Balancing Marketing and Supply Chain Activities

Author(s): Robert J. Vokurka and Rhonda R. Lummus

Source: Journal of Marketing Theory and Practice, Vol. 6, No. 4, Supply Chain Management
Sponsored by SYNCRA Software, Inc (Fall, 1998), pp. 41-50
Published by: M.E. Sharpe, Inc.
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BALANCINGMARKETING AND SUPPLY

CHAIN ACTIVITIES
RobertJ. Vokurka
Texas A&M University
RhondaR. Lummus
CentralMissouriStateUniversity

existsbetweenthesupplychainand marketing
activities.For mostsupplychainsa balance existsbetween
A relationship
strain
thesupplychain'sability
tomeetdemand,
When
activities
customer
and
chain
requirements supply
capabilities.
marketing
All associatedcostsshouldbe consideredin supplychainplanning,and marketing
additionalcostsare incurred.
initiatives
therecognition
ofthesecostsacrossthesupplychain.Questionsrelatedtothetimingofmarketing
shouldbeevaluatedincluding
oftheinitiative.
activities
needto considertheimpacton thesupplychainandtheoverallprofitability
INTRODUCTION
issue
Managingthesupplychainhas becomean important
forthe1990s.Customers
havemultiplesourcesfromwhich
the
tochoosetosatisfy
demand;locatingproduct
throughout
at
distribution
channelformaximum
customer
accessibility
costbecomescrucial.Companieshavelookedat
a minimum
solving the distribution
problemthroughmaintaining
inventoryat various locations throughoutthe chain.
However,the dynamicnatureof the marketplacemakes
a riskyand potentiallyunprofitable
holdinginventory
habitsareconstantly
business.Customers'
buying
changing,
arecontinually
andcompetitors
addinganddeleting
products
It's hard
tohavetherightinventory.
whichmakesitdifficult
to providea low costproductwhenfundsare tied up in
inventory.

theimpactofdecisionsin anyonearea.Manycompaniesare
all operationsand minimizingthe time-tostreamlining
customer
fortheirproducts
to meetcompetitive
forces.

of the supplychain is evolvingas more

The definition
attentionhas been placed on the entire supply and
A reviewofcontemporary
distribution
network.
definitions
Alber
and
Monczka
and
1997;
(Lummus
Morgan 1997;
Quinn 1997) includemanycommonelements.Usingthese
a supplychain can be definedas the
previousdefinitions,
networkof functionsand processes,both internaland
externalto an organization,that are associated with
basicrawmaterialsin
moving,andtransforming
procuring,
orserviceforan end-user.
toa product
An integral
partofthe
is
flow
of
chain
the
information
between
and
supply
among
ofthedistribution
network.
The management
all members
of
thesupplychainis thentheintegration
and coordination
of
all these activities including suppliers, carrier,
The shiftin emphasisto the supplychain is due to a
thatmaximizing
of
one
realization
manufacturers,
distributors,
third-party
providers,and
performance
department
information
carriers.
for
the
orfunction
to
less
than
lead
may
optimalperformance
wholecompanyand beyond. Purchasingmaybe able to
A relationship
existsbetweensupplychainperformance
and receivea
and
negotiatea lowerthepriceon a component
initiatives.
Critical
actual
to
the
favorable
variance
between
chain
(difference
marketing
managing supply
purchaseprice
is managingthelinkbetweeneach stepwithinthechainto
or standardcost),butthecostto producethe
and budgeted
theentiresupplychain.Formostsupplychains,
intheplant.
finished
synchronize
maygoupduetoinefficiencies
product
a balanceexistsbetweencustomer
and supply
requirements
Companiesmustlookacrosstheentiresupplychaintogauge
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41

