balancing marquering
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Balancing Marketing and Supply Chain Activities
Author(s): Robert J. Vokurka and Rhonda R. LummusReviewed work(s):Source: Journal of Marketing Theory and Practice, Vol. 6, No. 4, Supply Chain ManagementSponsored by SYNCRA Software, Inc (Fall, 1998), pp. 41-50Published by: M.E. Sharpe, Inc.Stable URL: http://www.jstor.org/stable/40469935.
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BALANCINGMARKETING
AND
SUPPLY
CHAIN ACTIVITIES
RobertJ.Vokurka
TexasA&M
University
Rhonda
R. Lummus
Central
Missouri
tate
University
A
relationship
xists
between
he
upply
hain nd
marketing
ctivities. or most
upply
hains balance
exists etween
customer
equirements
nd
upply
hain
apabilities.
hen
marketing
ctivities
trainhe
upply
hain's
bility
o
meet
emand,
additional
osts re ncurred. ll associated osts hould e considered
n
supply
hain
planning,
nd
marketing
nitiatives
should
eevaluated
ncluding
he
ecognition
f hese osts cross he
upply
hain.
Questions
elated o he
iming
f
marketing
activities eed o consider
he
mpact
n the
upply
hain nd the
verall
rofitability
f he nitiative.
INTRODUCTION
Managing
he
upply
hainhas
become
n
important
ssue
for he1990s.Customers ave
multiple
ources
rom hich
tochoose o atisfyemand;ocating roducthroughouthe
distributionhannel
ormaximum
ustomer
ccessibility
t
a minimum
ost ecomes rucial.
ompanies
ave ooked
t
solving
the
distribution
roblem
hrough
maintaining
inventory
t various locations
throughout
he chain.
However,
he
dynamic
ature
f the
marketplace
makes
holding
nventory risky
nd
potentially
nprofitable
business.
ustomers'
uying
abits re
onstantly
hanging,
and
ompetitors
re
ontinually
dding
nd
deleting roducts
which
makes
t
difficultohave he
ight
nventory.
t's hard
to
provide
low
cost
product
henfunds re tied
up
in
inventory.
The shiftn emphasisto the supply hain is due to a
realizationhat
maximizingerformance
fone
department
orfunction
ay
ead
o ess han
ptimal erformance
or he
whole
ompany
nd
beyond.
Purchasing
may
be able
to
negotiate
lower he
price
n a
component
nd receive
favorable
urchase rice
ariance
difference
etweenctual
and
budgeted
r
standard
ost),
ut he ost o
produce
he
finished
roduct
ay
o
up
due o
nefficienciesnthe
plant.
Companies
must ook cross
he
ntire
upply
hain o
gauge
the
mpact
fdecisionsn
any
ne area.
Many
ompanies
re
streamlining
ll
operations
nd
minimizing
he time-to-
customer or heir
roducts
o meet
ompetitive
orces.
The definition f the supply hain is evolving s more
attention as been
placed
on
the entire
supply
and
distributionetwork.
review f
contemporary
efinitions
(Lummus
nd
Alber
1997;
Monczka and
Morgan
1997;
Quinn
1997)
nclude
many
ommon
lements.
sing
hese
previous
efinitions,
supply
hain can
be defined s the
network
f functions
nd
processes,
both
internal nd
external
o an
organization,
hat
are associated with
procuring,
oving,
nd
transforming
asic raw
materialsn
to
product
r ervice or n
end-user. n
ntegral
art
f he
supply
hain stheflow f nformationetween nd
among
all members
f he istributionetwork. he
management
f
the
upply
hain s then
he
ntegration
nd
coordination
f
all these activities including suppliers, carrier,
manufacturers,istributors,
hird-party roviders,
nd
informationarriers.
A
relationship
xists etween
upply
hain
performance
nd
marketing
nitiatives.ritical
o
managing
he
upply
hain
is
managing
he
inkbetween
ach
step
within
he chain o
synchronize
he ntire
upply
hain. ormost
upply
hains,
a balance xists etween ustomer
equirements
nd
supply
Special
ssue 41
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chain
apabilities.
hen
marketing
ctivities
train
he
supply
hain's
bility
o meet ormal
emand,
osts re
incurred.
degree
f
supply
hain
lexibility
ay
etter
absorb
ariationsn demand
atterns
nd
minimizeost
fluctuations,
ut
ddition
osts
may
e ncurredo
gain
his
flexibility.
Some
lanning odels,
uch
s sales
perationslanning
(SOP)
an
ntegrativeanagementrocess
o
trategically
align
emand
nd
production),
inite
apacity
cheduling
(FCS) (a scheduling
ystem
hat
ncorporates
ustomer
priorities
nd
manufacturing
oad
leveling),
emand
planning
nd
cheduling
DPS) (a
process
f
oordinating
demand
orecastsnd
roductioncheduling),upply
hain
planning
SCP)
integratingequirements
ith thers
n he
supply
hain,
sually
uppliers),
nd
enterprise
esource
planning
ERP) an
integrative
ystem
sed o
dentify
nd
plan
enterprise-wide
esourcesneeded to
accept,
manufacture,
nddeliverustom*
rders)
re nuse
oday.
