P>For the value chain to support customer needs and their adoption of technology, it needs to accommodate both the supply and demand sides of the equation. To date, IT has primarily managed the supply side through enterprise resource planning (ERP) and supply chain management (SCM). When implemented well, both ERP and SCM bring tremendous advantages to an organization. They do not, however, take into account the entire value chain. Both focus on streamlining resources, maximizing efficiency and containing costs. The focus is on profitability from a supply perspective and does not take demand the customer's perspective adequately into account.
With these supply-oriented applications, the flow of information mirrors the flow of the product and is from left to right in the value chain (see Figure 1).
Unfortunately, there has been an over dependence on ERP as the panacea for solving all of an organization's problems. ERP is a supply-oriented application and not set up to address the demand-oriented requirements of a company. Supply chain optimization isn't achieved solely by managing supply. It must also incorporate the demand-oriented requirements of the organization and facilitate the acquisition of information from the customer.
Figure 1:Supply- Oriented Applications
Departments such as sales, marketing, customer service and product management do not get the information or tools they need from ERP to measure customer requirements, demand or the impact of their programs. Sales force automation (SFA), customer relationship management (CRM) and revenue performance optimization (RPO) applications fill some of the requirements of these demand-oriented departments.
The Internet has revolutionized the ability to get information about customers' purchases and preferences information that should enter into inventory, production, marketing and sales decisions. This is an ideal scenario, where the flow of information mirrors the money flow and is a more accurate reflection of customer requirements. Information is received from the customers first; and then inventory is ordered, products are produced, marketing plans are developed, etc. Figure 2 is a simplistic illustration of the demand-oriented perspective.
Figure 2:Demand- Oriented Perspective
A supply-oriented approach is effective for companies that do not experience many fluctuations; but companies subject to changes in customer preferences that can result in costly waste require a demand-oriented approach.
Demand-oriented customer information results in more efficient sales, marketing, product development and customer service as well as inventory and production. The success of the complete value chain within the organization is also dependent on cross-functional communication throughout the company. The proliferation of departmental data marts has complicated the company-wide sharing of value chain information. So have ERP, SFA and CRM, which are also, in most cases, disparate, unconnected systems. Access to customer information is crucial to those responsible for developing new products and building marketing programs. However, this information collected by market research, customer service, sales and channel partners is often not efficiently shared across the company.
More than 68 percent of leading companies, interviewed by Qualitative Marketing in a recent Best Practices study, rely on customer input. How do they get this information?
Lack of departmental linkage is one of senior management's biggest complaints. "What is more important to me is not the level of detail. What is more important to me is the link up. We lack the ability to link the different pictures," according to a former CEO of Digital Equipment Corporation. Those who have P&L responsibility for a division or company most need this linkage. Revenue performance optimization (RPO), which manages top-line growth, provides some level of required linkage.
Market leaders have created quality management or best practices departments and set up cross-functional teams in an attempt to solve this problem. The broad perspective of cross-functional teams encourages innovation in product development. Products developed from customer feedback and cross-functional teamwork include:
- Braille greeting cards (Hallmark)
- Smudge-proof lipstick (Revlon)
- Antimicrobial roofing material (3M)
- Cross-training shoes (Nike)
ERP, SCM, RPO, SFA and CRM are all components of value chain management and, ultimately, need to be interconnected systems. Figure 3 illustrates the traditional flow of information and how information should be shared to optimize the entire value chain.
Figure 3:Flow of Information
The complexities involved make IT's job challenging, at best. To promote the cross-functional sharing of information, the role of IT in developing technology for the different departments needs to be clearly defined, and business units need to be more involved with the development and implementation of technology.
Understanding the interconnectedness of the entire value chain management is critical to forecasting demand and managing supply. As technology improves, companies will be able to better manage the entire value chain.
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