Demand Chain Management: The Other Side of Supply Chain Management. Abstract

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1 Demand Chain Management: The Other Side of Supply Chain Management Dr. Ungul Laptaned Logistics Engineering Department, School of Engineering, The University of the Thai Chamber of Commerce Vibhavadee-Rangsit Road, Dindaeng, Bangkok, 10400, Thailand Tel: , Fax: , Abstract Nowadays, supply chain management (SCM) has become very well-known and applicable in logistics and supply chain communities. This style of management has found to continuously substitute, so called, purchasing management which has been found in many private sectors. Nonetheless, the other side of supply chain that has been overlooked is Demand Chain Management. Practically, demand chain involves distribution, marketing/sales in which it is found at downstream of the supply chain. Management of demand chain is anticipated to be as critical as the management of supply chain. For demand management, the objective is to match demand to available capacity, either by improving production scheduling, curtailing demand, using a back-order system, or increasing capacity. This paper illustrates the idea of how demand chain can be effectively and efficiently managed in parallel to the need of SCM. A model of both components will be fully developed that is made to illustrate how to actively balance the management of demand chain (downstream) and supply chain (upstream). It is expected that the model could make it desirable for business organizations to give attention to their own operations, immediate suppliers, and distribution and sales strategies. Key Words: Supply Chain, Demand Chain, Logistics Introduction A concept of supply chain management has been widely used in many sectors that is found to be very crucial to stimulate economy growth and maintain business competitiveness. Supply is a quantity of goods or services that organizations or any agent want to sell at a given price, keeping other variables to be constant [4]. Supply Chain Management (SCM) was gradually developed from logistics management and operations management, respectively, as well as an era of industrial revolution. In supply chain, there are two management points of view that are included: supply management and demand management. There two viewpoints need to be horizontally integrated with a smooth flow of information and materials. A management of supply includes any activities at upstream of the supply chain such as purchasing management, supplier management, etc. Supply management is crucial as an instrument to increased flow of materials; thereby reducing unnecessary costs due to selective raw materials with good quality or low price. In contrary, demand perspective has its aim at matching customer demand to available capacity. In order to match both sides, it must be done by improving production scheduling and curtailing demand, using a back-order system, and increasing 181

2 capacity. A management of demand involves the representation a quantity of goods or services demanded by households at a given price, keeping other variables to be constant [4]. Demand side has involved its chain that encompasses the marketing, sales, and services end along with distribution networks. Demand chain management (DCM) may take the core values of customer relationship management (CRM) strategy to a new level by applying new e-commerce technologies that are rapidly overtaking today business world [6]. This newly integrated approach can link up marketing with other business areas (i.e., sales, service, finance, supply chain and channel and partner organizationsoperations function). The ultimate objective of unison is for optimized performance and results. Therefore, this paper attempts to define a new theory and propose a new model of DCM so that it could be used as a basis for developing DCM performance measurement to be used in future research methodology. Review of Literature In 2000, Huang adopted DCM solutions for refocusing on the demand side so that the flow of finished goods can be optimized and market demand can be transferred back into the supply chain. He also examined the various intersections of supply and demand and the emerging class of software that serves the functional requirements for demandbased management. It was suggested that DCM could offer an opportunity but the costbenefit of implementing components of a DCM solution still varies greatly. Golan published an article in DCM of a simple overview of the four steps required for a successful demand-chain management implementation in 2001; including planning, integrating data, analyzing data, and executing new business models. Golan addressed that the methods for incorporating demand-chain management may vary from industry to industry. Systematically, DCM delivers on its promise to ensure profitability while optimizing the lifetime value customers receive from their relationship with a company. It was proposed that DCM provides a framework for continually gathering important data, storing it in one central environment, analyzing it and acting on it in ways that ensure profitability. Furthermore, William, et al. (2002) had researched into companies on how to satisfy both supply chain efficiency and customer satisfaction by studying Nokia which is in a fast paced industry. The research found that good relationship with customers translated into better quality information, higher efficiency and generate higher customer satisfactions which in turn generate better relationships with customers [8]. The implication of this research was that a successful DCM required tailoring according to needs, situations and developed the process backwards with customers at the beginning of the process in DCM. The paper also identified the need to reduce on the lead time prior to any demand chain strategy. Additionally, Marketsoft proposed an idea and model of DCM in 2005 that forms within the value chain. Demand chain of Marketsoft includes marketing, sales, service, and customer; whereas supply chain includes inbound logistics, operations, and outbound logistics. Marketsoft s model recommends the processes that are used to accurately measure and evaluate end results, therefore future performance could be improved. However, marketing must be integrated with business functions across the extended 182