However,
hey
re often
imitedo internalse
in an
organizationr re ocusednproductolumesnlyndnot
on he otalost
mpact
f
marketing
nitiatives.
This rticleescribes
he ink
etween
arketing
ctivities
and
the
upply
hain.The
concept
f a
supply
hain
n
balance
with ustomer
equirements
s discussed.
he
importance
f
onsidering
ll
associated
upply
hain osts
when
valuating
he
projectedrofitability
f
marketing
initiatives
s
developed.inally,
mproving
upply
hain
flexibility
o
better
eet
hanges
n
customer
emand
s
described.
upply
hain
output
hould
e balanced
o
customeremand.
ne
goal
of
managing
he
upply
hain
should
e to
minimize
dded
upply
hain osts
hat esult
fromhangesndemandue omarketingctivities.
MARKETING'S
INK
TO
THE
SUPPLY CHAIN
Most
ompany
anagers
ould
ike
marketing
o
provide
them
ith
stable,
redictable,
rowing
t
pace
hey
an
handle,
emand
attern
Mather
995).
Unfortunately,
hat
they et
s
a demandituationhats
"erratic,
npredictable
and
declining."
sMather
1995)
notes,
many
ales
nd
marketing
rograms
ctually
ause olatile
emand.
hey
take
n
underlying
ustomer
emand,
hichs
relatively
stable
or
many
roducts
nd
ntroduce
eaks
nd
valleys."
Companies
eact
ymplementing
rograms
o
mprove
he
flexibilityfthefactory,ddingnventoryushions,nd
increasingapacity
omeet
eak
emand.
Mather
uggests
companies
eed o
analyze
heir
romotionrograms
o
determine
hichnes re
eally
dding
alue
nd
whichnes
are
osing
money.
his
valuation
ustncludehe
ffect
across
he ntire
upply
hain.
Consumer
emand as
changed
ignificantly
ver
he
ast
decade.
irst f
ll,
here
re
imply
ore arieties
equested
by
consumers.
or
example,
he
numberf
products
n
supermarkets
as risen
romhirteen
housand
n
1981
o
twenty-one
housand
n 1987
Bockerstette
nd hell
993).
These
market
hiftsave
reatedxcellentevalue
treams.
However,
his consumer
indfall
as
also been
some
manufacturers'
ownfall.
he raditional
upply
hain nd
manufacturing
ractices
ere
not
originally
esigned
o
deliver
uch
ariety
nd
omplexity.
In
addition,
ustomer
emands often olatiles a resultf
twoother
actors:
hanges
n customers'
uying
abits,
including
easonality,
nd
changes
aused
by company
actionsr
policies,
r ctionsaken
y
ompetitors.
he irst
change
n
demand
s difficultor
company
o
control,
s
consumers
hange
heir
references
he econd
hange
n
demand
s caused
y
nternal
ompany
ctions
ncluding
marketing
ctivities
esigned
o timulateemand.
These
marketing
ctivities an be divided
nto three
categories:
ass
marketing,
rade
romotion,
nd onsumer
promotion.arketingsesthese hree ools o increase
awareness
f
products
nd
to
stimulateemand
or he
products.
xamples
f
he
many arketingrograms
hatan
affect
emand
nd he
upply
hain
nclude:
adio,
elevision
or
rint
edia
dvertising;
ccount
evelopedrograms
i.e.,
programs
eveloped
ointly
ith he ext
tage
ustomer
n
the
distribution
hain);
consumer
romotions
uch as
coupons
nd
amples,long
with
many
thers.
The
ncreasedemand
rom
arketing
ctivitiesan
have
significant
mpact
n the
upply
hain. The ncreasen
demand
reates disturbancet a
particular
ode
n the
supply
hain
Hada
i
1996).
For
nstance,
trade
eal
increases emandfrom he distributorack to the
manufacturinglant
The
disturbance
ay
ave ittleffect
on he
ntire
upply
hainf he ode as he
bility
o bsorb
the isturbance
hroughafetynventory.
hen he ncrease
in demand
xceeds vailable
nventory,
hedisturbance
s
passed
pstream
o otherinks
n
the
upply
hain. The
disturbance
s
specially
ignificant
t wo xtremeituations:
Whenhe
emand
ncreaseue
o he
romotion
ctivity
strains
he
upply
hain's
apability
o
produce
t the
new evel. The
emporary
ncreasendemand
ay
e
met
hroughuilding
nventory
n
slack
eriods
r
by
activitiesuch s overtime
roduction.
