Presentation on theme: "SUPPLY CHAIN MANAGEMENT:"— Presentation transcript:
1 SUPPLY CHAIN MANAGEMENT: An Organizational Competency INTRODUCTION TO THE COURSE ALAN L. WHITEBREAD
2 IB 3353Learning and doing in a business environment – always prepared!4 TESTSEXERCISES / HOMEWORKNo make-up tests! No extra credit!
3 COURSE STRUCTURE Business environment Read ahead to prepare for class everydayAttend class AND take good notesAnalyze, create, learn, understand, and apply [versus memorize]Form opinions based on facts and analysisParticipateSome in-class activitiesYour comments and questions
4 KEY LEARNING OUTCOMESUnderstand the four major basic parts of supply chain management.understanding markets and supply chains,supplier management and supplier relationships,the role of the focal firm, its strategy and systems, andmarketing channels of distribution and channel relationships .There are many concepts and theories that are relatively easy to understand at a high level but are very complex and difficult to implement.New product development [NPD] is critical to the continuing success of the firm and the role SCM has in the NPD cycle.
5 YOUR CAREER SUCCESS DEPENDS ON being INDIVIDUAL & TEAM SUCCESSON TIMEUNDER BUDGETABOVE PLANNO EXCUSESEVERY TIME!
6 LEARNING OUTCOMES AND YOUR CAREER SUCCESS Begin to understand the many forces that cause changes to marketing programs around the world.CultureBusiness practices and legal systemsGovernmental issues and procedures
7 SUPPLY CHAIN MANAGEMENT SECTION 1 Understanding the Market – Supply Chain Relationship 1 – UNDERSTANDING AND CREATING VALUE ALAN L. WHITEBREAD
8 KEY LEARNING OUTCOMESUnderstand the four major basic parts of supply chain management.understanding markets and supply chains,supplier management and supplier relationships,the role of the focal firm, its strategy and systems, andmarketing channels of distribution and channel relationships .There are many concepts and theories that are relatively easy to understand at a high level but are very complex and difficult to implement.New product development [NPD] is critical to the continuing success of the firm and the role SCM has in the NPD cycle.
9 WHAT IS SCM TODAY?It is the seamless end-to-end management of a complex set of decisions requiring the exchange and flow of information, products, services, and money.Simply put,
10 BUSINESS ENVIRONMENT Regulatory compliance and corporate governance Ethical, governmentRisk ManagementCustomer, planning, quality, research, supplier, systemsHuman Resource DevelopmentStaffing and compensationEducation and skill development: change, education, professional development, teamInformation TechnologyKnowledge Management, MRP/ERP, JITSourcingInventory & LogisticsCustomer RelationshipsSupplier RelationshipsPaymentsOrder fulfillmentProcurement
11 FIRMS USING SUPPLY CHAIN MANAGEMENT The Aromatics (Thailand) Public Co. Ltd.plus every other company, governmental agency, and organization.
12 SUPPLY CHAIN MANAGEMENT Mining companies – Manufacturers – Suppliers – Assemblers – ServicesResellers of all kinds or final purchasersFinal purchasers of ResellersMARKETSConsumers:CustomersProspectsSuspectsFOCAL FIRMNEW PRODUCT DEVELOPMENT
13 SUPPLY CHAINS ARE INTERDEPENDENT SUPPLIERS’SUPPLIERSMARKETConsumers:CustomersProspectsSuspectsCUSTOMERSIf you change one thing in a supply chain, you know that one or more other things will be affected. So you must make decisions for the good of the entire supply chain, not for a specific area.For instance, the system losses in all other areas may greatly exceed the benefit to the one area. This causes the supply chain to lose efficiency.
14 MAJOR BENEFITS OF SCMis due to the timely flow of information, products and services, and money.is driven by the focal firm’s specifications, and requirements for their suppliers.is a result from the close working relationships between your suppliers, your customers, and the focal firm.results from the improved customer and supplier responsiveness and faster NPD.
15 MAJOR BENEFITS OF SCMare driven throughout the system with critical systems like Total Quality Management [TQM].is required to minimize delays, inventory levels, and total cost structures.as you build closer and more effective relationships.From here on, the term products will mean products, and/or services, or any combination of products and services.
16 SUPPLY CHAIN SUCCESS: Some hard questions Who are we?How do or should we …Fit competitively?Understand customer behavior at all levels?Understand customer needs and wants?Understand which competencies, technologies, and processes are required?Understand the role of power in the supply chain?Gain a detailed understanding of costs from a simple operation through to total system cost?
17 FILLING THE GAPS When? Where? How many? In what mix? Delivered how? When is it made?Where?How many?How is it scheduled?How is it delivered?
18 DEMAND PULLS ALL PRODUCT! B2CB2BSuppliersManufacturersWarehouses or Distribution CentersB2C is business-to-consumer.B2B is business-to-business.ResellersB2B or B2C ConsumersPlanning and forecasting accuracy are critical as any delay in the system has a ripple effect! That ripple effect costs members time, money, and damaged relationships.