in
ofproducts
thenumber
byconsumers.Forexample,
in 1981to
thousand
thirteen
has risenfrom
supermarkets
andShell1993).
in 1987(Bockerstette
thousand
twenty-one
excellent
revaluestreams.
shifts
havecreated
Thesemarket
windfallhas also been some
this consumer
However,
Thetraditional
chainand
downfall.
manufacturers'
supply
to
werenotoriginally
designed
manufacturing
practices
andcomplexity.
suchvariety
Someplanning
models,suchas salesoperations
planning deliver
(SOP) (an integrative
management
processtostrategically
demand
is often
volatile
as a result
of
customer
andproduction),
finite
scheduling Inaddition,
capacity
aligndemand
customer twootherfactors:
thatincorporates
changesin customers'
buyinghabits,
system
(FCS) (a scheduling
and changescausedby company
and manufacturing
load leveling),demand including
seasonality,
priorities
Thefirst
oractions
takenbycompetitors.
orpolicies,
andscheduling
ofcoordinating actions
(DPS) (a process
planning
as
fora company
tocontrol,
chain changeindemandis difficult
forecasts
andproduction
demand
scheduling),
supply
Thesecondchangein
inthe consumers
withothers
changetheirpreferences
(SCP)(integrating
requirements
planning
actionsincluding
resource demandis causedbyinternal
and enterprise
company
supplychain,usuallysuppliers),
tostimulate
demand.
activities
and
usedtoidentify
designed
marketing
(ERP)(an integrative
system
planning
resourcesneeded to accept,
plan enterprise-wide
activitiescan be dividedinto three
anddeliver
custom*
areinusetoday. These marketing
manufacture,
orders)
massmarketing,
tradepromotion,
andconsumer
use in an
However,
categories:
theyare oftenlimitedto internal
uses thesethreetoolsto increase
onproduct
orarefocused
volumes
Marketing
onlyandnot promotion.
organization
and to stimulate
demandforthe
of products
awareness
ofmarketing
initiatives.
onthetotalcostimpact
thatcan
ofthemany
marketing
programs
Examples
products.
andthesupply
chaininclude:
demand
thelinkbetween
activities affect
Thisarticle
describes
radio,television
marketing
account
mediaadvertising;
orprint
ofa supplychainin
andthesupplychain.The concept
(i.e.,
developed
programs
in
withthenextstagecustomer
is discussed.The
balancewithcustomer
jointly
developed
programs
requirements
such as
all associated
chaincosts the distribution
ofconsidering
chain); consumerpromotions
importance
supply
andsamples,
theprojected
of marketing coupons
whenevaluating
alongwithmanyothers.
profitability
is developed.
initiatives
Finally,improving
supplychain
from
demand
activities
canhavea
Theincreased
meetchangesin customer
demandis
to better
marketing
flexibility
described.
impacton thesupplychain. The increasein
significant
Supplychainoutputshouldbe balancedto
at a particular
nodein the
Onegoalofmanaging
thesupplychain demandcreatesa disturbance
customer
demand.
a tradedeal
addedsupply
chaincoststhatresult supplychain(Hadavi 1996). Forinstance,
shouldbetominimize
increasesdemandfromthe distributor
back to the
indemand
duetomarketing
activities.
from
changes
affect
mayhavelittle
manufacturing
plant Thedisturbance
chainifthenodehastheability
toabsorb
ontheentire
MARKETING'SLINK TO THE SUPPLYCHAIN
supply
Whentheincrease
thedisturbance
through
safety
inventory.
is
exceeds
available
thedisturbance
in
demand
would
to
Mostcompany
like
inventory,
managers
marketingprovide
in
to
other
links
the
chain.
The
themwitha stable,
at
can
a
supply
predictable,
passedupstream
growing pacethey
isespecially
attwoextreme
situations:
demand
what disturbance
handle,
significant
(Mather
1995).Unfortunately,
pattern
a
demand
situation
that
is
is
"erratic,
they
get
unpredictable
Whenthedemand
As Mather(1995)notes,"many
increase
duetothepromotion
anddeclining."
salesand
activity
the
chain's
to produce
at the
strains
cause
volatile
demand.
supply
capability
marketing
actually
They
programs
newlevel. Thetemporary
indemand
increase
customer
takean underlying
whichis relatively
demand,
maybe
in
met
slack
andintroduce
stableformanyproducts
and
through
building
inventory
periodsorby
peaks valleys."
such
as
overtime
activities
react
the
to
production.
Companies byimplementing
programsimprove
ofthefactory,
and
cushions,
flexibility
addinginventory
oftheimpact
ofthepromotion
tomeetpeakdemand.Mather
activity
increasing
capacity
suggests Whenpredictions
For
need
to
are
inaccurate.
a
retail
their
to
instance,
advertising
companies
analyze
promotion
programs
isexpected
toincrease
which
onesarereally
demand
determine
valueandwhich
ones
by5% forthree
program
adding
is realized.This
arelosingmoney.Thisevaluation
mustinclude
theeffect
weeks,and insteada 10% increase
demand
chain.
exceedstheforecast,
andthesupply
acrosstheentire
supply
unplanned
chainmustreactintheshort-term
toprovide
product.
demand
haschanged
Consumer
the
over
significantly
past
ofall,there
decade.First
aresimply
more
varieties
requested
strainthe
Whenmarketing
activities
chaincapabilities.
to meetnormaldemand,
costsare
supplychain'sability
A degreeof supply
chainflexibility
incurred.
maybetter
cost
in demandpatterns
and minimize
absorbvariations
butaddition
costsmaybeincurred
togainthis
fluctuations,
flexibility.