When
redictions
f he
mpact
f he
romotionctivity
are inaccurate.
For
instance,
retail
dvertising
program
s
expected
o
ncreaseemand
y
%
for hree
weeks,
nd nstead 10% ncreases realized.This
unplanned
emand
xceedshe
orecast,
nd he
upply
chain
must eactn he
hort-termo
provideroduct.
42
Journal
f
Marketing
HEORYAND
PRACTICE
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An
example
f the
mpact
f
marketing
nitiatives
n the
supply
hain an be seen n
Figurei.
This
figure
aken rom
historical
alesof
one
product
t
one
ompany
llustrateshe
changes
n
production
tthe
manufacturinglant
evel
based
on
marketing
ctivity.
he horizontalxis
represents
eeks
and
thevalicai axis cases of
product.
ach of he
peaks
n
cases
producedrepresent
n
advertising ampaign
or
promotionctivityonductedymarketing. s
the
figure
indicates,
he ncrease
n
demand
s
significant
t the
plant
level.
Changes
n case demand re as
high
as
five
imes
normal
n one
week.
However,
uring
hose
same time
periods,
oint-of-salehipments
o
consumers
aried
nly
slightly.
rade
promotions
riggered
hemiddle ink
n the
supply
hain o
buy
dditional
roduct
nd store
tfor uture
consumereeds.
Meanwhile,
eeting
he ncreased
emand
in he
eakperiods
trains
he
upply
hain's
apabilities
nd
results
n added ost
for he
ompany.
Note
hat here
re
also
fluctuationsn the
nventory
evel.
Inventories
re
typically igher
han
production
evels
in
order o absorb hevariabilityndemand nd tocover he
lead
ime ssociated
ith
nitiating
ew
production
rders
n
response
o customer emand.
BALANCE MODEL
One
way
of
viewing
he
impact
f this scenario on
the
company
s
to think bout he
upply
hain s
normally
n
balancewith ustomer
equirements.igure
describes
his
balancing
ct.
Promotions
rother
marketing
ctivitiesave
the
potential
o
upset
his
balance.
If
marketing ractices
shifthebalance
oo
trongly
ne
way,
.g.,
with
promotion
that
trains
emand,
he
upply
hainbecomes
unbalanced
with ustomers
eeds. Thisout-of-balanceonditiondds
cost
s the
upply
hain crambles o meetdemand.
Figure
3 describes
n unbalanced
upply
hain
straining
o
meet
customer
equirements.
Traditional
upply
hain
design
or
what
was once
narrowly
referred
o as
manufacturing-onlyesign)
ooked ikethe
following:
Rigid roduction
ystems
esigned
o
produce
nly
few
products
Long supply
ycle
imes
Large
batch
izes
Capacity
ased
on annualvolumes
Volume-driven
echnology
Numerous
uppliers
or he ame
parts.
The
explosion
of
marketing
ctivity
nd
intensity
f
consumer emand
has thrown
many
companies9 upply
chains
nto
tailspin.
heir
ystems
ere
not
designed
o
meet he
equirements
ow
placed
upon
hem.
As a result f
these
changes
n customer
equirements
nd
inadequate
systems
o
manage
hem,
he
followingymptoms
xist:
FIGUREI
DEMAND DISTORTION
120.000
-
IOOOOO-
CASES IN INVENTORY
^^k
A
8O.OOO
-
^^^^^^ ^^^^^^^^^^^L ^^^^^^^^^L ^^^^^^^^^
^^V
CASES
SHIPED^^^^^^^^^^^^^^^^^^H
TOTAL
^^^^H
Special
ssue
43
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FIGURE
2
BALANCED SUPPLY
CHAIN
|
CUSTOMER
SUPPLY
REQUIREMENTS
CHAIN
CAPABILITY
Market
Demand,
^^^^^^k
Suppliers,
Manufacturers,
New
Products,
^^^^^^^^^^
Transportation,
Promotions
jiHHI^^flHkt.
Distributors
FIGURE
3
STRAINED SUPPLY CHAIN
Increased Demand
Increased Costs
Overtime
Due to
Marketing rograms
Expediting
^^^^^^^^^^^^^^
Premium
Freight
^^^^^^^^^^_
Increased
inventory
CUSTOMER
^^^
Costs of
Producir*
t
REQUIREMENTS
^T
^^^ .
Costs
as^ptimallocStion
of
Producir*
t
^^^^^^
SUPPLY
CHAIN
Decreasingmargins
Poor ervice erformance
Increased verheadosts
Poor
roduction
rocess eliabilityquality
nd
delivery
implications)
Increased owntime
ue
to
changeovers
High
inventory
evels of
raw
materials nd finished
product.
