Demand Driven Supply Chains

As we learned in session 6, the definition of a supply chain is: “A set of entities involved in design of new products, procuring raw materials, transforming them into products, and delivering them to the end customer.” So in fact it is the entire process of the design of a product, the manufacturing of a product and the delivery of the manufactured product to the customer.

The marketing value systems involve all activities that create and deliver value to the end customer. Some activities are internal to the firm, some are undertaken by others.

The traditional retail model consists of a few steps:

1. Standardized products are manufactured in a central place
2. After production the goods are shipped to warehouse or distribution center
3. The goods are distributed to retail shops
4. Consumers go to the shop and buy the product
5. Consumers store the product or use the product directly

In the E-business, the role of the consumer starts earlier. As we learned throughout this course, the customer can get active in the value creation process e.g. creation of his/her own product. Apart from that, the customer is able to order the products online. So, in fact, the E-business intervenes between the traditional flow of goods. In case companies expand their traditional retail model through selling their products on the internet, we call them brick and click. Website/webshops with no history as an existing company are called pure clicks. Benefits of such a system are immediate access, channel integration, personalized distribution and huge assortments. There can be differences in the distribution after the online order e.g. domino’s delivers the products from the near closest retailer whereas beren eetcafe delivers it from one central place.

To illustrate the importance of a demand driven supply chain, we found an example of a company which stresses why it is important to shift to such a new supply chain (“Procter & Gamble: Building a Smarter Supply Chain” 2002). Procter & Gamble realized that to remain profitable, consumer products manufacturers must find ways to optimize the performance of their supply chains. They realized they needed a consumer-driven supply network to stay ahead in the consumer packaged goods industry.

Procter & Gamble is a world leader in consumer packaged goods. At that time it sold 300 brands in more than 160 countries. It measured consumer satisfaction at two levels: the so called two moments of truth. The first moment is when the consumer reaches the shelf and the product is or is not available. If it is not available, the consumer then moves on to buy a rival product. The second moment of truth is at the consumption of the good. Research in 2000 indicated that in 55% of the cases, consumer were not satisfied when they looked on the shelf for the products they wanted (first moment of truth). P&G was ahead of the pack in realizing the significance of this and the managers realized the supply network needed to be changed so that it was responsive to consumer demand. Because after the company loses its customer due to unavailability, it is hard to persuade them to return to buying the initial product when they go shopping again. That is why they came up with the ‘consumer-driven supply network’. This means that supply networks are based on relationships, rather than entirely owned by manufacturers. This kind of collaborative organization offers the flexibility to vary capacity according to short term or last minute needs. Daily demand updates provide timely warning of changes in product consumption. Besides the collaboration another element is also needed to make the supply chain work: technology for real-time tracking of products, cases and pallets within a manufacturing operation.

To show some real life examples, we compare two companies with a different supply chain. H&M, the first example, does not manufacture their products but instead they have suppliers in Asia and Europe. They have four large distribution centers and stores are their main sales channel. Nowadays the customer can also order their products via the H&M website: so they have a distribution via physical and web shops.
The second one,, is the biggest online media store. It offers books, music, DVDs, software, games etc with a quick delivery service. But, they also have a different distribution system for their second hand products. Customers are via able to sell second hand products to other customers. finds the customer who wants to buy the product and the selling customer has to deliver the product to the buying one.
Because in our presentation we already discussed a lot of details about the two companies, it is more relevant to focus on the differences between the two.  As we see, H&M is a brick & click company, whereas is pure click. H&M distributes clothes from Asia and Europe; also distributes second hand products.

Boudewijn Tilman, Robin van Zeijl & Larissa Geitenbeek (Group 1) 

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