42

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THEORYANDPRACTICE
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on the
An exampleof the impactof marketing
initiatives
takenfrom
supplychaincanbe seeninFigurei. Thisfigure
salesofoneproduct
atonecompanyillustrates
the
historical
atthemanufacturing
plantlevelbased
changesinproduction
weeks
axis represents
on marketing
activity.Thehorizontal
andthevalicai axis cases ofproduct.Each ofthepeaksin
cases producedrepresentan advertisingcampaign or
conductedbymarketing.As thefigure
activity
promotion
at theplant
theincreasein demandis significant
indicates,
level. Changesin case demandare as highas fivetimes
normalin one week. However,duringthosesame time
to consumersvariedonly
shipments
periods,point-of-sale
Trade
themiddlelinkin the
triggered
promotions
slightly.
chain
to
additional
buy
productandstoreitforfuture
supply
theincreaseddemand
consumer
needs.Meanwhile,
meeting
and
inthepeakperiodsstrainsthesupplychain'scapabilities
resultsin addedcostforthecompany.
level.
in theinventory
Notethatthereare also fluctuations
are typicallyhigherthanproductionlevels in
Inventories
in demandand to coverthe
orderto absorbthevariability
newproduction
ordersin
leadtimeassociatedwithinitiating
to
customer
demand.
response
BALANCE MODEL
One way of viewingthe impactof this scenario on the
companyis to thinkaboutthesupplychainas normallyin
balancewithcustomer
requirements.
Figure2 describesthis

have
orothermarketing
activities
balancingact. Promotions
thepotentialto upsetthisbalance. If marketing
practices
oneway,e.g.,witha promotion
shift
thebalancetoostrongly
thatstrainsdemand,thesupplychainbecomesunbalanced
needs. This out-of-balance
conditionadds
withcustomers
costas thesupplychainscramblesto meetdemand. Figure
3 describesan unbalancedsupplychain strainingto meet
customer
requirements.
Traditional
supplychaindesign(or whatwas oncenarrowly
to as manufacturing-only
referred
design) lookedlike the
following:

systems
designedtoproduceonlya few
Rigidproduction
products
Long supplycycletimes
Largebatchsizes
Capacitybasedon annualvolumes
Volume-driven
technology
Numeroussuppliersforthesameparts.

The explosion of marketingactivityand intensityof

consumerdemandhas thrownmany companies9supply
chainsintoa tailspin.Theirsystemswerenotdesignedto
nowplaceduponthem.As a resultof
meettherequirements
these changesin customerrequirementsand inadequate
exist:
tomanagethem,thefollowing
symptoms
systems

FIGUREI
DEMAND DISTORTION
120.000

IOOOOO-

CASES

IN INVENTORY

8O.OOO - ^^^^^^

^^V

^^k

^^^^^^^^^^^L

CASES

^^^^^^^^^L

^^^^^^^^^

TOTAL

SHIPED^^^^^^^^^^^^^^^^^^H

SpecialIssue

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^^^^H

43

FIGURE 2
BALANCED SUPPLY CHAIN
SUPPLY
CHAIN
CAPABILITY

CUSTOMER
|
! REQUIREMENTS

Market Demand,
New Products,

Suppliers, Manufacturers,
Transportation,

^^^^^^k
^^^^^^^^^^

Promotions

Distributors

jiHHI^^flHkt.

FIGURE 3
STRAINED SUPPLY CHAIN

Increased Costs

Increased Demand

Overtime
Due to MarketingPrograms
^^^^^^^^^^^^^^

CUSTOMER
REQUIREMENTS

Expediting
PremiumFreight
Increased inventory

^^^^^^^^^^_

^^^
^T

Costs ofProducir*at
as^ptimallocStion

^^^^^^

44

Decreasingmargins
Poorserviceperformance
Increasedoverheadcosts
Poorproduction
processreliability
(qualityanddelivery
implications)
Increaseddowntime
dueto changeovers
levels of raw materialsand finished
High inventory
product.