Table
1 describes
he
characteristicsf a strained
upply
chain versus those of a capable supply chain. The
synchronization
nd
ntegration
f he
upply
hain
members
are reflected
n thebalanced
upply
hain
description.
he
strained
upply
hain s much
more
isjointed
nd he
mpact
of
fluctuations
auses
disruptionshroughout
he chain as
members
ry
o
adjust
o the
demands
f
their
mmediate
customers.
44
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fMarketing
HEORY AND
PRACTICE
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TABLE 1
SUPPLY CHAIN CHARACTERISTICS
Strained
upply
Chain
Capable Supply
Chain
Produce
o forecast
Push)
Make todemand
Pull)
Highly
ariable emand
rofile
Producemost
roducts aily
reduced
un
ycles)
Low
overall
eliability
Reliable
ystems
No formal
upplier artnerships
Daily
upplier
ntegration
Few
customer
artnerships
Flow
replenishment
f
customer
nventory
Frequent
chedule
hanges
Synchronized
upply
nddemand
Differentchedules or
lants
nd
uppliers
Same schedulescross
upplyystem
Functional
iloswithin
upply
hain
Supply
hain
rocesses y
product
ines
Most
upply
hains re
woefully
nbalanced ith ustomer
requirements
Bockerstette
nd hell
1993).
Each
ink nthe
product
upply
ystem
must be
individually apable
of
producing
nd
delivering
hat
ustomersrder
ach
day.
Theentire
upply
hain s
only
s
capable
s theweakest ink
in the
system.
Where he
supply ystem
s
incapable
of
delivering
ithinustomer
xpected eplenishment
ime,
he
supply
hain arries xcess osts n he orm f
nventory
nd
overhead
o
support
ork-in-process
nd
finished
roducts
inventories.
arketing
rogramsmay
ncrease he out-of-
balance onditionnd should e evaluated artly asedon
their
upply
hain
mpact.
CURRENT
MARKETING
PROGRAM
EVALUATIONS
Traditionally,
ost
ompanies
valuate
roposed
marketing
programs
ased
n
marketing'srojections
f
ales
volumes,
the cost of
running
he
advertisements
r
promotion,
nd
standard
budgeted) upply
hain osts. When ales cover
the
marketing
ost and allow
for a
targeted
evel of
profitability,
he
rogram
s
approved.
Abraham
nd Lodish
1990
challenged
hewisdom f
basing
decisions n
gross
sales uggestingnsteadhefocus hould e on incremental
sales.
Theyproposed
that
managers
hould ook
for
balance between
dvertising
nd
promotion
ased on
marginal-productivity
nalysis.
As
Abraham nd
Lodish
(1990)
state:
"The dea
s to start
ith
zero
budget
nd allocate
money ncrementally
o various
dvertising
nd
promotion ptions.
The
goal
is
to
identify
he
option
hat
marginally
ontributes
ost
o
he
ong-
term
rofitability
f he
roduct.
llocationshould
continue
n
this ncrementalasis until ll
options
that
provide
suitable
eturn n the
ncremental
investmentre found."
Their
esearch howed
nly
16% of trade
romotions
ere
profitable,
ased
n ncremental
ales.
Increased
dvertising
led to more
ales
only
bout
alf he ime. n
addition,
hen
advertising
id
boost
ales,
the extra
profit
ften id
not
cover he xtramedia osts.Promotionsnparticularave
misleading
ffect
n
manufacturers
hipments
ue
oforward
buying.
etailers
ill
ake
n
thousands
f xtra ases
during
the
promotion,
hennot
buy
far everal
weekswhile
hey
deplete
heir
nventory.
WhatAbraham
nd Lodish's
research
id
not
consider n
their valuation f he
profitability
f he
marketingctivity
is the
dded cost
ncurred
y
the
upply
hain
to meet he
surge
n demand. Those costs are not
isolatedto
the
promotion
r
dvertisingctivity,
ut
re
hidden
n
plant
nd
purchasingudgets
ndermaterial
ariance, vertime,
crap,
rework,
remiumreight,
ndother
lassifications.
igure
graphicallyllustratesow hese osts ncreasen relationo
changes
n
demand
for
one SKU at one
company.
As
demand ncreases ue
to
promotion
ctivities,
he
supply
chain
costswhich re
not
ncluded n
standard osts lso
increase.The bottomine
mpact
f he
promotion
ased
n
incrementalales s not valuated
eforehe
rogram
egins.
The
true
ontribution
o
profit
f
he
program
hould nclude
both
he
marketing
ctivity
osts
nd
all
supply
hain
osts
directly
ttributed
o the
promotion.
