Information technology support Support for individual supply processes Support for individual demand processes Support for internal/external coordination Integrated information systems
the demand-supply chain share information, which calls for trust, loyalty and relationship management (Charlebois, 2008; Frohlich and Westbrook, 2002; Williams et al., 2002). Information technology is required to manage both the individual demand and supply processes but also to support the coordination between them within and between organizations (Al-Mudimigh et al., 2004; Selen and Soliman, 2002; Walters, 2008). 3. Research methodology In this research, the applied research strategy has been a qualitative single case study. This strategy was considered appropriate since the research aimed to analyze contemporary events, capture a wider and in some extent new problem area, and because the researcher had no control over the events (Yin, 2008). Although, the case study strategy can be used for many purposes, including exploration, theory building, theory testing, and theory renement (Voss et al., 2002), it only has been used for exploration and theory building in this research. The main strength of the case study strategy is that it is not constrained by rigid limits of questionnaire and models (Voss et al., 2002), and thus can have a very high impact and lead to creative insight and development of theory. The case company (to maintain anonymity here called Alpha) is a Swedish manufacturer operating on international basis in the appliance industry. This company was chosen based on its vision to become a truly customer-focused company. Other reasons to why this company
was chosen are the type of industry it is operating in (fast moving, highly competitive, and customer driven) as well as its leading position in that industry (in top three). A case study does not imply the use of a particular data-collection method, as it represents a research strategy with multiple data-collection methods. The possibility to combine several data-collection methods is one of the major advantages of case study research (Yin, 2008), since it allows the researcher to study the research problem from several perspectives. In this research, empirical data have been collected from multiple sources to enhance understanding by examining the research object from several perspectives. To be begin with, this study is based on data gained from ve in-depth interviews with persons representing senior management in the case company; vice president, logistics manager, customer innovation manager, IT manager, and human resources manager. The interviews were conducted during the two-year period of 2006-2008, and the lengths of interviews were between 90 and 120 minutes. The study is also based on several meetings and discussions with various persons in the company as well as on secondary data retrieved from strategic and nancial reports produced by the company. Several tactics have been used to increase the validity of the case study. First, several data sources (interviews and company reports) have been used to answer the same questions (triangulation). Moreover, the respondents have been asked to review the case study report to conrm that they were understood correctly (respondent validation) and colleagues have been asked to continuously comment on the ndings as they have emerged (peer examination). Assumptions and theoretical orientation have also been claried to respondents prior to interviewing them (bias reduction). The reliability of the case study has also been improved through multiple tactics. The use of triangulation not only increases the validity of the case study, but also the reliability since several data sources improve the measure and makes it more reliable. Moreover, a semi-structured interview framework has been used (case study protocol) and assumptions and theoretical orientation have been presented to the respondents prior to interviewing to make sure that appropriate respondents were selected (investigators position). The data collection has also been documented and sometimes digitally recorded (documentation). 4. Case study ndings Case company Alpha is a Swedish manufacturer that operates on an international basis in the appliance industry. It sells more than 40 million products to consumers and professionals in 150 countries every year (top three in its industry). The largest markets are in Europe and North America, and its strongest market position is in Europe. The case company operates in a competitive industry, characterized by intensive competition, high commoditization, and short product life cycles. In this environment, it is vital to continuously develop new products in accordance with customer preferences. Furthermore, the supply chain needs to be cost efcient and provides a high-quality output. The case company has realized that it needs to focus all its resources on creating and fullling customer demand (develop a demand-supply oriented business), since markets are becoming more competitive and fragmented. It needs to become more innovative, differentiated, responsive, and cost efcient, to avoid price competition and maintain protability. In addition, it needs to focus on both revenue growth (effectiveness) and cost reduction (efciency), simultaneously. As a result, the case company has begun to transform itself from a production-focused business to an innovative and
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customer-oriented business. It focuses on providing innovative products and customer service (supply chain solutions), for which customers are willing to pay a premium. The company has dened product ow and demand ow as two major business processes, which constitute its DSCM approach (Figure 2). The management of these major business processes is further described as follows. Product management ow The case company has developed a process for consumer-focused product development-entitled product management ow (PMF). The PMF is an international and holistic process for managing products, from the cradle to the grave, and it describes all the areas of creating and selling products. The aim of the process is to develop products that are adapted to local needs, together with products that can be sold worldwide on the basis of common global needs. Employees from several functions are involved, although no logisticians are included at this time. The PMF is run by the product line manager with support from the consumer innovation program. It was introduced in 2004 and will be implemented in all product lines over the next couple of years. The PMF includes a structured working method with check and decision points, to ensure that no activities are omitted. It consists of three phases: market intelligence, product creation, and commercial launch (Figure 3). The aim of the market intelligence phase is to ensure clear identication and prioritization of opportunity areas, which are expressed in a strategic market plan. The plan is built on corporate prerequisites (e.g. product innovation strategy, brand strategy, and design strategy, as well as global needs) along with industry analyses. It also includes tools that together with the analyses allow the product line manager to set
Suppliers Focal company Product management flow Processes (demand) Market intelligence Product creation Management levels Planning (tactical level) Commercializ ation Demand creation (value creation) Retailers Market (customers)
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Demand management flow
Processes (supply) Sourcing Manufacturing Management levels Design (strategic level) Planning (tactical level) Execution (operational level) Distribution
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Figure 2. The case companys DSCM approach
Phase 1: Market intelligence
Phase 2: Product creation
Phase 3: Commercial launch
Executed on product line level Primary development Strategic market plan Consumer opportunities Concept development Product development Commercial launch preparation Launch execution Range management Phase-out
Product line manager Consumer innovation program
Figure 3. The case companys product management ow