SUPPLY
CHAIN

of a strainedsupply
Table 1 describesthe characteristics
chain versus those of a capable supply chain. The
andintegration
ofthesupplychainmembers
synchronization
in thebalancedsupplychaindescription.
arereflected
The
andtheimpact
strained
supplychainis muchmoredisjointed
causes disruptions
the chain as
of fluctuations
throughout
memberstryto adjustto the demandsof theirimmediate
customers.

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THEORY AND PRACTICE
ofMarketing

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TABLE 1
SUPPLY CHAIN CHARACTERISTICS

StrainedSupplyChain

Capable SupplyChain

Produceto forecast
(Push)

Maketo demand(Pull)

Highlyvariabledemandprofile

Producemostproducts
daily(reducedruncycles)

Low overallreliability

Reliablesystems

No formal
supplierpartnerships

Dailysupplierintegration

Fewcustomer
partnerships

Flowreplenishment
ofcustomer
inventory

Frequent
schedulechanges

supplyanddemand
Synchronized

Different
schedulesforplantsandsuppliers

Same schedulesacrosssupplysystem

Functional
siloswithin
supplychain

Supplychainprocessesbyproductlines

Mostsupplychainsare woefully
unbalancedwithcustomer
and
Shell
(Bockerstette
1993). Each linkinthe
requirements
must
be
productsupplysystem
individuallycapable of
and
what
customers
ordereach day.
producing delivering
Theentiresupplychainis onlyas capableas theweakestlink
in the system.Wherethe supplysystemis incapableof
withincustomer
time,the
delivering
expected
replenishment
chain
carries
excess
costs
in
the
form
of
and
inventory
supply
overheadto supportwork-in-process
and finishedproducts
inventories.
Marketing
programs
mayincreasethe out-ofbalancecondition
and shouldbe evaluatedpartlybased on
theirsupplychainimpact.
CURRENT MARKETING PROGRAM
EVALUATIONS
mostcompaniesevaluateproposedmarketing
Traditionally,
onmarketing's
based
ofsales volumes,
programs
projections
the cost of runningthe advertisements
or promotion,
and
standard(budgeted)supplychaincosts. Whensales cover
the marketingcost and allow for a targetedlevel of
theprogram
is approved.Abrahamand Lodish
profitability,
1990 challengedthewisdomof basingdecisionson gross
salessuggesting
insteadthefocusshouldbe on incremental
sales. Theyproposedthatmanagersshould look fora
balance betweenadvertisingand promotionbased on
analysis. As Abrahamand Lodish
marginal-productivity
state:
(1990)
"Theideais to startwitha zerobudgetand allocate
to variousadvertisingand
moneyincrementally
The
the
promotionoptions.
goal is to identify

contributes
mosttothelongoptionthatmarginally
termprofitability
oftheproduct.Allocationsshould
continueon thisincremental
basisuntilall options
thatprovidea suitablereturnon the incremental
investment
are found."
Theirresearchshowedonly16% oftradepromotions
were
on
incremental
based
sales.
Increased
profitable,
advertising
ledtomoresales onlyabouthalfthetime. In addition,
when
did
boost
the
extra
often
did
not
sales,
advertising
profit
covertheextramediacosts. Promotions
in particular
havea
onmanufacturers
effect
duetoforward
misleading
shipments
will
in
Retailers
take
thousands
of
extra
casesduring
buying.
the promotion,
thennotbuyfarseveralweekswhilethey
depletetheirinventory.
WhatAbrahamand Lodish'sresearchdid not considerin
theirevaluationoftheprofitability
ofthemarketing
activity
is theaddedcostincurredbythesupplychainto meetthe
surge in demand. Those costs are not isolatedto the
butarehiddeninplantand
oradvertising
promotion
activity,
under
material
variance,overtime,
purchasing
budgets
scrap,
andotherclassifications.
rework,
premium
freight,
Figure4
illustrates
howthesecostsincreasein relation
to
graphically
in
for
demand
one
SKU
at
one
As
changes
company.
demandincreasesdue to promotionactivities,the supply
chain costswhichare not includedin standardcostsalso
increase.The bottomlineimpactofthepromotion
basedon
incremental
salesis notevaluated
beforetheprogram
begins.
toprofit
oftheprogramshouldinclude
Thetruecontribution
boththemarketing
costsand all supplychaincosts
activity
to
the
attributed
promotion.
directly
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45

FIGURE 4
RELATIONSHIP BETWEEN DEMAND AND NON-STANDARD COSTS
lOOO

800
1

600

- - I I TTP^^

Z^***^

400
200

-^

Demand
Non-Standard Supply Chain Costs

The performance
measurescurrently
in place to evaluate
activitiesare traditionalfinancialtools. For
marketing
example:
Increasedmarketshare
Returnon investment
Netprofit
contribution
Profit
margin