Special
ssue
45
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lOOO
800
1
600
1 1
400
Z^***^
-
I I TTP^^
- -
^
~~
200
-^
^^-^^-
-
Q
|
| | |
123456789
Montn
| |
Demand
Non-Standard
Supply
Chain
Costs
FIGURE
4
RELATIONSHIP
BETWEEN DEMAND AND
NON-STANDARD
COSTS
A
study
y
Hardie
1997)
discussed he aseof
ecreasing
he
use
of
marketingrograms.
heir
videncehowed hat
rice
promotions
ave been
taking
n
increasing roportion
f
marketingudgets
or onsumer
oods
manufacturersnd
that hese
romotions
re
onditioning
onsumerso ode for
bargains hichmaybeeroding randoyalty. hey ited
numberf ost
avings
hatwould esult
rom de-escalation
of
pricing romotions. smoothing
fthe sales
pattern
would
mean Iowa*
inventories,
mproved
production
coordination,
educed
vertime,
nd more fficient
ogistics
(Hardie
1997).
However,
he
competitive
eactions o
changing
he
use of
pricing
promotions
must also be
considered.
The
performance
easures
urrently
n
place
to evaluate
marketing
ctivities re
traditional
inancial ools.
For
example:
Increasedmarkethare
Return n nvestment
Net
profit
ontribution
Profit
argin
These
performance
easures
analyze
the
cost of the
marketingctivity,
roject
ales
volume,
nclude ost of
production
nd distributiont
standard
budgeted)
ost,
nd
project
he
profit
ontributionor he
product.
New models
are
required
which stimate
he ncremental
ales
from he
marketing
ctivity,
nclude he
marketing
osts f
running
the
romotion
r dvertisementnd he
dded osts ncurred
by
die
supply
hain
s
it extendsts
capabilities
o
meet he
increasen demand.
MAKING TOTAL
COST DECISIONS
Companies
eed o ssess he
rue ost f
undertaking
ertain
marketing rograms
y
identifying
he
incrementalales
from ie
program
nd both he
marketing
nd
supply
hain
costs f he
rogram.
ne
approach
o
gathering
nformation
is to
mplement
n
activity-based
ostingABC)
modelwhich
identifies he
cost of all
activities ssociatedwith the
marketingroject.
However,
BC is a difficultnd
costly
process
o
mplement
Krumwiede 998).
An
activity-based
management
ool s needed
which ids
n
the valuation f
marketing
ecisions asedonestimatesf
ncremental
ales,
marketingosts ndthe ost fvarious upplyhain.
The
model should
apture
he
planned
ncremental
ales
volume,
he
rojected
arketingxpenditures,
nd
projected
added
costs from
he
supply
hain
not
included n the
product's
tandard ost. The
model
should
be
capable
of
answering
What
f
questions
uring
he
promotion
r
advertisinglanning rocess.
For
nstance,
hat f
weekly
sales estimates
rom
he
promotion
ary
rom heforecast.
46 Journal
f
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HEORY AND
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8/11
Or,
what f
differentethodsf
meeting
emand re
used
by
the
supply
hain,
uch as
building nventory
n
advance
versus
working
vertime?
The
final
esult
houldbe the
expected
et alueof he
marketing
nitiative
onsidering
ll
planned
osts
equired
o meet he ncrease
n
demand.
In
addition,
hemodel hould e
capable
f
valuating
he
program
fterts
ompletion
omeasure he rue
rofitability
of
he
promotion.
The
total
cost
impact
an
be
described
y
the
following
formulas:
Net
Value of he
Marketing
nitiative Total ncome Standardncome
(1)
where
Total ncome
=
Standardncome
(Added
Sales
-
Added
Costs)
(2)
Standardncome
=
(Standard
ales Volume
Price) (Standard
ales Volume
x
(Standard
ost) (3)
Added ales
=
(Added
ales Volume
Selling
Price)
(4)
AddedCost
=
(Added
Sales
Volume Standard
ost)
+
Supply
hain AddedCost
+
Marketing
osts
(5)
An
example
would e as follows:
Standard olume nd Costs
Marketing
romotion
Standard ales Volume
20,000
units Added ales
Volume
5,000
units
Selling
rice
$60/unit
Sales Price
$50/unit
Standardost= $30/unit Standard ost= $30/unit
Added
upply
hain
Cost
=
$25,000
Marketing
osts
=
$50,000
Standard
ncome
=
(Standard
ales Volume
Price) (Standard
ales Volumex
(Standard ost)
=
(20,000
x
$60)
-
(20,000
x
$30)
=
$600,000
With
Marketing
nitiative
Added
ales
=
(5,000
x
$50)
=
$250,000
AddedCost
=
(5,000
x
$30)
+
$25,000
+
$50,000
=
$225,000
Value
of he
Marketing
nitiative
=
$250,000 $225,000
=
$15,000
Total ncome
=
$600,000
$
1
,000
=
$6
1
,000
In this
ypothetical
xample,
he
ncremental
ncome
ttributedo
the
marketing
nitiative
s
only
3
per
unit
$15,000/3,000
units),onsiderably
ess han
he tandard
ncome f
30
per
unit
$600,000/20,000
nits).
his s due o
lower
rice er
unit,
direct
marketing
osts ssociatedwith he
nitiative,
nd
added
upply
hain
osts.