priorities and take strategic decisions, which are subsequently translated into a strategic road map and a corresponding product generation plan. This is intended to provide a good frontloading of the product development as well as ensure clear directions for product development and market communication. Examples of interesting questions in this phase are: on what areas should we focus our innovation work, what changes in consumer behavior can create business opportunities, where are the growth markets, and what can we do that our competitors have not done? The objective of the product-creation phase is to dene and develop consumer relevant and innovative products addressing well-understood consumer needs. It involves four steps: consumer opportunities, concept development, primary development, and product development. During the consumer opportunity step, an understanding of consumer needs in prioritized areas is developed. Consumer understanding and insight are the foundation for successful concept and product development, as well as for the commercial launch. Through the concept development step, a feasible product idea addressing the identied consumer needs is developed, with distinct positioning, consumer value-based pricing, and a solid business case. In the product development step, the product idea is specied, designed, and veried, as cost efciently as possible, as well as prepared for launch on the market. In the primary development step, technical solutions within targeted innovation themes are developed, producing veried ideas or hardware solutions that can be applied to relevant concepts in product development. The consumer opportunity and the concept development steps constitute the spark process (Figure 4). The rst activity in the spark-process is to identify consumer opportunities by exploring a chosen target group. The case company has developed a needs-based segmentation model on the nding that all their customers purchase products according to four different underlying demand patterns. Accordingly, products are now developed to meet needs that have been identied within a specic target segment in the segmentation model. When a consumer opportunity is identied, the next activity is to gather consumer insight regarding the identied opportunity. The case company uses several techniques for this activity, such as observations, surveys, and evaluations. However, observations are preferred, as observed behavior is richer than described behavior. The case company is in touch with tens of thousands of consumers worldwide every year. After some insights have been identied, they are grouped into a few product concepts. Some insights may originate from the same problem, or have
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Description 1) Explore chosen target group to find consumer opportunities 2) Gather consumer insights regarding the identified opportunities and group them into product concepts
Illustration Consumer opportunities in target group X
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3) Analyse and prioritize product concept
A(60%)
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4) Winning product concept 5) Develop products based on the winning product concept, create prototypes and test on target group 6) Winning product idea
Figure 4. The case companys spark process
7) Continue to primary and/or product development or put down?
To primary development To product development
Close project
something else in common, and could therefore be satised with the same solution. The identied product concepts are then analyzed and prioritized, resulting in a winning product concept. Different product prototypes are subsequently developed, on the basis of the product concept, and later tested on the target group, leading to a winning product idea. Finally, the case company makes a decision regarding whether the product idea is good enough to develop further, and whether it should proceed to the primary and/or product-development phase. All the activities in the spark process are conducted from a market strategy perspective, and one important output is a business case describing how to ensure long-term protability, by answering the following questions: What to sell?, Where to sell?, and How to sell?. The objective of the commercial-launch phase is to ensure that developed products are properly introduced into the market with a consistent and consumer relevant message, as identied earlier during the concept development, based on true consumer needs or problems. Another objective of the commercial launch phase is to ensure that the product assortment is updated according to the products life cycles, and that obsolete products are properly phased out. Both these objectives rely on a consistent follow-up process. A considerable portion of the investment is devoted to the early phases of the PMF, prior to large investments in production, to ensure that the product is successful. The number of new products created through consumer-focused product development is increasing rapidly, leading to a better product offering and, thus, to an increasing
number of more successful launches. During a ve-year period, the case company has increased the number of successful product introductions from one to ve per year, with a similar number of total introductions. In 2006, products that had been launched during the two previous years accounted for more than 40 percent of sales; thus, it is very likely that the increased investment in product development has generated positive results. Since 2002, investments in product development have increased from approximately 1.0 percent of sales to 1.8 percent in 2006. At the same time, the development has become more responsive and efcient through global cooperation and the coordination of launches between different product categories. The focus is on developing products in protable segments and high-growth areas, simultaneously making launches more accurate. Demand management ow The case company considers that the most important factor that is required to supply materials and products on demand is keeping the end-user in focus. It is also vital that the total supply chain (sourcing, manufacturing, and distribution) is managed in a competitive way. To a large extent, success depends on whether the case company and its supply chain are as good as, or better than, its competitors. This requires collaboration, rst internally, then with the retailers and suppliers. To realize the above, the case company has created a demand management ow (DMF), including common goals and principles. DMF focuses on meeting consumer needs and requirements while minimizing both the capital tied up in operations and the costs required to fulll demand. The case company aims to combine cost-efcient production in low-cost countries with manufacturing as close as possible to major nal markets. However, it has recently focused on increasing the number of products produced in low-cost countries. The case companys supply chain and strategies are shown in Figure 5. It conducts business with retailers, while retailers conduct business with end-users. In addition, the company does business with direct suppliers. It has chosen to carry out all manufacturing, assembly,
Case company Alpha Design Sourcing ManuAssembly Packaging Labeling Distribution facturing Retailer
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Lean supply
Activities are performed before orders are received and focus on efficiency (planned and standardized)
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Activities are performed after orders are received and focus on responsiveness (order-driven and customized)
Figure 5. The case companys supply chain and strategies
