Anatomy of a demand chain.

chain 

This is a far longer post than normal, motivated by some very sensible feedback from the previous post. Bear with me.

The “tools” that add value to management of any supply chain, playing a role in the transformation into a demand chain  are relatively simple to list, but extremely difficult to implement.

I have seen, and worked with many over the years, largely based in agriculture, but the lessons are widely applicable.

The difficulty of implementation is why there are so few successful agricultural demand chains, but those that are in place, at least the ones I am aware of, deliver enormous long term value.

In addition, the classification of something as a “tool” usually creates debate, as it can also be an “outcome” of a successful initiative.

For example,   is the “Shakedowns” brand of baby carrots from Bolthouse Farms in the US  a marketing tool, or an outcome of a successful marketing and demand chain initiative? Truth is, that it is both, but the debate can become excited.

Following are what I see as the six key components that are the characteristic foundations of successful initiatives, but having them in place is not a panacea, as like any tool, the use remains in the hands of people of varying skill, motivation, and outlook.

  • Appropriate scale, and the supporting processes to manage that scale. The scale and supporting processes needed to be successful in the local growers market are very different to those necessary to be successful in Woolworths, Tesco, or a major food service distributor.  It is not just a matter of size, it is largely a matter of alignment. At one extreme we have  growers market customers, who value product provenance to the point of wanting to communicate with the grower personally,  and to know all about a particular piece of produce, and price is not all that relevant, so long as it delivers value. At the other end by contrast, a supermarket customer is way more focused on price, availability and convenience.  To be successful with a supermarket chain, you need:
    • Working capital reserves, as the margins are thin and payment terms long.
    • Data capability. Supermarkets are run by data, and category management, and not having the capability is as good as going to a shootout with a penknife.
    • Low cost. A necessity if you are to survive the pressure on operating margin, and marketing investment necessary to combat increasing penetration of housebranded substitutes.
    • Operational scale to be able to service a chain nationally, or at least throughout a state.

None of these factors matter a whit in the local farmers market.

  • Chain Transparency. Transparency drives accountability, surfaces market and improvement opportunities to every point in the chain.  Of increasing importance, transparency also delivers product provenance.  This is critical in a farmers market, and branding initiative, and rapidly becoming a marketing tool in supermarkets, but more importantly, is a critical component of controlling a chain. Without transparency, you cannot have control beyond your immediate domain, and thanks to the net there are now fine tools available to suit every situation, the standard setter being an Australian home grown product offered by GFA .

 

  • Collaborative structures and processes. Arbitrage margins are made possible in a supply chain by a combination of lack of transparency and a culture resulting from the old way of “information is power”. This dying a difficult death, but dying it is as  the communication tools now available provide the opportunity to collaborate as never before, and as a result the nature of organizations is evolving rapidly.  A great example is the wool supply chain, 2 years from sheeps back to a consumer article, a production process that involves at least 7 product transformations which are typically highly  competitive, and involve inventory, risk, and time, all of which add substantial cost. A collaborative structure that creates a forum of all the chain players can cut that time, risk, and cash tied up by a factor of 2/3. The poster boy in Australia is Woolconnect, a collaboration all the way through the chain that delivers product from farm to the consumer in 4 months. This did not come about easily, or quickly, but as a result of the vision and determination of a few people over 15 years.

 

  • Contract capable. Customers need certainty, they need to be able to rely on undertakings given, and part of that is a single contract capable party with whom you do business. In simpler times, a handshake was sufficient, and as relationships evolve, it sometimes evolves back to that level, but for the most part, certainty involves a contract. Weather that is with an individual, Pty Ltd company, a co-operative or public company is not relevant, it is simply an agreement with consequences.

 

  • Business model.  Success requires the combination of a sustainable commercial business model with an attractive value proposition to the end user, and all points in the value chain. The “business model” represents the combination of all the points where costs and revenues are generated through the chain, mixed with where and how “value” is created. “Value” is the key component in a business model, often missed with traditional thinking. The business model also incorporates a capability to balance supply and demand transparently through the whole chain, not just at any individual point in the chain. Amazon creates value not only by selling books cheaply, but by having an inventory hundreds of times bigger than any bookstore, and offering a crowd sourced rating system. What they cannot offer is the personal and often emotional experience some have with browsing in a good bookstore. The supply chain models and resulting business models are very different quantitatively, and they create value in a different manner. I suspect there are enough bibliophiles for bookshops to survive and prosper against Amazon, but they will no longer be in every shopping location as we have been used to, and will not be a shop-front for recent releases and best sellers, but will be something entirely different. 

 

  • Marketing. There are as many definitions of marketing as there are consultants and academics. Mostly they talk about the “4 P’s” the mediums for communication, the need to focus, but my take is both simpler, and more strategic. To me, marketing is all about the definition, building, leveraging and protection of competitive advantage. The way enterprises go about this task is almost infinitely varied, and over the last few years has become increasingly fragmented and confused. However, really good marketing always has a simple, clear articulation of a value proposition that motivates action.

 

You got this far, well done.

Perhaps it should be an e-book, as there is plenty more to say.

 

 

 

About strategyaudit

StrategyAudit is a boutique strategy and marketing consultancy concentrating on the challenges of the medium sized manufacturing businesses that make up the backbone of our economy. The particular focus is on their strategic and marketing development. as well as the business and operational efficiency improvements necessary for day to day commercial survival. We not only give advice, we go down "into the weeds" to ensure and enable implementation.
This entry was posted in Collaboration, Demand chains, Marketing, retail, Strategy and tagged , , , , , , , , , , , , . Bookmark the permalink.

4 Responses to Anatomy of a demand chain.

  1. Pingback: Consumers and FMCG retail control | StrategyAudit

  2. Pingback: Give Charman Stone a medal. | StrategyAudit

  3. Pingback: Customer driven demand chain rebirth | StrategyAudit

  4. Pingback: 3 foundations of demand chain success | StrategyAudit

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s