The
supply
hain
imitations
hich aused added
cost
to
meet
he emand
rojections
hould lso
be dentified.able
2
lists
ome
possible
upply
hain imiters
hich
ypically
drive osts.This ist s not
ll-inclusive,
ut
s
representative
of
typical
irm's
upply
hain's dded osts.
Evaluating
ie
cause
for he dded
costs
will
expose
he
imiting
actor
n
the
upply
hain's
erformance.yrecognizing
he
imiting
factor
rconstraintn
the
upply
hain,
fforts
ay
e
made
toremove rreduce he
imiting
actornd make
he
upply
chain
apable
f
meeting hanges
n
demand.
The
basis for
reating
new model
ies
in
the
balance
concept
escribed
arlier.
The
supply
hain s balanced
y
customereeds.
When
marketing
ctivities
ip
he
balance,
or customer eeds
xceed
upply
hain
apabilities,
dded
costs
re ncurred. he
model
hould nclude osts
long
he
supply
hain
that
may
be incurred
y
other
nodes
other
companies),
but are
not added
direct costs
to the
manufacturer.
ompanies
must
ecognize
hat
ther
osts
incurred
long
he
upply
hain
may
ot
et harged
o
hem,
but
get
passed
along
n
higher
rices
o the consumer nd
reduce he verall ffectivenessf
he
upply
hain.
Companies
hould ook t
ffectivelyxecuting
he
marketing
activities
y
valuating
he
rue
rofitability
fthe
ctivity,
i.e.,
by ncluding
ll the ost
mpacts
cross
he
upply
hain.
Activities
hat
disrupt
he
supply
hain
balance add costs
which eedtobe considerednthe valuation.The
supply
chain
limitations
hich
cause the
added cost should be
targeted
or limination r
improvement
hichwill
again
balance he
upply
hain
apabilities
ith onsumer emand.
Special
ssue 47
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9/11
SUPPLY CHAIN
FLEXIBILITY
In
additiono
modeling
he otal osts
f a
marketing
program,
ffortshouldlso
be
ongoing
obuildhe
upply
chain
apabilities
obetter
ynchronize
upply
ith emand.
Flexibility
an e
developed
o
mitigate
ost
luctuationsue
to
particular arketingrograms.
more lexible
upply
chainscapable
f etta*
atching
he
roduction
ateo he
demand
ate or he
eriod
nderonsideration.
As outlined
y
Alber nd Walker
1997) increasing
he
flexibility,
r better
ynchronizing
he
supply
hain,
s
difficult
ecause
very
rea of thebusiness
s
affected,
including
emand
management,hroughput,
un
cycles,
batch
izes,
lanning
nd
control,
nd nformation
low.
Linksmust e establishedetweenemand
reation
sales
and
marketing)
nd the
supply
manufacturing
nd
distribution)
nd must nclude he
timely
xchange
f
information.
hroughput
volume
f
roduction),
un
ycles
(how
ften
product
s
manufactured),
nd atchizes
must
becapable fmeetinghedemandequirementstevery
stage
f he
upply
hain. he
lanning
nd
ontrol
ystems
must e
apable
f
eacting
odemand
hangesy
nteracting
withll elements
f he
upply
etwork.
key
o
ncreasing
the
lexibility
nd
ynchronization
f
he
upply
hain
s the
timely
nd
visible
low f
identical
nformation
o all
members
f
he
upply
hain.
A more
lexible
upply
hain
will
e
n better
osition
o
absorb
he
emand
luctuations
ue o
marketing
rograms.
However,
he
osts
f
trategicallymproving
upply
hain
flexibility
ust
lsobe
planned
nd
mplemented.
MANAGERIAL
MPLICATIONS
Current
ethods
sed
to
promote
nd advertiseave
a
significant
mpact
n the
upply
hain's
bility
o
deliver
product
without
ncurring
xcess costs.
Marketing
promotions
ay
rive
pikes
n
demandhat
he
upply
hain
cannot
eet
nder
ormalonditions.
xamples
f dded
costshat
may
e
ncurred
hen emand
t
the
lant
evel
varies
ignificantly
rom
eriod-to-period
eredescribed
earlier.
Thisresearch
ocuses
n
evaluating
he ffectf
peaks
n demand
n the
upply
hain
nd
dentifying
he
costs hichre ddeds theupplyhain trainsomeethe
changes
n level
fdemand.
Models
must e
developed
which
ill nclude
dded
upply
hain osts
n
he valuation
of
romotion
ctivity
rofitability.