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warehousing, and distribution operations in-house, and is currently employing three supply chain strategies. For standard products with short customer required lead-time, it employs two lean supply chain strategies based on the manufacturing strategies make-to-stock (MTS) and deliver-to-order (DTO). This implies that the case company, based on forecasts and speculations, performs all supply chain operations, including sourcing, manufacturing, assembly, packaging, labeling, and distribution (not included in DTO approach), before it has received any customer orders, and focuses on efciency. However, for customized and more complex products, it employs a leagile supply chain strategy based on the make-to-order (MTO) manufacturing strategy. This means that the design and sourcing processes are decoupled from the production, assembly, and distribution processes, or, in other words, production, assembly, and distribution activities are postponed until customer orders are received. Activities performed after orders are received (downstream the customer order point, COP) are managed according to agile principles, while activities performed before orders are received (upstream the COP) are managed according to lean principles. The supply chain design process of the case company consists of three steps. First, the case company identies how its end-users, via retailers, want to acquire its products (understand the market the company serves). This is achieved through consumer insight, where important information that can affect the companys service to the retailers is collected. Retailers have a number of characteristics that need to be considered before deciding how to serve them, such as product range, required lead-time, location, and volumes. Second, the company must understand its capabilities of serving the market via the retailers. This implies dening its production system and delivery system capabilities. Understanding the capability of the production system, to produce according to demand, and the capability of the distribution system, to deliver the output, is very important. In addition, recognizing the capability of the suppliers to supply the production system is also important. Finally, when these steps have been completed, the case company can design various approaches to serve the end-users via the retailers, commonly referred to as supply chain solutions. There may even be more than one solution for each retailer, for example, in the case of supplying both its own labeled products and the retailers branded products (also known as OEM products or private labels). A supply chain solution is a combination of a supply method (manufacturing strategy), reecting the production system capabilities, and a delivery method (delivery strategy), reecting the delivery system capabilities. The case company believes that combining supply and delivery methods into various supply chain solutions creates freedom of choice, while at the same time maintaining the efciency of operations in the production and delivery systems. One applied supply chain solution combines the supply method MTS with the delivery method called self-collect (Figure 6). This implies that the case company produces in advance, according to a demand plan and stock keeping, until the retailer collects the goods from one of the companys regional distribution centers. Self-collection needs to be implemented carefully to maintain loading efciency in the distribution centers. In another applied supply chain solution, the case company combines the supply method MTO with the delivery method factory direct. This solution is used when retailers order a number of weeks in advance, which enables the case company to produce and deliver to a specied date and time. Orders are normally in the form of full truckloads dispatched directly from the factory to a retailer (deliver method factory direct). The case company also combines the supply method DTO with the delivery method home delivery.
Delivery method (physical flow)
Supply method (decoupling points) MTS Factory direct Bulk Small drop Self collect Home delivery X X X DTO X X X X X X MTO X VMI X
Figure 6. The case companys supply chain solutions
This solution implies that the case company, at the retailers request, bypasses retailers distribution network and delivers directly to the consumers home. This delivery method is normally combined with other services, such as installation and the removal of old products. In a nal applied supply chain solution, the case company combines the supply method vendor-managed-inventory with the distribution method of factory delivery. This implies that the case company is responsible for the inventory of its products within the retailers warehouses, that is, responsible for the calculation of delivery dates and quantities. Deliveries are normally in the form of full truckloads dispatched directly from the factory to a retailer (delivery method factory direct). It is an advanced supply chain solution that involves a close partnership and collaboration, including totally sharing data, and regular communication. Each supply chain solution has different cost implications for the case company and the retailer. One solution might be cheaper for the retailer, but more expensive for the company, and vice versa. It is very important to appreciate the cost to serve for a particular retailer, when judging its protability. Coordination between PMF and DMF The case company is aware that the demand and supply processes have to be coordinated in an efcient and effective way, to fully exploit the benets of DSCM, and this requires coordination between the PMF and the DMF. For example, it is important that demand creation and demand fulllment are coordinated and regarded as being equally important, and that value creation is not restricted to products, but also applies to the supply chain. The case company has started to differentiate the supply chain, in order to enhance overall customer value. However, the business is currently heavily inuenced by the demand side of the company, which more or less gives directives to the supply side. Accordingly, the supply chain differentiation is somewhat restricted, and there is a lack of strategic coordination between demand creation (PMF) and demand fulllment (DMF). For example, market segmentation and intelligence is conducted separately in the PMF and the DMF. However, it is important to note that the case company has advanced considerably in developing the demand and supply processes, which is also a key issue within DSCM.
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There are many linkages between the PMF and DMF, since where and how to sell products (addressed in PMF) are clearly connected to how products are delivered (addressed in DMF), and these linkages the case company has begun to explore. Nevertheless, today, this kind of overall and strategic analysis is only made by marketers in the PMF. If supply chain representatives were involved, the case company could probably develop better supply chain solutions faster, which would imply shorter time-to-market (TTM). In addition, supply chain capabilities are required, in order to successfully launch new products on the market. The commercial launch process ensures that the developed products are properly introduced into the market, with a consistent and consumer relevant message. However, if the right products are not delivered in the right quantities, at the right time and place, this is very unlikely to be successful. Moreover, it is not only important to carefully specify, design, and verify new products, but it is also necessary to consider the supply chain processes, since some of the new products may require new processes. The move from commodities to innovative products requires a change of the supply chain design process and how it is connected to the product development process. The case company believes, and has also begun to experience, that the benets of the demand-supply-oriented approach are enhanced competitiveness, by becoming more innovative, differentiated, responsive, and cost efcient; and enhanced protability, by focusing on both revenue growth (effectiveness) and cost reduction (efciency). In more specic terms, the main advantages include innovative, responsive, and cost-efcient NPD; exible operating structure; higher brand loyalty; reduced inventories; improved range and life-cycle management; improved customer service, responsive, differentiated, and cost-efcient product delivery; and reduced demand-supply chain costs. The case company has recently begun implementing the demand-supply oriented approach and it can currently be classied as both a demand and supply chain master, but the demand side of the company is in charge. It needs to decide whether it aspires to become a true demand-supply chain master, in order to fully exploit the benets of DSCM. For this to happen, the senior management has to initiate a cultural change, alter the business strategy, and align the functional strategies and departments. Still, this can be difcult, since a potential development of the company, according to some representatives, is that it can outsource all the supply processes, if it excels in demand creation. Other requirements, in order to succeed with the implementation of the demand-supply-oriented approach, are according to the case companys organizational competences (e.g. market orientation, advanced market segmentation, and intelligence, as well as expertise in and coordination between the demand and supply processes) and information technology support. The information technology not only needs to support the individual demand and supply processes, but also the coordination between them. 5. Analysis The literature review has revealed eight key elements of DSCM, and these elements, to varying degrees, have also been identied in the case study (Table V). The rst element of DSCM identied in the literature review (market orientation), means that the rm and the entire demand-supply chain should be oriented towards the customers (market driven) and focus on creating and delivering superior customer value, or, in other words, focus on creating and fullling customer demand, as cost efciently as possible (De Treville et al., , 2002; Hilletofth and Ericsson, 2007; Ju ttner et al., 2007). The involved case 2004; Heikkila