19 EMPOWERED CUSTOMERSCustomers have quick access to extensive product and pricing information.Consumers are increasingly demandingConsumers are demanding more and better services.
20 CREATING CUSTOMER VALUE BenefitsThese are some of the tools available to you to create and increase customer value. A great SCM system will strive to add value throughout the supply chain with everything it does.InnovationQualityDeliveryCostFlexibility
21 Benefits are the reason we buy everything! Benefits May beMust beMust alwaysDelivering meaningful benefits and exceeding customer expectations are the keys to customer satisfaction in every step of the supply chain.
22 QUALITY TO THE END-USER David Garvin identifies the following factors that comprise quality.of the products-Conformance to standards and specificationsDurability of the productsServiceability of the productsAesthetics of the productsPerceived quality of the products
23 ADDITIONAL ASPECTS OF QUALITY Service levelProduct FlexibilityDelivery
24 QUALITY: MANUFACTURING ProductivityImprove current processesDevelop innovative processesStrategic locationsIf you had a product that would be sold frequently to most adults in the U.S., how would you get enough inventory in the right places to service customer needs?How do the differences between a sophisticated and an unsophisticated product affect service levels of the locations?Supply chain management in place
25 QUALITY: DESIGN AND SPECIFICATIONS Design to meetDesign forExceed standards organizations specifications
26 QUALITY: PROCESSES Works right the first time and every time! A batch lot sampling approach to quality [percent defective]At a customer specified levelStandards might includeMil-Std-105E; ANSI/ASQC Z and 2003; ISO It is frequently found infood, pharmaceutical, medical device, communications, apparel, software, and many more industries.
27 QUALITY: PROCESSESare used when a process variable is counted rather than measured. Here’s how its done.Calculate the mean [average] for the variable.Calculate the standard deviation [σ ]for the variable.The control chart limits for an acceptable product = Mean ±σ
28 QUALITY: PROCESSES A statistical approach to quality It is frequently found incommunications, financial services, healthcare, many manufacturing firms, and others.Supplier rating / categorizationSuppliers are rated / categorized and each supplier level has its minimum requirementsShip-to-stock is generally the highest level of supplier. They will ship products in your packaging directly into your inventory for shipment to your customers.
29 QUALITY: SERVICEExceeding service expectations is the key to value realization. Value realization is the customer perception of your worth versus your cost.You purchased something for its perceived benefits.It performed better than expected.It was a better value than you initially thought.What are you likely to do?Service must be seamless for the customer!
30 QUALITY: COST Continuous improvement drives process efficiency! The International Metric is Landed cost [LC]LC = Standard Cost + Transportation1 +Insurance + Duties + Other Fees1 Inland location to outbound port + port fees + transportation to inbound port + port fees
31 QUALITY: FLEXIBILITY The outstanding firm has these characteristics. Change is embraced and indigenous to all processes.Any process can always be improved.It can easily handle shorter lead times, special requests, unexpected events, and varying quality specifications.It employs sophisticated information systems and highly developed processes are in place.The thrust of the organization is to
32 QUALITY: DELIVERY Correct products shipped Correct quantities [exact amounts, no partial orders unless requested by the customer]CorrectCorrect orderAn automotive supplier may be required to provide parts for the truck in the order they need to go to the assembly line.
33 QUALITY: INNOVATIONSuppliers can provide excellent advice. Get them involved early and you may get a nice surprise.Joint teams with hand-picked members from each entity addressDesignProcess improvementCost reductionMajor opportunities or problems
34 CUSTOMER SATISFACTION … is based on the perceived benefits, the performance of the product and/or service, and the quality of the organization[s] that support it relative to customer expectations; andIt depends on understanding customer needs and wants then providing solutions with meaningful benefits, andIt must become deeply ingrained into the corporate culture.
35 CUSTOMER SATISFACTION AND EXPECTATIONS Customer expectations must be managed so benefits always exceed them! Overcommitting only leads to disappointment and customer dissatisfaction.Customer expectations are the bases for customers measuring their satisfaction.Increased customer satisfaction leads to increased brand loyalty.
36 THE VALUE OF CUSTOMER SATISFACTION SCENARIO 1Benefits greatly exceed expectations = Very satisfied customerCustomer is loyalty and recommendingSCENARIO 2Benefits exceed expectations = Satisfied customerCustomer is less loyal, provides a weak if any recommendation
37 THE VALUE OF CUSTOMER SATISFACTION SCENARIO 3Benefits meet expectations = customer is indifferentCustomer is neutral, not recommending youSCENARIO 4Benefits are below expectations = Dissatisfied customerCustomer is not loyal, not recommending youSCENARIO 5Benefits are far below expectations = Very dissatisfiedCustomer will not purchase from you again. Customer shares their bad experience others.
38 CUSTOMER SATISFACTION Metrics – ways to measure customer satisfactionPercent on-time deliveryPercent of order completePercent defective productsSpeed of responseProduct / service gapsWhat products / services are we missing?