These performance
measures analyze the cost of the
marketing
activity,
projectsales volume,includecost of
anddistribution
at standard(budgeted)cost,and
production
contribution
fortheproduct.Newmodels
projecttheprofit
46

- ^ ~~

Montn

A study
the
byHardie(1997) discussedthecaseofdecreasing
useofmarketing
Theirevidence
showedthatprice
programs.
have beentakingan increasingproportion
of
promotions
and
marketing
budgetsforconsumergoodsmanufacturers
thatthesepromotions
areconditioning
consumers
tolodefor
bargainswhichmaybe erodingbrandloyalty.
Theyciteda
number
ofcostsavingsthatwouldresult
a de-escalation
from
A smoothing
of pricingpromotions.
of the sales pattern
would mean Iowa* inventories,improvedproduction
reducedovertime,
andmoreefficient
coordination,
logistics
(Hardie 1997). However,the competitivereactionsto
changingthe use of pricingpromotionsmust also be
considered.

^^-^^-

123456789
|

sales fromthe
are requiredwhichestimatetheincremental
includethemarketing
costsofrunning
activity,
marketing
oradvertisement
andtheaddedcostsincurred
thepromotion
to meetthe
bydie supplychainas itextendsitscapabilities
increasein demand.
MAKING TOTAL COST DECISIONS
certain
Companiesneedtoassessthetruecostofundertaking
sales
the incremental
marketingprogramsby identifying
and supplychain
fromdie programandboththemarketing
One approachtogathering
information
costsoftheprogram.
an activity-based
istoimplement
costing(ABC) modelwhich
identifiesthe cost of all activitiesassociatedwith the
and costly
marketing
project. However,ABC is a difficult
to
An
(Krumwiede
1998).
implement
activity-based
process
toolis neededwhichaids in theevaluationof
management
decisionsbasedonestimates
ofincremental
sales,
marketing
costsandthecostofvarioussupplychain.
marketing
sales
The model shouldcapturethe plannedincremental
andprojected
volume,theprojected
marketing
expenditures,
added costs fromthe supplychain not includedin the
product'sstandardcost. The model shouldbe capable of
answering"WhatIf questionsduringthe promotionor
advertising
planningprocess. Forinstance,whatifweekly
sales estimatesfromthepromotion
varyfromtheforecast.

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methods
ofmeeting
demandareusedby
Or,whatifdifferent
in advance
the supplychain,such as buildinginventory
versusworkingovertime?The finalresultshouldbe the
all
netvalueofthemarketing
initiative
considering
expected
plannedcostsrequiredto meettheincreasein demand. In
themodelshouldbe capableofevaluating
the
addition,

tomeasurethetrueprofitability
afteritscompletion
program
ofthepromotion.
The totalcost impactcan be describedby the following
formulas:

= TotalIncome- StandardIncome
Initiative
NetValueoftheMarketing
where
= StandardIncome+ (AddedSales - AddedCosts)
TotalIncome
= (StandardSales Volumex Price)- (StandardSales Volumex (StandardCost)
StandardIncome
= (AddedSales Volumex SellingPrice)
AddedSales
=
Costs
AddedCost
(AddedSales Volumex StandardCost)+ SupplyChainAddedCost+ Marketing

(1)
(2)
(3)
(4)
(5)

An examplewouldbe as follows:
StandardVolumeand Costs
StandardSales Volume= 20,000units
SellingPrice= $60/unit
StandardCost= $30/unit

StandardIncome-

Promotion
Marketing
AddedSales Volume- 5,000units
Sales Price= $50/unit
StandardCost= $30/unit
AddedSupplyChainCost= $25,000
Costs= $50,000
Marketing

= (StandardSales Volumex Price)- (StandardSales Volumex (StandardCost)