TABLE
2
SUPPLY CHAIN
LIMITATIONS
WHICH
DRIVE COST
Request
o
he
upplier
re n
ess
han tandard
eadtime
Lack f
torageapacity
t he
upplier
Lowestost ransportationodesunavailable
Handlingequirementshange
ue o
design
hanges
Manufacturing
lant
owntime
due
ounavailable
aterial)
Lack
f
torageapacity
t
he
manufacturer
Unavailable
apacity
overtime
r
nonstandard
roduction
ethods
sed)
Additional
etups
r
hangeovers
t he
manufacturinglant
Damaged roduct,
bsolete
roduct
Transportation
ode
equiresxpediting
Excess
torageuantitiesequire
dditional
ycle
Lowestost
ransportation
ode an't
rovide
esired
ervice
Unavailable
upplier
roduction
apacity
Additional
etups
r
hangeovers
t he
upplier
Quantities
xceed
upplierapability
a
second
upplierequired)
Unavailable anufacturingapacityanoutsideupplierequired)
Unavailable
anufacturing
apacity
drives roduction
o
higher
ost
plant)
Change
n
productesign
Lack
f
torageapacity
t
he istributor
Request
onstandard
rocessing
t he
istributor
special agging,
ackaging)
48 Journal
f
Marketing
HEORY
ANDPRACTICE
-
8/12/2019 Balancing Marquering
10/11
Companies
an
mprove rofitability
rom etter
managing
the
link between
marketing
nd the
supply
hain.
It
suggests,
here
may
e two ources fbetterontrolledosts
that
ompanies
an
capitalize
n.
The first
otential
ncrease
in
profitability
omesfrom etter
managing
he
marketing
decisions
n
product romotion
nd
advertising.
Models
must e
developed
oexamine he
potential rofitability
f
marketingctivity rior o its implementation,.g. test
marketing.
he second ource f
potential
rofitability
s
a
more
omplete
nowledge
f the associated
upply
hain
costs
esulting
romhe
marketing
nitiative. odels an
help
identify
hat imits he
upply
hainfrom
meeting
emand.
The models
must
look at incremental ales from
he
promotion
r
advertising
ctivity
nd
compare
t to
the
combination
f
both dded
marketing
ost nd added
upply
chain
osts
ncurredo
meet
he ncrease
n
demand.
Both
costs
hould e
considereds
part
f he
decision o run
he
promotion
nd later
included n the
evaluation f
its
profitability.
Manymarketingrojects hich anaffecthe upplyhain.
Companies
must
sk themselveshe
uestion:
ased
on
the
total
cost of the
marketing rogram,
ncluding
both
marketing
nd
upply
hain
osts,
s it
n
the est nterest
f
the
ompany
o
promote
r introduce? second
question
logically
ollows:
What
is
the best time to execute
he
promotion
o have
the
east
affect n
the
upply
hain
nd
improve
he verall
rofitability
f he
promotion?
The
useof
model s a
decision-making
ool
may
lso aid n
decisions n
related
marketing
ssues.
For
nstance,
hat
affect oes
me
promotion
ave
on
other
roducts roduced
at
the ame
plant?
Or,
what
happens
f
the dateson
the
promotion
re lteredlightly,omove he ncrementalales
to other
weeks?
Also,
is the
promotion
running
simultaneously
ith
promotion
un
y
nother
ivision r
segment
f
he
ompany?
s
managers
egin
o
analyze
he
impact
f
marketing
ecisions n theentire
upply
hain,
these
ecisions
ecome
art
f
he
verall
roducttrategy
or
the
ompany.
The
model an
also be useful
n
ncreasing
he
flexibility
f
the
upply
hain omeet
hanges
n
customer
emand. s
the
added
upply
hain
osts re
determined,
t the ame
ime,
the
imiting
actor r
capability
s also identified.hese
capabilityimits,rconstraints,hen ecome argets
or
supply
hain
improvement
rojects.mprovements
n the
supply
hain
process
will
mprove
he
upply
hain's
ability
to deliver
he
product
equired
y
he
marketing
nitiative
t
no additional
ost.
CONCLUSION
Improvementsn upplyhain erformanceavebeen hown
to
improve
ompany
rofitability.
he
Yankee
Group,
Boston-based
onsulting
irm,
oints
o a
study
f
1,000
European
firms,
hat
hows
eading companies
perating
with 6
percent
ower
ogistics
osts han
he
verage.
"With
supply-chain
osts
stimated
t 10
percent
f herevenuesf
most
companies,
hat
ranslates o
a
nearly
four
percent
increase
n
net
profit
argin.
Considering
he
average
net
profit
argin
or he
healthy,
ortune
0-sized
ompany
s
less than
10
percent,
four
ercent
ottom-line
avings
s a
big
boost"
Davis
1995).