39 CUSTOMER-CENTRIC STRATEGY All supply chain activities are a result of a customer buying or wanting to buy a product and/or service.A customer-centric strategy asksWhat are the real needs of ourcustomers?customer’s customers?ultimate end-use customers?Whatinformation must be shared, andcapabilities developed, through the supply chain to meet these needs?How can we improve the overall supply chain’s customer fulfillment capabilities?
40 CUSTOMER-CENTRIC STRATEGY A firm likely has different customer segments with different service expectations within a target market segment.In addition to customer segments, very large accounts are likely to have specific individual service requirements.
41 MARKET SEGMENTATION AND CUSTOMER-CENTRIC STRATEGY Market segmentation is the identification of unique groups or sets of customers and prospects who possess similar characteristics or needs.Market segmentation is the basis forunderstanding the needs of market segments,developing market segment profiles,determining an effective marketing mix, and
42 CUSTOMER ANALYSISTo complete a thorough customer analysis, you need to be able to answer these questions.What do each of our tiers of customers need to succeed?…
43 CUSTOMER SEGMENTATION Your customer analysis by tiers from the previous slide may provide some interesting insights.You may also need to analyze customer types within tierFor example, if a tier is B2B distributors it would be best to understand their needs by type of business they are in like electrical, MRO, medical, etc. They are likely to have some important differences.
44 CUSTOMER SEGMENTATION Types of customers within tiers“20% of your customers provide 80% of your sales” – but you have the ability to manage the mix.“A” customers are the largest and should receive the best service.“B” customers are the next largest and should receive sufficient service to grow.“C” customers are the smallest and should be serviced with a minimum of resources [transactional accounts]. Possible candidates for direct marketing activities.Just make sure your customers are never told they are a “B” or a “C” customer!
45 CUSTOMER SEGMENTATION As you do your customer segmentation make sure you also define expected service levels.Examples of things to consider could includeCommunications: frequency, levels, …Role of teamsInformation systemsProcesses?
46 EVALUATING CUSTOMERSWhat are the best measures for evaluating customers for our firm?Net sales, profits, growth prospects, …, ?What tools can we use to measure this?Ties specific costs directly to the customers that create them.Used to identify the profitability of a business relationship.Customer Relationship Management [CRM]Used to create customer profiles that capture buying habits and determine customer profitability.Many firms have a lot of work to do to incorporate relationships and tie this to an efficient direct marketing campaign.These must be balanced with customer opportunity for growth in revenue and profit!
47 CUSTOMER SERVICE GAPSOur customers continually evaluate us and we must exceed their expectations in all areas to not suffer from a customer service gap.Customer service gaps can exist inSpeed of responseQuality of responseNot delivering as promisedPoor or untimely information flow?
48 MARKETING DEGREE: Emphasis in Supply Chain Management MKT 3353 Supply Chain ManagementMKT 4358 International MarketingMKT 4370 Logistics ManagementMKT 4371 Logistics Analytical MethodsIB 4361 International CommerceSee my website for the brochure or your advisor for degree plan information.
49 SUPPLY CHAIN MANAGEMENT Online/Distance Learning Course SECTION 1 Understanding the Market – Supply Chain Relationship 2 – THE SUPPLY CHAIN: AN OVERVIEW ALAN L. WHITEBREAD
50 THE FIRM’S ENVIRONMENTS CompetitiveCulturalEconomicLegalPoliticalCorporate cultureFunctional and cross-functional relationshipsReward systemsStrategic prioritiesComparative advantagesCore competenciesOverall competitiveness [key success factors]
51 SUPPLY CHAIN MANAGEMENT FIRM’SENVIRONMENTMARKET POSITIONSTRUCTURE &OPERATIONS[SCM]THE PROCESS IS SOUND.THAT IS WHY WE USE CONTINGENCY THEORY.
52 CONTINGENCY THEORYContingency theory sets the framework to evaluate alternatives using scenario planning.Every good executive and manager is continually aligning the firm’s resources to take advantage of opportunities in the marketplace.The central question a supply chain manager must continually answer is …
53 TREE DIAGRAM What will they do? ? What will they buy? Underdeveloped Nations:Poorly educatedLack of waterLack of foodVery poor infrastructure…Rapid increase in populationNormal increase in population
54 SUPPLY CHAIN MANAGEMENT requiresa common understanding by all entities [levels or tiers] of supply chain objectives;an understanding of all individual entity roles;the ability to work together across entities, functions, and levels of responsibility;the flexibility to adapt in a timely manner to various or unpredictable situations, and,the desire to create and deliver products and services that provide excellent customer value.