= (20,000x $60) - (20,000x $30)
= $600,000

WithMarketing
Initiative
= (5,000x $50) = $250,000
AddedSales
= (5,000x $30) + $25,000+ $50,000= $225,000
AddedCost
Initiative= $250,000- $225,000= $15,000
ValueoftheMarketing
= $600,000= $ 15,000= $6 15,000
Totalincome
is only$3 perunit($15,000/3,000
initiative
tothemarketing
incomeattributed
In thishypothetical
example,theincremental
This
is duetoa lowerpriceperunit,
unit
income
of
the
standard
lessthan
$30 per
units).
($600,000/20,000
units),considerably
costs.
added
chain
and
directmarketing
costsassociatedwiththeinitiative,
supply
whichcaused added cost to
The supplychain limitations
Table
shouldalsobe identified.
meetthedemandprojections
whichtypically
2 listssomepossiblesupplychainlimiters
drivecosts.Thislistis notall-inclusive,
butis representative
ofa typicalfirm's
supplychain'saddedcosts.Evaluatingdie
causefortheaddedcostswill exposethelimitingfactorin
thelimiting
thesupplychain'sperformance.
Byrecognizing
orconstraint
inthesupplychain,efforts
factor
maybe made
factor
andmakethesupply
toremoveorreducethelimiting
chaincapableofmeetingchangesin demand.
The basis forcreatinga new model lies in the balance
conceptdescribedearlier.The supplychainis balancedby
activities
customer
needs. Whenmarketing
tipthebalance,
added
or customerneedsexceedsupplychaincapabilities,
costsareincurred.Themodelshouldincludecostsalongthe

supplychain thatmay be incurredby othernodes (other

companies), but are not added direct costs to the
manufacturer.
Companiesmustrecognizethatothercosts
incurred
the
along supplychainmaynotgetchargedtothem,
butgetpassed along in higherpricesto theconsumerand
reducetheoveralleffectiveness
ofthesupplychain.
themarketing
Companiesshouldlookateffectively
executing
the
of
activities
true
byevaluating
profitabilitytheactivity,
all
the
cost
i.e.,byincluding
impactsacrossthesupplychain.
Activitiesthatdisruptthe supplychain balance add costs
whichneedto be consideredin theevaluation.The supply
chain limitationswhich cause the added cost shouldbe
whichwill again
targetedforeliminationor improvement
balancethesupplychaincapabilities
withconsumer
demand.
SpecialIssue

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All use subject to JSTOR Terms and Conditions

47

chainisthe
ofthesupply
andsynchronization
theflexibility
to all
timelyand visibleflowof identicalinformation
chain.
ofthesupply
In additionto modeling
thetotalcostsof a marketing members
efforts
shouldalsobeongoing
tobuildthesupply
program,
to
chainwillbe ina better
withdemand. A moreflexible
chaincapabilities
tobetter
position
supply
synchronize
supply
duetomarketing
fluctuations
thedemand
absorb
due
canbedeveloped
tomitigate
costfluctuations
programs.
Flexibility
chain
thecostsofstrategically
A moreflexible
toparticular
supply
improving
supply However,
marketing
programs.
andimplemented.
mustalsobeplanned
ratetothe
theproduction
chainiscapableofbetta*
flexibility
matching
under
ratefortheperiod
consideration.
demand
MANAGERIALIMPLICATIONS
the
As outlined
byAlberand Walker(1997) increasing
and advertise
havea
usedto promote
methods
Current
thesupplychain,is
or bettersynchronizing
flexibility,
to deliver
becauseeveryarea of thebusinessis affected, significant
difficult
impacton thesupplychain'sability
excess costs. Marketing
runcycles, productwithoutincurring
demandmanagement,
throughput,
including
chain
thatthesupply
flow. promotions
andinformation
batchsizes,planningandcontrol,
spikesindemand
maydrive
ofadded
conditions.
meetundernormal
cannot
creation
Linksmustbe established
between
demand
Examples
(sales
attheplantlevel
whendemand
and
coststhatmaybe incurred
and the supply(manufacturing
and marketing)
weredescribed
fromperiod-to-period
variessignificantly
and mustincludethe timelyexchangeof
distribution)
theaffect
of
focuseson evaluating
runcycles earlier.Thisresearch
ofproduction),
information.
(volume
Throughput
the
ismanufactured),
andbatchsizesmust peaksin demandon thesupplychainandidentifying
a product
(howoften
chainstrains
tomeetthe
at every costswhichareaddedas thesupply
thedemand
be capableofmeeting
requirements
must
be
Models
of
demand.
in
level
and
of
the
chain.
The
control
developed
changes
systems
stage
supply
planning
in
the
evaluation
chain
costs
added
will
include
which
todemand
must
becapableofreacting
supply
interacting
changes
by
A keytoincreasing ofpromotion
ofthesupply
network.
withallelements
activity
profitability.
SUPPLY CHAINFLEXIBILITY

