Integration of Marketing and Supply Chain for Agility
Integration of marketing and supply chain in the networked economy
Since the supply chain is a series of "nodes" connected by "links," it is clearly
important that these connections are closely managed.
With the increasing use of outsourcing in the supply chain, the complexity of the network structure and relationships inevitably increases.
In today's networked economy, strategic decisions should be integrated from the supplier to the end customer. Therefore, the integration of marketing and the supply chain becomes inevitable.
How supply chain related to marketing
Supply chain management should leverage marketing strategies to enable the delivery of customer value. There's no point in building the supply network in isolation from the consumer market like it used to happen in the past when different corporate functions built their federated empires.
Equally, marketing should align their strategies and actions with the supply chain to enable the benefits of coordinated campaigns and wholesale deals that would not deteriorate the supply chain performance.
The critical connecting link between marketing and the supply chain is demand. Their integration will ensure the integrity of the demand cycle - from its creation in marketing to fulfillment in the supply chain.
Benefits of marketing and supply chain integration
The following slide demonstrates the advantages of integrated marketing and supply chain and the disadvantages of each side's disintegration.
Notably, "agile" in this slide doesn't mean the supply chain strategy. We already explained in this post that lean and agile coexist in the supply chain, as each one is suitable for a particular type of demand and product characteristics.
In this context, by "agile," we meant flexibility, responsiveness, and operational multimodality.
Trust as a motivator of integration.
Supply chain integration involves external actors - suppliers. They cannot be forced into the integration, only motivated.
The motivation of suppliers to support the supply chain integration process is predominantly based on trust.
Trust between supply chain partners affects commitment.
Trust has a positive effect on performance and supply chain flexibility.
This is where we arrive at the importance of trust as a critical enabler of agility, just as prescribed in Agile Manifesto - "customer collaboration over contract negotiations."
The definition of trust
Trust is the perceived credibility and benevolence of the subject of trust.
It's one of the critical factors that characterize mutually beneficial commercial relationships:
- operational performance,
- mutual dependence,
- innovation,
- socialization,
- communication,
- knowledge exchange,
- support activities,
- trust/fairness,
- commitment,
- mutuality,
- respect.
This definition applies to buying context where a customer firm facing some degree of risk in the purchase situation selects a supplier perceived to perform effectively and reliably (credibly) and is interested in the success of the customer's business (benevolent.)
The development of trust relies on the formation of the trustor's expectations of the motives and behaviors of the trustee.
5 ways to develop trust in business
There are five different processes in which trust can develop in business relationships:
- The calculative process, i.e., the trustor estimating the trustee's benefit of cheating, is lower than staying in the relationship. Factors: reputation, size of the business, sharing of information, length of relationships.
- The prediction process relies on the ability of parties to anticipate actions of each other. Factors: social contacts, similarity.
- The capability process focuses primarily on the credibility component of trust by determining another party's ability to meet its obligations. Factors: power, expertise.
- In the intentionality process, the trust develops by interpreting and assessing the other party's motives. Factors: flexibility, openness.
- The transference process assumes that the trust can be transferred from one "proof source" to another. Factors: reputation, references, certifications.
Practical concepts of marketing and supply chain integration
In the last decade, several business concepts have emerged that build on the integrated perspective between marketing and supply chain:
- reverse marketing,
- quick response,
- agile supply chain management (SCM)
- demand chain management (DCM.)
Since each concept requires a separate post, we will discover the relatively easiest one - reverse marketing, which sets the basis for any further integration activities.
Notably, reverse marketing shows the utmost importance of proactive trust-building.
Traditional buy-sell vs. reverse marketing
A stereotypic purchasing agent sits on the receiving end of the relationship, in which the initiative to sell comes from a supplier.
Such a relationship is purely transactional, unidimensional, reactional, and functionally limited.
Perhaps, this is what traditional purchasing is all about. However, the trust element barely exists in this situation since neither of the five processes is activated.
Reverse marketing definition
One possible solution to improve the quality and efficiency is to reverse the traditional buyer and seller roles.
This is called reverse marketing, where a buyer initiates the buy-sell relationship by persuading a supplier to provide exactly what the customer organization needs.
The stages of the reverse marketing process
- Analysis and sourcing selection.
- Planning the reverse marketing effort, including the strategy development.
- Implementation of reverse marketing strategy.
- Control and evaluation.
These steps will actively employ the blend of procurement and marketing methods and tools, e.g., market research and segmentation, focus selling efforts, customer benefits, etc.
Critical characteristics of reverse marketing.
Reverse marketing is the proactive approach to achieving strategic supply objectives.
It is primarily driven by business requirements, which cannot be effectively fulfilled in the regular procurement process and/or by the standard supplier offering.
The lion's share of reverse marketing remains within the customer organization, where the concept, design, and business metrics are being developed before approaching a supplier for negotiations.
It is the pure form of strategic sourcing, where most procurement efforts are dedicated to the early stages of the sourcing process. Then negotiation follows the perfectly crafted strategy based on measurable benefits of both parties, which a customer is "selling" to a supplier.
Reverse marketing examples
Examples of corporate reverse marketing programs are widely available under the modern name of "supplier development," e.g., Enel, Accenture, Coca Cola.
The supplier development initiative comes from a customer. Hence, the buyer and seller role reversal takes place, as described above.
Developing trust by reverse marketing
Indeed, reverse marketing stimulates untapped levels of trust between parties.
Primarily, it involves the intentionality process, as the motives of cooperation are clearly exposed. Consequently, the calculative process actuates to estimate parties' benefits.
The overall credibility of relationships improves due to transparency and measurability of underlying intentions.
From bounded rationality to integration and agility.
As we explained in this post, transactional cost economics is impacted by two factors - bounded rationality and opportunism of vendors.
Supply chain integration is a topical solution for vendor opportunism - not a panacea, but indeed the booster of trust and cooperation.
We already discussed bounded rationality in various posts and even suggested a recipe to overcome its effect.
Bounded rationality occurs when companies lack perfect information, suffer from limited resources and suboptimal processing capabilities.
Under these conditions, firms are forced to make "good enough" decisions adjusted to the conditions in which they operate. Such decision-making deteriorates the competitive advantage and slowly but steadily puts a firm on the brink of survival.
The integration of supply chain and marketing improves resource availability, introduces the diversity of opinions (which is the debiasing technique allowing to return to rational thinking), and stimulates trust through the calculative process.
Most importantly, it's a paradigm shift from isolated transactional business functions to integrated strategic partnerships.
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