56 SUPPLY CHAIN MANAGEMENT Entities and their RolesPLUS – Information Requirements – Flows and Processes – Repelling Competitive Thrusts – Building RelationshipsSUPPLIER’SSUPPLIERSSUPPLIERSFOCAL FIRMCUSTOMERSCUSTOMER’S CUSTOMERS
57 THE SUPPLY CHAIN AT WORK: A product flow view STEELCOMPANY3RD TIERUPSTREAMSUPPLIER2ND TIERFASTENERSDIRECTSUPPLIER1ST TIERManage all other tiers.RADIATORSFORD, GMCHRYSLERFOCAL FIRMVEHICLESDEALERSRENTALAGENCIESCONSUMERSBUSINESSESCONSUMERSFLEETSSPECIALVEHICLES
58 SCM: INFORMATION Market research Supplier research Process or system researchTechnology research
59 SCM: PULL AND PUSH INFORMATION FOCAL FIRMSUPPLIERSCUSTOMERSSuppliers accessing Wal-Mart’s store data.FOCALFIRMRESELLERSCUSTOMERSSUPPLIERSToyota suppliers advising deliveries will be short due to the earthquake.
60 SCM: FLOWS AND PROCESSES PROCESS INTEGRATIONSuppliersUpstreamFocal firmInternal IntegrationCustomersDownstreamCompleteEnd-to-End Integration
61 SCM: FLOWS AND PROCESSES MAJOR PROCESSES [SYSTEMS]SuppliersSupplier relationship managementFocal firmDemand managementManufacturing flowOrder fulfillmentProduct development and commercializationCustomersCustomer service
62 SUPPLY CHAINS VS. VALUE CHAINS: AN HISTORICAL PERSPECTIVE The connected set of allvalue-added businessentities and flows thatperform or support thelogistics functionrequired for production.Focus on upstreamsupplier and producerprocesses, efficiency,and waste reduction.LOGISTICSAll discrete andInterrelated activities[regardless of ownership]that seek to enhancefirm performanceVALUE CREATIONin every single event,process, and/or systemfrom raw materialsthroughcustomer satisfaction.Focus on downstreamvalue creation for thecustomer
63 SUPPLY [VALUE] CHAIN SUPPORT ACTIVITIES InfrastructureHuman resourcesMaterials ManagementPurchasing or procurement functionTechnology development
64 SUPPLY [VALUE] CHAIN: DIRECT ACTIVITIES Inbound logisticsOperationsOutbound logisticsMarketing and SalesCustomer Services
65 SUPPLY [VALUE] CHAIN GOAL To combine the support and direct activities to create the greatest value as perceived by the target market[s] segment[s].
70 SUPPLY CHAIN MANAGEMENT Online/Distance Learning Course SECTION 1 Understanding the Market – Supply Chain Relationship 3 – INFORMATION [research for the supply chain] ALAN L. WHITEBREAD
71 WHAT ARE THE COMMON GOALS OF SUPPLY CHAIN MANAGERS? In rank orderIncrease salesGet more value from current investmentsReduce the amount of direct labor and materialMigrate to a higher percentage of variable cost through outsourcing
73 THE RESEARCH PROCESS Develop the Collect data research plan Present thefindingsAnalyze thedata
74 INFORMATIONWhat information do we need about our external environment?CompetitiveActions, new developments, new products, new entrants, …LegalNew laws, regulations, and proceduresCulturalHow do we appear to be native to this culture?EconomicHow well do we understand the impacts of economic trends and cycles on our business[es]?Political
75 INFORMATION What information do we need about consumers [markets]? Strategy analysisMarket researchWhat are their needs?New / existing business analysisMarket segmentation / shareHow do markets view our competitors and their offerings??
76 INFORMATION What information do we need about suppliers? Capabilities Facilities, output, technological prowess, … ?Financial status and prospects [10K and 10Q]Management team and styleHow well do they comply with security needs?How well do they meet standards and compliance needs?What are there systems, processes, process flows, …?
77 INFORMATION What information do we need about our organization? Competitively speaking, how do we fare technologically?Are processes and procedures as efficient as they can be?Inventory management and live inventoryDo we have an above average supplier management program?Do we have exceptionalmarket segmentation?customer classifications?Have we implemented best practices throughout the organization?How do we expand and streamline global operations??
78 INFORMATION What information do we need about our organization? Are we prepared to handle emerging key issues?The rapidly rising cost of transportationThe falling or rising value of the dollarTechnology challengesThe challenge of energy efficiency?The challenge of becoming ecology friendly??
79 INFORMATION What information do we need about our How do they want to purchase?What are they really good at?How good is our reseller selection process?What do they need to become better??
80 INFORMATION What information do we need about our How do they use our products?What are their attitudes about …?What do they like most about us?Where do they perceive product and/or service gaps??
81 SUPPLY CHAIN MANAGEMENT SECTION 1 Understanding the Market – Supply Chain Relationship 4 – MARKET DEFINITION, SEGMENTATION, AND TARGET MARKETING ALAN L. WHITEBREAD
82 MARKET SEGMENTATIONThis is a multi-step process that must be done in a sequence of six steps.It groups people or entities by their most important attributes.It should determine unique [preferably] or nearly unique segments where each segment will have its own behavior pattern.