TABLE 2
SUPPLYCHAINLIMITATIONSWHICH DRIVE COST

48

leadtime
areinlessthanstandard
tothesupplier
Request
Lackofstorage
atthesupplier
capacity
Lowestcosttransportation
modeis unavailable
duetodesignchanges
Handling
requirements
change
material)
(duetounavailable
Manufacturing
plantdowntime
Lackofstorage
atthemanufacturer
capacity
methods
Unavailable
ornonstandard
used)
(overtime
capacity
production
Additional
or
at
the
manufacturing
plant
setups changeovers
obsolete
Damagedproduct,
product
mode
Transportation requires
expediting
Excessstorage
additional
cycle
quantities
require
service
desired
Lowestcosttransportation
modecan'tprovide
Unavailable
production
supplier
capacity
Additional
orchangeovers
atthesupplier
setups
exceedsupplier
Quantities
required)
(a secondsupplier
capability
Unavailable
outside
required)
(an
supplier
manufacturing
capacity
costplant)
a higher
to
Unavailable
(drives
production
manufacturing
capacity
Changeinproduct
design
Lackofstorage
atthedistributor
capacity
nonstandard
atthedistributor
packaging)
(specialtagging,
Request
processing

Journal
THEORYANDPRACTICE
ofMarketing

This content downloaded from 94.200.175.246 on Sat, 16 Aug 2014 14:28:06 UTC
All use subject to JSTOR Terms and Conditions

frombettermanaging
Companiescan improveprofitability
the link betweenmarketingand the supplychain. It
theremaybe twosourcesofbetter
controlled
costs
suggests,
increase
cancapitalizeon. Thefirst
thatcompanies
potential
comesfrombettermanagingthemarketing
in profitability
decisionson productpromotionand advertising.Models
ofa
mustbe developedtoexaminethepotential
profitability
its
to
e.g. test
activityprior
implementation,
marketing
is a
The
second
source
of
profitability
potential
marketing.
morecompleteknowledgeof the associatedsupplychain
from
themarketing
initiative.
Modelscanhelp
costsresulting
what
limits
the
chain
from
meetingdemand.
identify
supply
The models must look at incrementalsales fromthe
or advertising
activityand compareit to the
promotion
costandaddedsupply
both
added
of
combination
marketing
in demand.Both
meet
incurred
to
the
increase
chaincosts
decision
to runthe
considered
as
of
the
costsshouldbe
part
evaluation
of its
included
in
the
promotionand later
profitability.
thesupplychain.
projectswhichcan affect
Manymarketing
thequestion:Based on the
Companiesmustaskthemselves
total cost of the marketingprogram,includingboth
of
andsupplychaincosts,is itinthebestinterest
marketing
thecompanyto promoteor introduce?A secondquestion
logicallyfollows:What is the best time to executethe
on thesupplychainand
to havetheleast affect
promotion
ofthepromotion?
theoverallprofitability
improve
toolmayalso aid in
Theuseofa modelas a decision-making
issues. For instance,what
decisionson relatedmarketing
have on otherproducts
affect
does(mepromotion
produced
at thesame plant? Or, whathappensif thedateson the
sales
tomovetheincremental
arealteredslightly,
promotion
to other weeks? Also, is the promotionrunning
witha promotion
runbyanotherdivisionor
simultaneously
ofthecompany?As managersbeginto analyzethe
segment
decisionson theentiresupplychain,
impactofmarketing
for
thesedecisionsbecomepartoftheoverallproduct
strategy
thecompany.
of
theflexibility
The modelcan also be usefulin increasing
demand.As the
chaintomeetchangesincustomer
thesupply
at thesametime,
addedsupplychaincostsare determined,
These
the limitingfactoror capabilityis also identified.
thenbecometargetsfor
limits,orconstraints,
capability