Elements Market orientation Market driven (customer) Market segmentation Market intelligence Customer value oriented Coordination of the demand and supply processes Internally (intra-organizational) Externally (inter-organizational) Macro-management Viewing the demand and supply processes as equally important Neither demand nor supply focused Both involved in setting the business strategy Demand and supply chain strategy linked Senior management involvement Value creation in the demand and supply processes Desirable products (e.g. innovative, customized, and affordable) Differentiated supply chain solutions (customer service) Differentiation in the demand and supply processes Product differentiation Supply chain differentiation Innovativeness in the demand and supply processes Innovative product Innovative supply chain solutions Responsiveness in the demand and supply processes Reactive/rapid development of products Reactive/rapid replenishment of products Cost efciency in the demand and supply processes Cost-efcient development of new products Cost-efcient replenishment of products
Literature Yes
Case Alpha Yes
Yes
Yes (partly)
Yes
Yes (partly)
Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Table V. Key elements of demand-supply chain management
company (Alpha) has realized that it needs to concentrate all its resources on creating and fullling customer demand (developing a demand-supply-oriented business), since markets are becoming increasingly competitive and fragmented. It has to become more innovative, differentiated, responsive, and cost efcient, to avoid price competition and maintain protability. As a result, the case company has begun to transform itself from a production-focused company to an innovative and customer-oriented business. The second element of DSCM identied in the literature review (coordination of the demand and supply processes), means that the rm, in order to achieve market orientation, should be organized around understanding how customer value is created cost efciently, how customer value is delivered cost efciently, and how these demand and supply processes can be coordinated (Canever et al., 2008; Esper et al., 2010; Hilletofth et al., 2009; ttner et al., 2007; Rainbird, 2004). In essence, this means that the management of the Ju demand side (DCM) and the supply side (SCM) of the company are coordinated and given equal attention. Neither DCM nor SCM should rule single handedly (Jacobs, 2006); instead, these management directions should focus on their area of expertise and become coordinated at an overlying (or macro) level. Initially, the coordination needs to be achieved within the own organization (intra-organizational) and, later, across the entire demand-supply chain (inter-organizational). The involved case company currently
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manages the demand and supply processes somewhat separately, at a strategic level, but it has made major advances in developing and managing the demand and supply processes, which is also an important topic within DSCM. The coordination between the demand and supply processes is, by nature, intra-organizational, while the coordination between supply and demand processes are, by nature, intra- and inter-organizational, respectively. The third element of DSCM identied in the literature review (viewing the demand and supply processes as being equally important), means that the rm should regard these types of processes as being equally important and manage them in a coordinated manner (Hilletofth et al., 2009; Jacobs, 2006; Langabeer and Rose, 2002; Rainbird, 2004; Walters, 2008). The organization should neither be demand nor supply focused, and both the demand side and the supply side of the company should be involved in setting the business strategy. The demand and supply chain strategies also need to be linked to one another as well as to the overall business strategy. All this has to be supported by the senior management and be clearly expressed in the business agenda, as well as through proper key performance indicators (KPIs) and incentives (Rainbird, 2004). Otherwise, the traditional view, where rms either focus on the demand side (demand chain masters) or the supply side of the company (supply chain masters), will almost certainly rule. In the involved case company, all these issues have not yet been fully considered, since the demand side is in charge and more or less gives directives to the supply side. Currently, the case company can be classied as both a demand chain and a supply chain master, but the demand side is in charge and, thus, the case company has to decide whether it aspires to become a true demand-supply chain master or not. If it does, this requires that the role and authority of SCM is enlarged. The fourth element of DSCM identied in the literature review (value creation in the demand and supply processes), as well as the fth element (differentiation in the demand and supply processes), means that it is important that value creation is considered in both the demand and supply processes, since competitiveness nowadays is not solely achieved by desirable products, but also concern how products are delivered (Al-Mudimigh et al., 2004; Hilletofth and Ericsson, 2007; Vollmann and Cordon, 1998; Walters, 2008). Traditionally, value creation has been strongly connected to DCM, but the scope of value creation has to be extended to also include SCM, in order to remain strong in competitive and fragmented markets. DSCM stresses the interplay between DCM and SCM as an enabler of value creation. The route towards superior customer value lies in the ability of the company to differentiate itself from competition, with regard to both products and supply chain solutions (Esper et al., 2010; Hilletofth and ttner et al., 2007). The involved case company has realized the Ericsson, 2007; Ju importance of broadening the scope of value creation to include SCM and is constantly looking for opportunities for SCM to enhance overall customer value. However, as mentioned above, the business is heavily inuenced be the demand side of the rm, thus, it can be argued that these efforts are somewhat limited. The sixth element of DSCM identied in the literature review (innovativeness in the demand and supply processes), as well as the seventh element (responsiveness in the demand and supply processes), means that innovation and responsiveness are two of the most important opportunities for both product and supply chain differentiation ttner et al., 2007; Selen and Soliman, 2002). (Canever et al., 2008; De Treville et al., 2004; Ju On the demand side of the company, innovativeness and responsiveness refer to the development of innovative products as well as the rapid and reactive development of