83 MARKET SEGMENTATION - A SIX-STEP PROCESS - What are the attributes with minimal overlap?1-Identify the bases for selection.[Why are you splitting it this way?]2-Develop a detailed market segment profile for each one.[Clearly identify attributes of each segment.]MARKET TARGETINGWhich segments do we want to pursue?3-Select and develop measures of target market attractiveness.4-Select the best target market segments to pursue.MARKET POSITIONINGHow do we want to be perceived?5-Develop a market position for every target market segment.6-Develop the marketing mix for every target market segment.
84 MARKET SEGMENTATION: BASES MARKET SEGMENT AND TARGET MARKET 1+ CHILDRENHISPANICAGES 25-34HOUSEHOLD INCOMEOVER $50,000TARGETIn this example, the key attributes are Hispanic, ages 25-34, with household income over $50,000 per year having one or more children. The target market segment is the intersection of all four attributes. It is the small colored area named TARGET.[Oxford - MacDonald - video]
85 MARKET SEGMENTATION - DEVELOP ATTRACTIVENESS MEASURES - WHY IS MARKET SEGMENTATION WORTH DOING?It provides for very targeted communications.It helps you provide products that fulfill needs and wants.It allows you to respond to changing markets and conditions.It makes your marketing more efficient.BUT, IF THE MARKET SEGMENTATION IS WRONG, LITTLE SEEMS TO WORK WELL AFTERWARD!
86 MARKET SEGMENTATION Multiple market segments When a firm uses the market segment approach it usually has between three and eight market segments.Market segments that are not nearly unique result in lack of brand loyalty and consumers being less brand loyal [cannibalization]. Venn diagram explanation.From 2009 to 2011 P&G is reducing the number of detergent segments in the U.S. from 13 to 6.Remember - the number of market segments is a function of your market segmentation, not some arbitrary range. The more segments you have the more complex and expensive the marketing effort is likely to be.
87 CONSUMER MARKET SEGMENTATION METHODS – DEMOGRAPHIC  REGIONGreat Lakes, Southwest, Mountain States, …CITY SIZEMajor metropolitan areas [SMSA], small cities [<100,000], …DENSITY OF AREAUrban, suburban, exurban, ruralCLIMATETemperate, hot, humid, rainy“Lubbock’s leading radio station”
89 CONSUMER MARKET SEGMENTATION METHODS – DEMOGRAPHIC  AGEVarious age groups that match the Census Bureau categoriesMARITAL STATUSSingle, married, divorced, living together, widowedINCOMEUnder $25,000, $25,000-$34,999, $35,000-$49,999, $50,000-$74,999, $75,000-$99,000, $100,000 and over- Census Bureau has more detail -EDUCATIONSome high school, high school graduate, some college, college graduate, postgraduateOCCUPATIONProfessional, blue-collar, white-collar, agricultural, military [Be careful, subjective definitions like blue-collar can lead to problems.]
91 CONSUMER MARKET SEGMENTATION METHODS – PSYCHOGRAPHIC  LIFESTYLESEGMENTATIONEconomy-minded, couch potatoes, outdoors enthusiasts, status seekers, …ATTITUDES, INTERESTS, & OPINIONS [AIO] for instance:Spends 1+ hours per day on the Internet, heavy userBuys on the Internet, goes to stores only as requiredProfessional, income above $75,000 per yearBelongs to multiple frequent traveler programsThe market profile should provide almost everyone that reads it a very similar picture of the people in this target market segment!
93 U.S. CONSUMER COMMUNICATIONS MARKET SEGMENT PROFILES Older [define age range [45+]], low communicator [define [<1 hour per day on the phone]], low income [define range or maximum [$15,000-30,000 per year]Middle-aged, higher income, empty nester [no children at home], who talks a lot on the phoneTechnology interested [extensive user of several communications modes], well educated, high discretionary incomeYou must define every term so there is a clear understanding of the profile!
94 B2C EXPECTED BUYER BEHAVIOR Exercise:Describe the expected buyer behavior profile of the market for any current product.Use key items like demographics, psychographics, purchasing patterns, quantity, the marketing mix, classification of your product, and other relevant items to generally describe how consumers would purchase this item.ON YOUR OWN: Develop a buyer behavior profile for college students purchasing pens for class use.
95 MARKET SEGMENTATION: FILLING THE GAPS MARKETS / SEGMENTSCHANNELS OF DISTRIBUTIONPRODUCTSSERVICESAPPLICATIONS241TWO LARGEST TARGET MARKET SEGMENTS34In this example, you have to decide which target market segments are good for your firm. #1 needs a channel of distribution you are either not in or have a very weak position. That is very hard to do. #2 and #4 are nice size. A large firm will attack #2, but #1, #3, and #4 may be too small to be of interest. #3 is the hardest of all because it has channel and product mix issues.
96 B2C TARGET MARKET SEGMENT CRITERIA: Kotler’s 5 tests MEASURABLECan I quantify the size of the market [segment]?ACCESSIBLECan I access the market [segment] with my current channels of distribution?SUBSTANTIALIs the market [segment] large enough to be worthwhile?DIFFERENTIABLECan our products be clearly differentiated?ACTIONABLEDoes my company have the necessary staying power?YOU ALWAYS NEED TO IDENTIFY A UNIQUE OR NEARLY UNIQUE RESPONSE / BEHAVIOR PATTERN FOR EVERY SEGMENT!