3 enterprise. This occurs through a closed-loop process that plans and executes marketing initiatives and qualifies and capitalizes on the opportunities they yield [7]. Concept of Demand Chain Management Demand chain is practically positioned opposite to supply chain, which involves distribution, marketing, sale, service in which it is found at downstream of the supply chain. Both demand chain and supply chain are a component of value chain that is a systematized way of transforming raw materials through value-adding stage to be finished products being sold to customers. A concept of DCM can be referred to as information systems that provide direct input to the supply chain to optimize sales channel performance. This concept is thought to allow businesses to respond to customers in a personalized manner with employing personalized response mechanism. Management of demand chain is anticipated to be as critical as the management of supply chain. For demand management, the objective is to match demand to available capacity. Therefore, it is crucial to pay close attention to demand side in parallel to the attention to supply side. In order to fulfill such requirement, this study proposes and develops a new model to support a theory of DCM, and illustrates interaction between individual organizations. A process of developing, rationale behind, and explanation of the components on the model are also described. Proposed Model of Demand Chain Management This section covers a proposed model of DCM. In an attempt to define a new theory of DCM, it is essential to develop some models that can support the validation of the theory presented. The aims of the model are: 1) to present an overview of previous suggestions regarding the relationship between organizations and functions through successive value-adding of a complete product delivered to customers; 2) to provide a basis for developing DCM performance measurement and to direct topics for empirical study within future research. This model was derived by considering previous independent models of the value chain, supply chain and demand chain management. When developing this model, a number of research sources were reviewed such as the DCM model developed by Marketsoft (2005) or the DCM theory proposed by Huang (2000), Golan (2001), and William, et al. (2002). Figure 1 shows the logic of the process of development. The process started from a concept based on previous models and identified the partners of the value chain (i.e., customer, marketing, sale, service, distributor, wholesaler, or retailer). 183

4 Figure 1 Development of the Proposed DCM Model The first version of this model was derived from the review of literature (see Figure 2). The main components were theorized to be supply chain that gears the collaboration of the organizations in demand chain. It is necessary to clarify any reasons of why the partners in the DCM Model have been chosen and established. Two categories that are assumed to divide all organizations/partners in the model: business organizations and service providers. The business organizations represent sale agent or channel partners, forecasting facilitator, marketing groups, financial analyst, and customer service representative. Secondly, service providers are the key partners who help manufacturers to fulfill customer demand and allow organizations to gain competitive advantage. Most importantly, the model includes a concept of CRM, JIT, responsiveness, and Advanced Planning and Scheduling System (APS) enabling organizations to manage and shape customer demand based on supply. Connectivity of information among individual firm is made through the use of Electronic Data Interchange (EDI) in forms of either web or Value Added Network (VAN). It also can be connected through extended Enterprise Resource Planning (ERP) system that is referred to as a collaboration system of different stand alone systems. This system is utilized in cooperation with E-business and E- commerce. With the implementation of this multi-module application software, external and internal business activities could be efficiently and effectively integrated; thereby enhancing management of demand chain. 184

5 Supply Chain VAN EDI/Web EDI/Extended ERP/APS CRM JIT/TQM/Responsiveness/APS Sale/ Forecasting Customer Demand Finance Inventory/ Warehouse Distribution Center Marketing Service Production Wholesaler Retailer Figure 2 Proposed Model of Demand Chain Management Implementing the Model into Practices Implementing the proposed DCM model can identify the need to improve demand chain performance of a firm in such as way as the model provides an overview concept of demand chain. The DCM model has been rarely identified and developed, compared to the popular SCM model. In fact, SCM is thought to envelop a scope extended from supplier to production; whereas such concept that is recently used has expanded to cover demand side. This research hypothesizes that both aspects should be indicated on value chain which is a concept described aforementioned. Thereby, considering this model needs a comprehension of SCM before integrating into the DCM model presented in this study. By applying this model into practices such as manufacturing or service organizations, it is anticipated that all business partners could understand their relationship that is made across the extended enterprise. Summary The theory and model presented here is expected to offer an overview of management solution in demand chain. The DCM model provides a simple framework for an understanding of the relationship of partners or organizations, in forms of directional flow within the value chain. This model is designed to extend traditional CRM and ERP systems, and can be used as a basis for management of customer relationship 185

6 (i.e., order management, order promising, demand forecasting, pricing optimization). It is expected that the model could make it desirable for business organizations to give attention to their own operations, immediate suppliers, and distribution and sales strategies. This model could enable organizations to measure and improve effectiveness and concurrently coordinates their attempts in-between and cross-functionally enterprises. References [1] Blanchard, B. S. (2004). Logistics Engineering and Management. Upper Saddle River, NJ: Pearson Education, Inc. (ISBN: ). [2] Bowersox, D. J., Closs, D. J., & Cooper, M. B. (2003). Supply Chain Logistics Management. Singapore: McGraw-Hill Companies. (ISBN: ). [3] Golan, D. (2001). Demand Chain Management, DM Review Magazine [On-Line] Available: [4] Harnhirun, S. (1999). Principle of Demand and Supply. University of the Thai Chamber of Commerce, Bangkok, Thailand. [5] Huang, K. (2000). Companies will continue to optimize only the key demand chain processes within their immediate control. [On-Line] Available: isourceonline.com/article.asp?article_id=3223. [6] Information Management Associates, Inc. (1999). Demand Chain Management Solutions Providers, London, England, UK. [7] Marketsoft (2005). Demand Chain Management. [On-Line] Available: [8] Williams, T., Maull, R., & Ellis B (2002). Demand chain management theory: constraints and development from global aerospace supply webs, Journal of Operations Management, Vol 20 (6) pp [9] Winer, R. S. (2004). Marketing Management. Upper Saddle River, NJ: Pearson Education, Inc. (ISBN: ). [10] Wisner, J. D., Leong, G. K., & Tan, KC. (2005). Principles of Supply Chain Management: Proceedings A Balanced of the Approach. 6 th Asia Pacific Mason, Industrial Engineering OH: Thomson and Management Learning. Conference, Author Bibliographies Dr. Ungul Laptaned is a head department of Logistics Engineering department, School of Engineering, University of the Thai Chamber of Commerce. He graduated a Ph.D. in Manufacturing Engineering and Operations Management from the University of Nottingham, United Kingdom. 186

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