new products, respectively, while innovativeness and responsiveness, on the supply side of the company, refer to the development of innovative supply chain solutions as well as reactive and rapid product delivery, respectively. The involved case company has worked with product differentiation for a long time, but only recently realized the importance of differentiating the supply chain, to enhance overall customer value. However, since the business is heavily inuenced by the demand side of the company, the supply chain differentiation is somewhat restricted. The eighth and nal element of DSCM identied in the literature review (cost efciency in the demand and supply processes), means that all of the above-mentioned elements of DSCM need to be carried out in a cost-efcient manner (Hilletofth and Ericsson, 2007; ttner et al., 2007; Walters and Rainbird, 2004). The involved case company has worked Ju considerably to reduce both demand and supply chain costs, but has not yet addressed cost reduction from a holistic and coordinated approach, which is necessary, in order to truly reduce overall demand-supply chain costs and to avoid sub-optimization. The literature review has identied three main benets of DSCM, and these benets, to varying degrees, have also been identied in the case study (Table VI). The rst benet of DSCM identied in the literature review (enhanced competitiveness), is realized through the ability to provide superior customer value at a lower cost, which is achieved by simultaneously focusing on value creation, differentiation, innovativeness, responsiveness, and cost efciency in the demand and supply processes, in a coordinated manner (Canever et al., 2008; Charlebois, 2008; Walters and Rainbird, 2004). This allows
Benets Enhanced competitiveness Value creation in the demand and supply processes Differentiation in the demand and supply processes Innovativeness in the demand and supply processes Responsiveness in the demand and supply processes Cost efciency in the demand and supply processes Superior customer value at a lower cost Revenue growth Cost reduction Improved protability Enhanced performance (demand chain) Innovative, responsive, and cost-efcient product development (reduced TTM) Improved range management (life cycle management) Reduced demand chain costs Improved brand loyalty (preference) Improved marketing efforts Enhanced performance (supply chain) Responsive, differentiated and cost-efcient product delivery (reduced TTC) Flexible operating structure Fewer stock-outs Reduced inventories Less product obsolescence Improved customer service Reduced supply chain costs Literature Yes Case Alpha Yes
Yes
Yes (partly)
Yes
Yes (partly)
Table VI. Benets of demand-supply chain management
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rms to both increase revenues (effectiveness) and to reduce costs (efciency), which leads to improved protability (Esper et al., 2010; Hilletofth and Ericsson, 2007; ttner et al., 2007). The case study supports these ndings by showing that the main Ju benets of DSCM, in general terms, are enhanced competitiveness, by becoming more innovative, differentiated, responsive, and cost efcient as well as enhanced protability, by focusing on both revenue growth (effectiveness) and cost reduction (efciency). The second benet of DSCM identied in the literature review (enhanced demand chain performance) is achieved through more innovative, responsive, and cost-efcient NPD; improved range and life-cycle management; higher brand loyalty; more effective marketing efforts; and reduced demand chain costs (Al-Mudimigh et al., 2004; ttner et al., 2006; Rainbird, 2004; Walters, 2008). The case study supports these Ju ndings, by showing that the main benets of DSCM include improved range and life-cycle management, higher brand loyalty, innovative, responsive, and cost-efcient NPD, and reduced demand chain costs. The third and nal benet of DSCM identied in the literature review (enhanced demand chain performance) is achieved through more responsive, differentiated, and cost-efcient product delivery; exible operating structure; reduced inventories; fewer stock outs; less product obsolescence; improved customer service; and reduced supply chain costs (Childerhouse et al., 2002; De Treville et al., 2004; Hilletofth et al., 2009; ttner et al., 2007; Langabeer and Rose, 2002). The case study supports these ndings, Ju by showing that the main benets of DSCM include exible operating structure, reduced inventories, improved customer service, responsive, differentiated, and cost-efcient product delivery, as well as reduced supply chain costs. The literature review has identied four main requirements of DSCM, and these requirements, to varying degrees, have also been identied in the case study (Table VII). The rst requirement of DSCM identied in the literature review (organizational competences), means that the rm, in order to succeed with the implementation of DSCM,
Elements Organizational competences Market/customer orientation Sophisticated market intelligence Advanced market segmentation Prociency of the demand and supply processes Coordinated demand and supply processes Company established principles Neither demand nor supply focused Demand and supply chain strategy linked Commitment from senior management Demand-supply chain collaboration Information sharing Trust and loyalty Relationship management Information technology support Support for individual supply processes Support for individual demand processes Support for internal/external coordination ! Integrated information systems Literature Yes Case Alpha Yes
Yes
Yes (partly)
Yes
Yes (partly)
Yes
Yes
Table VII. Requirements of demand-supply chain management
needs to have some organizational competences, such as high market orientation, advanced market segmentation and intelligence, as well as excellence in and coordination ttner et al., between the demand and supply processes (Hilletofth and Ericsson, 2007; Ju 2007; Walters and Rainbird, 2004). The case study supports these ndings, by showing that organizational competences, such as advanced market segmentation and intelligence, high market orientation, expertise in the demand and supply processes, as well as coordinated demand and supply processes are required to succeed. The second requirement of DSCM identied in the literature review (company established principles), means that the demand-supply-oriented approach needs to be rooted within the organization. This means that the organization should neither be demand nor supply focused, and that both the demand side and the supply side of the company should be involved in setting the business strategy. In addition, the demand and supply chain strategies need to be linked to one another and to the overall business strategy. All this also needs to be supported by the senior management and be clearly expressed in the business agenda, as well as through proper KPIs and incentives (Rainbird, 2004). The case study supports these ndings, by showing that commitment from the senior management is required to succeed, for example, they should select an appropriate business strategy, inspire cultural change, and align the functional strategies. The third requirement of DSCM identied in the literature review (demand-supply chain collaboration), means that the actors across the demand-supply chain must share information, which calls for trust, loyalty and relationship management (Charlebois, 2008; Frohlich and Westbrook, 2002; Williams et al., 2002). The case study supports these ndings, by showing that collaboration between the different demand and supply functions are required to succeed. However, in several regards, the coordination is currently more on an intra-organizational level and needs to be extended in the future, to truly exploit the benets of DSCM. Still, the coordination between supply processes and demand processes are, by nature, both intra- and inter-organizational, respectively. The fourth and nal requirement of DSCM identied in the literature review (information technology support), means that information technology is a prerequisite, in order to manage both the individual demand and supply processes, however, also to support the coordination between them, within and between companies (Al-Mudimigh et al., 2004; Langabeer and Rose, 2002; Selen and Soliman, 2002; Walters, 2008). Information technology is often referred to as the key enabler of DSCM (Korhonen et al., 1998; Langabeer and Rose, 2002; Vollmann and Cordon, 1998), and can thus be regarded as one of the most critical requirements. The case study supports these ndings by showing that information technology support is required to succeed with DSCM. There are numerous SCM and DCM information systems, but these are rarely integrated. Therefore, information technology is a major barrier to DSCM and the issue of demand-supply-integrated information system needs further investigation. 6. Concluding discussion In the literature, it has been concluded that that there is a lack of research examining the DSCM concept, for example, what elements characterize the concept, what benets can be obtained by implementing the concept, and what requirements are necessary to succeed with the implementation (Canever et al., 2008; Esper et al., 2010; Hilletofth et al., 2009; ttner et al., 2007). This research has contributed to the understanding and knowledge of Ju DSCM in many respects. First, it has been established that the main elements of DSCM