Balancing
marketing
ractices
ith
upply
hain
apabilities
will not ccur vernight. rogramsuch s ECR (Efficient
Consumer
esponse)
n the
grocery
ndustry
re
designed
o
incorporate
efficient
promotion
as
part
of their
implementation,
utno one
n the
ndustry
elieves
hat
will
be
easy
to
accomplish.
According
o forma*
Quaker
President
nd
COO
Philip
Marineau,
"Reengineering
or
ECR
does entail
major
financial osts.
For
Quaker
that
means
$110
to
$130
million
in
initial
cost-reduction
measures
and
realignment
f the sales
organization"
(Mathews
1994). According
o
Marineau,
they
were
spending
etween
10
and
$20
million
nnually
n
employee
education
nd
development
o
align
he
ompany
ith
CR
concepts.
Management
f
he
upply
hain
means
managing
ll the
different
rocesses
nd
activitieshat
roduce
alue nthe
hands f
heultimate
onsumer.
Marketing
ctivities re
one
of he
processes
hat hould
dd
value
o the onsumer.
Promotion
olicies
hat reate nstable emand
nd
result
in
surges
f
orders
n the
manufacturinglant
nd ts
suppliers
dd
costs o
the
product
hich re
ultimately
passed
on
to the
onsumer.
Management
f he
marketing
activities
hould
nclude
n
analysis
f heir ost
mpact
across he
ntire
upply
hain.
The resultwill be a
supply
chain
hat oes
not train
o meet emand nd
recognizes
lower osts
long
he
upply
hain nd better
rices
or
he
customer.
Special
ssue 49
-
8/12/2019 Balancing Marquering
11/11
REFERENCES
Abraham,
agid
M
and eonard .
Lodish
1
90), "Getting
heMost
Out f
Advertising
nd
Promotion,11
arvard usiness eview
68
3):
50-60.
Alber,
aren .AndWilliam . Walker
1997),
"Supply
hain
Management:
APractitioner's
pproach,''
0thnternational
onference
roceedings,
Falls
Church,
A: APICS.
Bockerstette,osephA. and RichardL. Shell (1993), Time Based
Manufacturing,
orcross,
A:
Institutef Industrial
ngineers
nd
McGraw-Hill,
nc.
Davis,
Donald
1995),
"State f
a New Art:
Manu&cturersnd
Trading
Partnersearn s
They
Go,"
Manufacturingystems,
3
8):
2-10.
Hadavi,
K.
Cyrus1996).,Tightening
he
upply
hain
Using
Real-Time
Information,"
PICS The
erformance
dvantage,(1):
34-37.
Hardie,
ruce
1997),
"Who
Benefits
rom
rice
Promotions?"
usiness
Strategy
eview,
4):4148.
Krumwiede,
ip
R.
(1998),
"ABC:
Why
t's
Tried
nd
How t
Succeeds,"
Management
ccounting,
9
10):32-38.
Lummus,
honda
.
and
Karen
. Alber
1997),
Supply
hain
Management:
Balancing
he
upply
hain
With ustomer
emand,
alls
Church,
A:
APICS.
Mather, al (1995), "Don't FlextheFactory,tabilize heDemand," E
Solutions,
11):
40-43.
Mathews,
yan
1994),
"HowCriticals Critical
Mass," rogressive
rocer,
73
10):
43-44.
Monczka,
obert
M.
andJim
Morgan
1997),
"What's
Wrong
With
upply
Chain
Management?"
urchasing,
22
l):69-73.
Quina,
rancis .
1997),
What's he uzz?"
LogisticsManagement,
6
2):
43-47.
AUTHORBIOGRAPHY
Robert
.Vokurka
Ph.D.,
exasA&M
University)
s
an
assistant
rofessa-
f
ndustrialistribution
n the
Dwight
ode
College
f
ngineering
tTexasA&M
University.
e
held
ositions
f
lant
Manager
ndDivisionontroller
n
ndustry.
e
has
published
ntheJournal
fOperations
anagement,
nternational
ournal
fForecasting,
roductionnd
nventory
Management
ournal,
s
well s other
ournals
nd
roceedings.
isresearch
nterests
nclude istribution
trategies,upply
chain
management,
nd
manufacturing
lexibility.
AUTHORBIOOGRAPHY
Rhonda
. Lummus
Ph.D.,
University
f
owa)
s an associate
rofess-
f
Operations
anagement
t
Central issouritate
University.
he
pent
S
years
n
ndustry
mplementing
nd
oordinating
RP
ystems
ndJIT
rograms.
hehas
published
articles
n
he ournal
f
Operations
anagement,
nternationalournal
f
ervice
perationsanagement,
roduction
nd
Inventoryanagement
ournalnd nother
ournals
nd
roceedings.
hehas
recentlyompleted
research
rant
unded
y
APICS
n
Supply
hain
Management.
50
Journal
f
Marketing
HEORYAND
PRACTICE