97 LEVELS OF MARKET SEGMENTATION UNDIFFERENTIATED [MASS] MARKETINGThe firm decides to ignore market segment differences.One marketing mixSame product to all segmentsSalt Sugar Early FordDIFFERENTIATED [SEGMENTED] MARKETINGThe firm decides to target several [large] market [s] segment[s]Each market or segment has a marketing mixDifferent products for each market segmentProctor & Gamble detergents Current auto manufacturers
98 LEVELS OF MARKET SEGMENTATION CONCENTRATED [NICHE] MARKETINGThe firm decides to pursue a larger market share of selected [smaller]market segments, sub-segments, or nichesDifferent products to the [sub-]segmentsDifferent marketing mix for each segment or sub-segmentSUV’s standard to family to luxuryMICROMARKETINGSpecialized products for individuals and locationsLOCAL MARKETING INDIVIDUAL MARKETING[Brands, promotions] [1:1 marketing]Local chain grocery stores Amazon, Dell
99 #2 – DIFFERENTIATED MARKETING A different marketing mix for each large segment.Marriott International [circa 2000]Marriott Suites…………...Permanent vacationersFairfield Inn……………..……...Economy LodgingResidence Inn………….……….....Extended StayCourtyard By Marriott………..Business TravelersTRANSITIONED TO CONCENTRATED [NICHE] MARKETING [beginning in brands]
100 MARKET TARGETING: CHOOSING A MARKET-COVERAGE STRATEGY Some questions about key factors to consider when deciding on a market-coverage strategy include the following.What are the available company resources?How much market variability exists?What is the product’s life cycle stage?How much product variability exists?What is the typical behavior of the competition and their actions/strategies?
101 CHARACTERISTICS OF BUSINESS VERSUS CONSUMER MARKETS BUSINESS MARKETSCONSUMER MARKETSMarket StructureGeographically concentratedMany types of markets [segments]Fewer very-high volume buyersFluctuating, derived demandGeographically dispersedMass marketsSmall volumesPrimary demandProductsStandard / complex / customService[s] etc. are criticalBusiness applicationsEngineering / Quality / Testing involvementStandardService etc. of some notePersonal useNo formal evaluationBuyer BehaviorProfessionally trainedMultiple levels involvedPerformance hurdlesIndividuals purchasingSome family influenceSocial / psychological drivesBuyer-Seller RelationshipsTechnical expertiseClose interpersonal relationshipsLong-term focusMay be very dependent on each otherAmateurImpersonalImmediate / Short-term
102 CHARACTERISTICS OF BUSINESS VERSUS CONSUMER MARKETS BUSINESS MARKETSCONSUMER MARKETSSupply Chains / Channels of distributionPredominantOften shorter [more direct]Not seen by consumerUsually indirectPromotionOften technicalPersonal sellingOften involves resellersSimpleAdvertisingPriceProfessional negotiating / purchasingVolume sensitiveComplex formalized processCompetitive bid / Many strategiesIndividuals limited purchasing skillLittle, if any, leverageSimple processN/ADemandFluctuating, derived demandInelastic in the short-runVolatile and discontinuousDirectElasticLimited volatility
103 THE ECONOMY AND NAICS Every economy has a similar economic organizational structure. GROW, BUILD, OR MAKESELLSERVICEGOV’TAgricultureMiningUtilitiesConstructionManufacturingWholesaleRetailTransportationInformation FinanceReal Estate ProfessionalManagement AdministrationEntertainment HealthEducation AccommodationOtherPublic Administration
104 BUSINESS CLASSIFICATION You can find NAICS details at www.census.gov NORTH AMERICAN INDUSTRIAL CLASSFICATION SYSTEM [NAICS]SUPPLY-ORIENTED SYSTEM20 SECTORS: 1,065 INDUSTRIES [in 2012]Compatible withNAFTA: 5 DIGITS + 6TH FOR COUNTRY CODEISIC Rev. 3 [UN]
105 READING NAICS TABLES - PAGERS Economic sectorInformationEconomic sub-sectorBroadcasting and TelecommunicationsIndustry groupTelecommunicationsIndustry groupWireless Telecommunications CarriersU. S. Industry specialized identificationPaging
106 TYPES OF MARKETS HORIZONTAL MARKET VERTICAL MARKET Numerous NAICS codes define it.B2C – Inexpensive pens, pencils, pads of paper, …B2B – floor sweeping compoundVERTICAL MARKETOne or a few NAICS codes define it.May be very profitable [niche]B2C – $1,000 fountain penB2B – CT scanner
107 BUSINESS SEGMENTATION VARIABLES Organizational Characteristics-Industry-Size-Channel-Operating characteristicsBuying Approach-Centralization-Functional involvement-PartneringProduct[s] or Process[es] or Technology[ies]-Level of technology-Configuration-DesignApplication[s]of Products / Services-What are they used for?-How they are used?