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include market orientation, coordination of the demand and supply processes, viewing the demand and supply processes as being equally important, as well as value creation, differentiation, innovativeness, responsiveness, and cost efciency in the demand and supply processes. Second, it has been revealed that the main benets of DSCM include enhanced competitiveness (e.g. becoming more innovative, differentiated, responsive, and cost efcient), enhanced demand chain performance (e.g. more innovative, responsive, and cost-efcient NPD; improved range and life-cycle management; higher brand loyalty; more effective marketing efforts; and reduced demand chain costs), and enhanced supply chain performance (e.g. more responsive, differentiated, and cost-efcient product delivery; exible operating structure; reduced inventories; fewer stock outs; less product obsolescence; improved customer service; and reduced supply chain costs). Finally, it has been shown that the main requirements, in order to succeed with the implementation of DSCM, include organizational competences (e.g. market orientation, advanced market segmentation and intelligence, as well as expertise in and coordination between the demand and supply processes), company-established principles (e.g. neither demand nor supply focused, demand chain and supply chain strategies linked, and commitment from senior management), demand-supply chain collaboration (e.g. information sharing, trust, loyalty, and relationship management), and information technology support. Nevertheless, it is important to note that DSCM is not without weaknesses. It is, for example, costly to implement and these costs must be deducted from somewhere else. Case company Alpha has launched several supply chain re-construction programs, in order to reduce supply chain costs which can subsequently be reinvested in the demand chain (e.g. customer-oriented NPD, branding, and market intelligence). In addition, the implementation time is very long, since it requires fundamental changes of the business, both physically and mentally. This, in turn, implies that implementing DSCM is fairly risky, since the conditions in todays competitive and fragmented markets could change quickly. Furthermore, it requires nancially strong rms which have the necessary resources. In conclusion, it is important to achieve a proper balance between demand creation and fulllment, as well as between revenue growth and cost reduction. It can be argued that DSCM is a universal solution in every market environment, since DCM and SCM should always be coordinated, even in markets where cost efciency is the basis of competitive advantage. However, the traditional business models, focusing on either the demand side or the supply side of the company, can still be very successful in some environments. Therefore, DSCM could be viewed as an alternative to the traditional business models and it is particularly benecial in some business environments, for example, in the emerging cheap luxury industry, which has evolved in recent years. This research has also shown that the heart of DSCM is advanced market segmentation and intelligence. Meaningful as well as actionable market segmentation and intelligence are required to coordinate and manage the demand and supply processes ttner et al., 2007; Langabeer and Rose, 2002). In essence, (Hilletofth and Ericsson, 2007; Ju these processes should have the same goal, satisfying the customers, and have a common view of customer needs and requirements. Thus, it can be argued that the demand and supply processes need to be directed on the basis of a common segmentation model and managed on the basis of market knowledge gathered through market intelligence (Figure 7). Based on the fact that the demand side of the company specializes in these types of tasks (segmentation and intelligence), two approaches are sufcient: either a market intelligence unit that serves both sides of the company or the demand-side supports
Market intelligence Demand characteristics Demand-side Customer needs (products) Supply characteristics Customer needs (service) Supply-side
Market segmentation Market segments and characteristics Market segments and characteristics
Demand chain management Coordination
Supply chain management
Figure 7. The heart of demand-supply chain management
the supply side of the company in its market segmentation and intelligence. It can therefore be argued that the market segmentation and intelligence processes should belong to and support both the demand side (DCM) and supply side (SCM) of the company. Accordingly, market researchers should gather information, with regard to both new product requirements and customer service needs (preferred supply chain solutions). This research has shown that there is currently a large gap between the concept and application of DSCM, since rms have only recently begun to implement these principles. An inclusive DSCM approach should incorporate all the demand and supply processes. It is probably unlikely that this level of application can be found in practice today, although some companies have started to develop more basic versions including some of the major processes, of which this research work provides an example. The challenge appears to be to include most of the major processes in both domains, and to achieve a high degree of coordination between them. Previous case studies show companies succeeding with one of these challenges. For instance, several studies address the coordination of NPD (part of DCM) and SCM, by incorporating supply chain coworkers in the NPD process (Hilletofth et al., 2010). The idea of including supply chain representatives in the NPD process is, however, not new; it has been addressed in concurrent design for some time. The terms design for manufacturing and design for supply chain are quite often used to imply that the design function is aligned and integrated with other main functions in the company (Appelqvist et al., 2004; Ellram et al., 2007; Perks et al., 2005; Shari et al., 2006; Shari and Pawar, 2002). Nevertheless, the competences most commonly included in the NPD process are marketing, product development, and R&D (Hilletofth et al., 2010). It can be argued that at the moment DSCM in practice is more about coordinating NPD and SCM. The main practical implication of this research is that companies should organize themselves around understanding how customer value is created cost efciently, how customer value is delivered cost efciently, as well as how these processes and management directions can be coordinated. In order for this to occur, the demand and the supply processes have to be considered as being equally important, and the rm needs to be managed jointly and in a coordinated manner by the demand side and supply
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side of the company. It is also vital that value creation is considered in both the demand and the supply processes, since the route towards superior customer value lies in the ability of the rm to differentiate itself from the competition, with regard to both products and supply chain solutions. This means that SCM should receive higher authority and logisticians should be involved in all the demand processes impacting on the performance and success of the supply chain. European manufacturers should recognize that competition through SCM excellence is, in many circumstances, inappropriate and they should instead adopt the principles of DSCM. This generates opportunities to avoid price competition, maintain prot margins and, at the same time, keep production in Europe. The main theoretical implication of this research is that there is a considerable demand for research studies exploring how the different processes in the demand side and the supply side of the company can be coordinated. This issue must also be explored by marketing and logistics researchers jointly. In essence, this research has developed a DSCM framework and shown several signicant linkages between some of the included processes. Nevertheless, these linkages need further investigation and the scope of the research should be extended. Interesting aspects for further research is to continue the investigation of how the demand (DCM) and the supply (SCM) processes included in the DSCM framework inuence each other and how they can be coordinated in order to develop models of this, which later can be integrated into a larger DSCM model. In particular, there exists a need for real-life-based industrial case studies addressing how the various demand and supply processes inuence each other and how they can be coordinated across intra- and inter-organizational boundaries.