in the
projects.Improvements
supplychain improvement
will
the
chain's
chain
ability
improve supply
process
supply
at
initiative
to delivertheproduct
requiredbythemarketing
no additionalcost.
CONCLUSION
havebeenshown
insupplychainperformance
Improvements
The Yankee Group,a
to improvecompanyprofitability.
Boston-basedconsultingfirm,pointsto a studyof 1,000
Europeanfirms,thatshows leadingcompaniesoperating
lowerlogisticscoststhantheaverage."With
with36 percent
of
at 10 percentoftherevenues
costs
supply-chain estimated
most companies,thattranslatesto a nearlyfourpercent
the averagenet
increasein netprofit
margin.Considering
50-sized
for
the
Fortune
healthy,
companyis
margin
profit
a fourpercentbottom-line
lessthan10 percent,
savingsis a
boost"
(Davis 1995).
big
withsupplychaincapabilities
practices
Balancingmarketing
willnotoccurovernight.Programssuchas ECR (Efficient
are designedto
ConsumerResponse)in thegrocery
industry
as
efficient
part of their
promotion
incorporate
in
the
thatwill
no
one
believes
but
industry
implementation,
to
forma*
to
be easy
Quaker
accomplish. According
for
Presidentand COO PhilipMarineau, "Reengineering
For
that
financial
costs.
does
entail
ECR
Quaker
major
means $110 to $130 million in initial cost-reduction
measures and realignmentof the sales organization"
(Mathews 1994). Accordingto Marineau, they were
$10 and$20 millionannuallyin employee
spendingbetween
to alignthecompanywithECR
educationand development
concepts.
ofthesupplychainmeansmanagingall the
Management
thatproducevalue in the
different
processesand activities
activitiesare
consumer.Marketing
handsoftheultimate
add
to
value theconsumer.
one oftheprocessesthatshould
Promotion
policiesthatcreateunstabledemandand result
in surgesoforderson themanufacturing
plantand its
which
are
the
ultimately
product
suppliersadd coststo
ofthemarketing
passedon to theconsumer.Management
activitiesshouldincludean analysisoftheircostimpact
acrosstheentiresupplychain. The resultwill be a supply
chainthatdoesnotstrainto meetdemandand recognizes
lowercostsalongthesupplychainand betterpricesforthe
customer.

SpecialIssue

This content downloaded from 94.200.175.246 on Sat, 16 Aug 2014 14:28:06 UTC
All use subject to JSTOR Terms and Conditions

49

REFERENCES
theMostOutof
M.. Lodish( 1990), "Getting
Abraham,
MagidM andLeonard
HarvardBusinessReview,68 (3): 50-60.
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Krumwiede,
Kip R. (1998), "ABC: WhyIt's Triedand How It Succeeds,"
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Accounting,
Management

KarenL. AndWilliamT. Walker(1997), "SupplyChainManagement:

Alber,
40thInternational
A Practitioner's
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Proceedings,
Approach,''
FallsChurch,
VA: APICS.

RhondaR. andKarenL. Alber(1997), SupplyChainManagement:

Lummus,
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VA:
Demand,FallsChurch,
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Bockerstette,
JosephA. and RichardL. Shell (1993), Time Based
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Norcross,
Manufacturing,
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Inc.
McGraw-Hill,

Mather,Hal (1995), "Don't Flex theFactory,StabilizetheDemand,"HE

Solutions,!! (11): 40-43.

and Trading
Davis, Donald(1995), "Stateof a New Art:Manu&cturers
13 (8): 2-10.
Partners
Learnas TheyGo,"Manufacturing
Systems,
theSupplyChainUsingReal-Time
Hadavi,K. Cyrus(1996)., Tightening
APICS ThePerformance
Information,"
Advantage,
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Business
Hardie,Bruce(1997), "Who BenefitsFromPricePromotions?"
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Grocer,
Mathews,
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Monczka,RobertM. andJimMorgan(1997), "What'sWrongWithSupply
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Quina,FrancisJ.(1997),"What'stheBuzz?"LogisticsManagement,
43-47.

AUTHORBIOGRAPHY
in theDwightLode
Distribution
ofIndustrial
J.Vokurka
is an assistant
Robert
(Ph.D.,TexasA&M University)
professainindustry.
He
andDivision
Controller
ofPlantManager
atTexasA&MUniversity.
Heheldpositions
CollegeofEngineering
Production
andInventory
Journal
intheJournal
International
has published
ofForecasting,
ofOperations
Management,
include
distribution
interests
Hisresearch
andproceedings.
as wellas other
strategies,
supply
Journal,
Management
journals
chainmanagement,
andmanufacturing
flexibility.

AUTHORBIOOGRAPHY
Missouri
State
atCentral
ofOperations
R. Lummus
ofIowa)is anassociate
Rhonda
Management
(Ph.D.,University
professandJITprograms.
Shehaspublished
MRPsystems
ShespentIS yearsinindustry
andcoordinating
University.
implementing
and
Production
intheJournal
articles
International
Journal
Management,
ofServiceOperations
ofOperations
Management,
a research
funded
Shehasrecently
Journal
andinother
andproceedings.
completed
grant
by
Inventory
Management
journals
ChainManagement.
APICSonSupply

50

Journal
THEORYANDPRACTICE
ofMarketing

This content downloaded from 94.200.175.246 on Sat, 16 Aug 2014 14:28:06 UTC
All use subject to JSTOR Terms and Conditions