108 BUSINESS MARKET SEGMENTATION ORGANIZATIONAL CHARACTERISTICSGEOGRAPHICHow can I sell my new pen to ALL 400,000 businesses in the Chicago area?DEMOGRAPHICHow do I get my resume to all firms with 500 or more employees?
109 BUSINESS MARKET SEGMENTATION MATRIX You get the same result using products within applications or applications within products.
110 B2B TARGET MARKET SEGMENT CRITERIA MEASURABLEThe degree to which you can measure buyer characteristicsACCESSIBLEThe ability to focus on target market segmentsSUBSTANTIALThe degree to which target market segments are large enough and potentially profitable enough to pursue
111 B2B TARGET MARKET SEGMENT CRITERIA COMPATIBLE-The extent to which marketing and business strengths compare to current and expected competitive and technology statesRESPONSIVE-The extent to which target market segments respond to elements of the marketing mix
112 POSITIONING: ESTABLISHING CUSTOMER VALUE POINTS OF PARITY [POP] AND POINTS OF DIFFERENCE [POD]RELEVANCEIt must be relevant and important.DISTINCTIVENESSIt must be distinctive – superior [actual or perceived] is nice.BELIEVABILITYIt must be believable and credible.
113 STARBUCKS POP AND POD COMPETITOR POParity PODifference Fast food chains / convenience storesConvenienceValueQualityImageExperienceVarietySupermarket brands for homeFreshnessLocal caféPriceCommunity
114 POSITIONING: ESTABLISHING CUSTOMER VALUE POINTS OF CONTENTION [POC]Elements where there is disagreement as to how its performance or functionality compares to the next best alternative.Seen in comparison or negative advertisingCOMPETITIVE FRAME OF REFERENCEComparative advertisingNegative advertising
115 COMMUNICATIONS MARKET EXERCISE POINTS OFANDROIDIPHONE…Parity…DifferenceMust be relevant and distinctive and believable…Contention
116 SUPPLY CHAIN MANAGEMENT Online/Distance Learning Course SECTION 1 Understanding the Market – Supply Chain Relationship 5 – SYSTEMS THINKING AND SUPPLY CHAINS ALAN L. WHITEBREAD
117 FUNCTIONAL ORGANIZATION THINKING AND GOALS PURCHASINGMetrics: Standard cost [SC], PPVPRODUCTIONMetrics: SC / volume / automationMARKETINGMetrics: Average unit price [AUP]LOGISTICSMetrics: Inventory & transportation
118 SUPPLY CHAIN MANAGEMENT: PROCESS THINKING AND GOALS aligns decisions with corporate strategy, andcoordinates actions acrossSCM is the maximization of value at every opportunity from supplier’s supplier to the customer’s customer.SCM requires a process thinking approach that consists of sets of value-added flows and activities in three areas.
119 SYSTEMS THINKINGSystems thinking is the holistic process of simultaneously considering both the immediate outcomes and the longer-term system-wide ramifications of decisions.It requires:Information Availability and AccuracyTeamworkMetricsSystems Thinking
120 INFORMATION Bar Codes Radio Frequency Identification [RFID] Data WarehousingData-MiningMaterials Requirements Planning [MRP] or Enterprise Resource Planning [ERP]
121 TEAMWORK Hand-pick teams to accomplish specific objectives. Process improvementCost improvementThey may be
122 METRICSWith a systems thinking approach we must be able to quantitatively measure changes in processes as well as the impact of any single change or set of changes on the total system.
123 SYSTEMS THINKINGRequires all firms and employees anywhere in the supply chain to understand their place in the larger chain.All entities must participate inEstablishing the core goal[s]Defining systems and their boundariesDetermining the nature of the interrelationshipsDetermining the information requirementsPerforming trade-off analysisEvaluating and implementing system constraints
124 THE FIRM AS A VALUE-ADDED SYSTEM Everything the firm does must be focused onincreasingbuildingstrengthening
125 THE FIRM AS A VALUE-ADDED SYSTEM Core CompetencyThe skills and processes that together seek to deliver customer value at least equal to the most direct competitor.The total value that the firm promises to deliver to the customer.
126 STRATEGIC DIRECTION OF THE FIRM [“THE CORE COMPETENCE OF THE CORPORATION” ARTICLE] CORE COMPETENCYThe foundations [ ] upon which you build your business over a very long time. You need to compare your core competencies with those of your competitors.THREE CORE COMPETENCY TESTS–
127 KEY SUCCESS FACTORS NOT CORE COMPETENCIES YOU MUST DO BETTER ALL THE TIME TOTake a few moments now and apply the core competency tests to the following and see why they usually fail one or more of the tests.Customer servicesDesign
128 SWOT ANALYSIS Your firm and your major competitors IP Low cost structureMarket positionSTRENGTHSBUILDTake advantage of the firm’s strengthsOPPORTUNITIESEXPLOITUse the firm’s strengths to offset competitive threatsNPDNew markets, channelsAcquisitionsLEVERAGECONSTRAINTSVULNERABILITIESBreadth of offeringLack of management talentWeak financesWEAKNESSESCORRECTOffset the firm’s weaknessesTHREATSAVOIDCounter threatsRapidly changing marketNew entrantsGovernment regulationsPROBLEMS
129 SWOT: EXAMPLE QUESTIONS STRENGTHWhat do we do better than others?WEAKNESSWhere has performance declined?OPPORTUNITYWhat new trends [short-term and long-term] are emerging?THREATIs a major technology change underway or expected in the industry?