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De Treville, S., Shapiro, R. and Hameri, A.-P. (2004), From supply chain to demand chain: the role of lead-time reduction in improving demand chain performance, Journal of Operations Management, Vol. 21 No. 6, pp. 613-27. Ellram, L., Tate, W. and Carter, C. (2007), Product-process-supply chain: an integrative approach to three-dimensional concurrent engineering, International Journal of Physical Distribution & Logistics Management, Vol. 37 No. 4, pp. 305-30. Esper, T., Ellinger, A., Stank, T., Flint, D. and Moon, M. (2010), Demand and supply integration: a conceptual framework of value creation through knowledge management, Journal of Academic Marketing Science, Vol. 38 No. 5, pp. 5-18. Fisher, M. (1997), What is the right supply chain for your product?, Harvard Business Review, Vol. 75 No. 2, pp. 105-16. Flint, D. (2004), Strategic marketing in global supply chains: four challenges, Industrial Marketing Management, Vol. 33 No. 1, pp. 45-50. Frohlich, M. and Westbrook, R. (2002), Demand chain management in manufacturing and services: web-based integration, drivers and performance, Journal of Operations Management, Vol. 20 No. 6, pp. 729-45. Gibson, B., Mentzer, J. and Cook, R. (2005), Supply chain management: the pursuit of a consensus denition, Journal of Business Logistics, Vol. 26 No. 2, pp. 17-25. , J. (2002), From supply to demand chain management: efciency and customer Heikkila satisfaction, Journal of Operations Management, Vol. 20 No. 6, pp. 747-67. Hilletofth, P. and Ericsson, D. (2007), Demand chain management: next generation of logistics management, Conradi Research Review, Vol. 4 No. 2, pp. 1-18. Hilletofth, P. and Hilmola, O.-P. (2008), Supply chain management in fashion and textile industry, International Journal of Services Sciences, Vol. 1 No. 2, pp. 127-47. Hilletofth, P., Ericsson, D. and Christopher, M. (2009), Demand chain management: a Swedish industrial case study, Industrial Management & Data Systems, Vol. 109 No. 9, pp. 1179-96. Hilletofth, P., Ericsson, D. and Lumsden, K. (2010), Coordinating new product development and supply chain management, International Journal of Value Chain Management, Vol. 4 Nos 1/2, pp. 170-92. Hines, P., Silvi, R. and Bartolini, M. (2002), Demand chain management: an integrative approach in automotive retailing, Journal of Operations Management, Vol. 20 No. 6, pp. 707-28. Jacobs, D. (2006), The promise of demand chain management in fashion, Journal of Fashion Marketing & Management, Vol. 10 No. 1, pp. 84-96. ttner, U., Christopher, M. and Baker, S. (2007), Demand chain management: integrating Ju marketing and supply chain management, Industrial Marketing Management, Vol. 36 No. 3, pp. 377-92. ttner, U., Godsell, J. and Christopher, M. (2006), Demand chain alignment competence: Ju delivering value through product life cycle, Industrial Marketing Management, Vol. 35 No. 8, pp. 989-1000. Korhonen, P., Huttunen, K. and Eloranta, E. (1998), Demand chain management in a global enterprise information management view, Production Planning & Control, Vol. 9 No. 6, pp. 526-31. Kumar, N., Scheer, L. and Kotler, P. (2000), From market driven to market driving, European Management Journal, Vol. 18 No. 2, pp. 129-42. Lambert, D. and Cooper, M. (2000), Issues in supply chain management, Industrial Marketing Management, Vol. 29 No. 1, pp. 65-83.
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Langabeer, J. and Rose, J. (2002), Is the supply chain still relevant?, Logistics Manager, March, pp. 11-13. Lee, H. (2001), Demand-based management, a White Paper for the Stanford Global Supply Chain Management Forum, September, pp. 1140-70. Lee, H. and Whang, S. (2001), Demand chain excellence, Supply Chain Management Review, Vol. 5 No. 3, pp. 41-6. Lummus, R. and Vokurka, R. (1999), Dening supply chain management: a historical perspective and practical guidelines, Industrial Management & Data Systems, Vol. 99 No. 1, pp. 11-17. Mentzer, J., DeWitt, W., Keebler, J., Min, S., Nix, N., Smith, C. and Zacharia, Z. (2001), Dening supply chain management, Journal of Business Logistics, Vol. 22 No. 2, pp. 1-25. Min, S. and Mentzer, J. (2000), The role of marketing in supply chain management, International Journal of Physical Distribution & Logistics Management, Vol. 30 No. 9, pp. 766-87. Payne, A. and Christopher, M. (1994), Integrating customer relationship management and supply chain management, in Baker, M. (Ed.), The Marketing Book , Butterworth-Heinemann, New York, NY. Perks, H., Cooper, R. and Jones, C. (2005), Characterizing the role of design in new product development: an empirically derived taxonomy, Journal of Product Innovation Management, Vol. 22 No. 2, pp. 111-27. Rainbird, M. (2004), Demand and supply chains: the value catalyst, International Journal of Physical Distribution & Logistics Management, Vol. 34 Nos 3/4, pp. 230-51. Selen, W. and Soliman, F. (2002), Operations in todays demand chain management framework, Journal of Operations Management, Vol. 20 No. 6, pp. 667-73. Shari, H., Ismail, H. and Reid, I. (2006), Achieving agility in supply chain through simultaneous design of and design for the supply chain, Journal of Manufacturing Technology, Vol. 17 No. 8, pp. 1078-98. Shari, S. and Pawar, K. (2002), Virtually co-located teams sharing teaming experiences after the event?, International Journal of Operations & Production Management, Vol. 22 No. 6, pp. 656-79. Sheth, J., Sisodia, R. and Sharan, A. (2000), The antecedents and consequences of customer-centric marketing, Journal of the Academy of Marketing Science, Vol. 28 No. 1, pp. 55-66. Srivastava, R., Shervani, T. and Fahey, L. (1999), Marketing, business processes, and shareholder value: an organizational embedded view of marketing activities and the discipline of marketing, Journal of Marketing, Vol. 63 No. 4, pp. 168-79. Vollmann, T. and Cordon, C. (1998), Building successful customer-supplier alliances, Long Range Planning, Vol. 31 No. 5, pp. 684-94. , J. (2000), Teaching supply chain management to Vollmann, T., Cordon, C. and Heikkila business executives, Production and Operations Management, Vol. 9 No. 1, pp. 81-90. Vollmann, T., Cordon, C. and Raabe, H. (1995), From supply chain management to demand chain management, IMD Perspectives for Managers, November, pp. 1-4. Voss, C., Tsikriksis, N. and Frohlich, M. (2002), Case research in operations management, International Journal of Operations & Production Management, Vol. 22 No. 2, pp. 19-29. Walters, D. (2006a), Demand chain effectiveness supply chain efciencies, Journal of Enterprise Information Management, Vol. 19 No. 3, pp. 246-61. Walters, D. (2006b), Effectiveness and efciency: the role of demand chain management, International Journal of Logistics Management, Vol. 17 No. 1, pp. 75-94.
Walters, D. (2008), Demand chain management response management increased customer satisfaction, International Journal of Physical Distribution & Logistics Management, Vol. 38 No. 9, pp. 699-725. Walters, D. and Rainbird, M. (2004), The demand chain as an integral component of the value chain, Journal of Consumer Marketing, Vol. 21 No. 7, pp. 465-75. Williams, T., Maull, R. and Ellis, B. (2002), Demand chain management theory: constraints and development from global aerospace supply webs, Journal of Operations Management, Vol. 20 No. 6, pp. 691-706. Yin, R. (2008), Case Study Research: Design and Methods, Sage, London. About the author vde (Sko vde, Sweden). Per Hilletofth (LicSc) is a Lecturer of Logistics at the University of Sko vde, he is completing his PhD As well as lecturing and research project responsibilities in Sko studies at Chalmers University of Technology (Gothenburg, Sweden). His research interests include supply and demand chain management, production logistics, decision making and information fusion. Per Hilletofth can be contacted at: [email protected]
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Demand-supply chain management: industrial survival recipe for new decade

