Academic journal article IUP Journal of Business Strategy

Demand Chain Management: Enhancing Customer Lifetime Value through Integration of Marketing and Supply Chain Management

Academic journal article IUP Journal of Business Strategy

Demand Chain Management: Enhancing Customer Lifetime Value through Integration of Marketing and Supply Chain Management

Article excerpt

Introduction

Supply Chain Management (SCM) refers to all of the processes, technologies and strategies that together form the basis for working with internal and external sources of supply. SCM requires integration and coordination of business processes throughout the supply chain for the purpose of satisfying and responding to changes in the demands of ultimate customers (Vokurka and Lummus, 2000). As SCM focuses on the efficient matching of supply with demand, it does not help the firm to find out what the customer perceives as valuable, and how this customer-perceived value can be translated into customer-value propositions. Hence, supply chain efficiency by itself will not increase customer value and satisfaction (Rainbird, 2004a). Supply chains capable of implementing and executing an integrated and coordinated marketing strategy at the supply chain level focused on the ultimate customers of the supply chain will gain competitive advantage (Min and Mentzer, 2000).

Supply chains have been very efficient at moving products to consumers, but supply chains need to progress towards effectiveness. Hence, everything that is produced, moved, or handled across supply chain should be in response to a known customer requirement. Deployment of a differentiated supply chain strategy is one way for the organizations to make sure that highly varying needs of markets are met at the same time as economies of scale are maintained (Hilletofth et al., 2009). When developing a differentiated supply chain, SCM not only focuses on cost efficiencies (how can firm achieve a lower cost per item), but also on effectiveness (is firm distributing products to specific customer needs at a profit maximization price).

Since consumers are the focus of firm's value chain's existence, consumer demand should be at the core of its business strategy. In doing so, the supply chain transforms itself into the so-called demand-driven chain (Langabeer and Rose, 2002) or, simply, a demand chain. It means that the organizations, instead of employing a traditional "one-size-fits-all" supply chain strategy, develop several supply chain solutions, each one appropriate to a specific product or market condition, by combining different supply and distribution strategies.

Marketing combined with dynamic SCM provides greater flexibility to satisfy customer demand based on the needs of individual customers and their value to a firm. To be successful, the business organization not only needs to focus on the supply chain, but also on the demand chain. Hence, Demand Chain Management (DCM) provides competitive advantage to the firm by enhancing its supply chain's ability to focus on and respond to changes in customer demands.

The objectives of this paper are-first, to introduce DCM as a model which combines the strengths of marketing and SCM by shifting the focus to the customer and designing customer centered supply chains; second, to demonstrate how DCM can leverage the strengths of marketing and SCM and meet the challenges of customer-value creation in today's fast changing and highly competitive marketplace; and third, to suggest conceptual frameworks and models for DCM and provide methodology for measurement of customer-value creation in terms of increased Customer Lifetime Value (CLV) envisaged on DCM initiatives by firms.

Literature Review

In the past decade, business has learnt that the supply chain can be made more efficient in order to decrease lead times and related sales forecast errors. But now focus is shifted on knowing about consumers' desires in order to decrease costs related to forced markdowns or stockouts. As customers are increasingly becoming more demanding, firms place more emphasis on customer service. Achieving better levels of customer service requires working together across different departments or functions of a firm (Ellinger, 2000). Cost efficiency is the most cited goal in SCM according to Wang and Wei (2007). …

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