130 COMPETITIVE ADVANTAGE OF THE FIRM: PORTER’S THREE GENERIC STRATEGIES Customer Perceived UniquenessLow Cost PositionFocus on perceived value.Examples = ?OVERALL COSTLEADERSHIPSTRATEGYHard to maintainlong term.Examples = ?Understanding and focus.No direct battles with major competitors.Examples = ?
131 STRATEGY AND SYSTEMS FIRM’S GOAL → DELIVERY COST LEADERSHIP INNOVATIONDELIVERYFLEXIBILITYQUALITYCOST LEADERSHIPShort concept-to-market cycle time [autos]Technological sophistication for advanced products [lasers]Unique service optionsOn-time, exact quantity deliveryAvailability [inventory]High-quality products and/or servicesCustomer responsivenessOptimize the cost–service levelBeware of “the low cost producer” versus “among the lowest cost producers” position
132 STRATEGY AND SYSTEMS FIRM’S GOAL → DELIVERY COST LEADERSHIP INNOVATIONDELIVERYFLEXIBILITYQUALITYCOST LEADERSHIPIdentify and develop suppliers who will provide:Design expertiseTechnological supportFlexibility to changes in specificationsAmple process capabilitiesRapid, consistent deliveryCertified qualityFull line availabilityResponsivenessProductivityLow prices [quantity price discounts]Learning curve efficienciesScale / scope economies
133 STRATEGY AND SYSTEMS FIRM’S GOAL → DELIVERY COST LEADERSHIP INNOVATIONDELIVERYFLEXIBILITYQUALITYCOST LEADERSHIPWork closely with R&D [concurrent engineering]Support process engineeringShop floor control —due-date performanceShorten cycle timesCross-train workersExtensive process controlReduce inventoriesIncrease repetitivenessIncrease part commonality [modularity]Utilize low-cost laborIncrease worker productivity
134 STRATEGY AND SYSTEMS FIRM’S GOAL → DELIVERY COST LEADERSHIP INNOVATIONDELIVERYFLEXIBILITYQUALITYCOST LEADERSHIPUtilize technology [bar codes, GPS; EDI, …]Automated picking/packing for customized servicesUse private fleet and/or dedicated contract carrier for on-time deliveryUse IT to increase responsiveness [MRP or ERP]Implement comprehensive quality approach [AQL, Six Sigma, …]Negotiate low-cost transport [utilization, multiple car rates]Minimize inventoryCentralize and/or coordinate decision making
135 PROCESS REENGINEERING PROCESS ENGINEERINGis the design of business processes using a methodology to optimize each specific process.PROCESS REENGINEERINGis the of business processes using
136 DECISION MAKING AND UNCERTAINTY Economic Value AnalysisRequires you to have outcome steps and a probability estimate for each outcome step.The Expected Value [EV] is the sum of the probability of an outcome [Pn] times the value [Vn] of that outcome.
137 EXPECTED VALUE EXAMPLE You are deciding between two alternatives with the following payoffs, states of nature, and probabilities. Which alternative should you choose?AlternativePoor MarketGood MarketGreat Market110,00017,50028,5002-10,00015,00047,500Probability25%55%20%
138 DECISION TREE EXAMPLE SUBSIDIARY PIECE PART PURCHASE OPTIONS Net cost 100%Net cost10.00 / 100% = 10.00Buy from U.S.[10.00 landed cost]96%Net cost9.80 / .96 = 10.21Buy from qualified local supplier[9.80 delivered cost]Subsidiary purchases90%Manufacture the product[9.60 cost]Net cost9.60 / .9 = 10.67
139 PROCESS MAPSA process is any activity that transforms an input set into an output set.A process map is a visual representation that shows all steps in the correct sequence that is required to transform an input set into an output set.A process map should show
140 PROCESS MAP PROBLEMProcurementInput[materials]Process[manufacture]Output[finished goods]Output[customer receives finished goods]Movement[to customer]Delay[warehouse inventory]Movement[to warehouse]Process mapping has its own set of diagram symbols.
141 SUPPLY CHAIN MAPSHelp to identify major linkages and bottleneck areas with customers and key suppliers.Tools like a pipeline map may identify unnecessary complexity or steps, thereby leading to improvements in efficiency of the supply chain.
142 PIPELINE MAP EXAMPLE Receive customer specifications Discuss final specs with customerEngineering approves moldMake modifications to improve productivityCustomer approves sample partsMachine customer toolingTest moldReview customer specificationsDesign customer toolingAdd cooling linesMake sample partsProduction sample runProduction approves moldProduction begins