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References Hilletofth et al. (2009)

Table I. Denitions of demand-supply chain management

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Demand creation (value creation)

Demand fulfillment (value delivery)

Figure 1. Demand-supply chain management

Table II. Main elements of demand-supply chain management

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Table III. Main benets of demand-supply chain management

Table IV. Main requirements of demand-supply chain management

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Design (strategic level)

Execution (operational level) Competitive advantage (value and cost)

Demand management flow

Demand fulfillment (value delivery)

Figure 2. The case companys DSCM approach

Phase 1: Market intelligence

Phase 2: Product creation

Phase 3: Commercial launch

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Product line manager Consumer innovation program

Figure 3. The case companys product management ow

Illustration Consumer opportunities in target group X

3) Analyse and prioritize product concept

Figure 4. The case companys spark process

7) Continue to primary and/or product development or put down?

To primary development To product development

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Make to stock (MTS)

Deliver to order (DTO)

Make to order (MTO)

Figure 5. The case companys supply chain and strategies

Delivery method (physical flow)

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Figure 6. The case companys supply chain solutions

Case Alpha Yes

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Yes Yes Yes Yes Yes

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Table VI. Benets of demand-supply chain management

Table VII. Requirements of demand-supply chain management

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Demand chain management Coordination

Supply chain management

Figure 7. The heart of demand-supply chain management

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