SUPPLY CHAIN MANAGEMENT: An Organizational Competency INTRODUCTION TO THE COURSE ...

SUPPLY CHAIN MANAGEMENT:

An Organizational Competency

INTRODUCTION TO THE COURSE

http://awhitebread.ba.ttu.edualan.whitebread@ttu.edu

ALAN L. WHITEBREAD

IB 3353

• Learning and doing in a business environment – always prepared!

• 4 TESTS • EXERCISES / HOMEWORK

• No make-up tests! No extra credit!

COURSE STRUCTURE

• Business environment• Read ahead to prepare for class everyday• Attend class AND take good notes• Analyze, create, learn, understand, and

apply [versus memorize]• Form opinions based on facts and analysis• Participate

– Some in-class activities– Your comments and questions

KEY LEARNING OUTCOMES• Understand 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, and

– marketing 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.

YOUR CAREER SUCCESS DEPENDS ON being

• INDIVIDUAL & TEAM SUCCESS

• ON TIME

• UNDER BUDGET

• ABOVE PLAN

• NO EXCUSES

• EVERY TIME!

LEARNING OUTCOMES AND YOUR CAREER SUCCESS

• Begin to understand the many forces that cause changes to marketing programs around the world.

– Culture

– Business practices and legal systems

– Governmental issues and procedures

SUPPLY CHAIN MANAGEMENT

SECTION 1Understanding the Market – Supply Chain Relationship

1 – UNDERSTANDING AND CREATING VALUE

ALAN L. WHITEBREAD

KEY LEARNING OUTCOMES• Understand 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, and

– marketing 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.

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,

BUSINESS ENVIRONMENT

Regulatory compliance and corporate governanceEthical, government

Risk ManagementCustomer, planning, quality, research, supplier, systems

Human Resource DevelopmentStaffing and compensation

Education and skill development: change, education, professional development, team

Information TechnologyKnowledge Management, MRP/ERP, JIT

Sourcing Inventory & Logistics Customer Relationships

Supplier Relationships Payments Order fulfillment

Procurement

FIRMS USING SUPPLY CHAIN MANAGEMENT

The Aromatics (Thailand) Public Co. Ltd.

plus every other company, governmental agency, and organization.

SUPPLY CHAIN MANAGEMENT

MARKETSConsumers:CustomersProspectsSuspects

FOCAL FIRMNEW PRODUCT DEVELOPMENT

Mining companies – Manufacturers – Suppliers – Assemblers – Services

Resellers of all kinds or final

purchasers

Final purchasers of Resellers

SUPPLY CHAINS ARE INTERDEPENDENT

MARKETConsumers:CustomersProspectsSuspects

CUSTOMERS

SUPPLIERS’SUPPLIERS

If 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.

MAJOR BENEFITS OF SCM

• is 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.

MAJOR BENEFITS OF SCM

• are 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.

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?

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?

DEMAND PULLS ALL PRODUCT!

Suppliers

Manufacturers

Warehouses or Distribution

Centers Resellers

B2B or B2C Consumers

B2C

B2B

Planning 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.

B2C is business-to-consumer. B2B is business-to-business.

EMPOWERED CUSTOMERS

• Customers have quick access to extensive product and pricing information.

• Consumers are increasingly demanding –

• Consumers are demanding more and better services.

•

CREATING CUSTOMER VALUE

Benefits

Quality

Cost

Flexibility

Delivery

Innovation

These 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.

• Benefits are the reason we buy everything!

• Benefits– May be – Must be – Must always

• Delivering meaningful benefits and exceeding customer expectations are the keys to customer satisfaction in every step of the supply chain.

QUALITY TO THE END-USER

• David Garvin identifies the following factors that comprise quality.

1. of the products2. of the products

-

3. of the products4. Conformance to standards and specifications5. Durability of the products6. Serviceability of the products

-

7. Aesthetics of the products-

8. Perceived quality of the products

ADDITIONAL ASPECTS OF QUALITY

• • • • Service level• • Product Flexibility• Delivery•

QUALITY: MANUFACTURING• Productivity

– Improve current processes– Develop innovative processes

• Strategic locations– If 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

QUALITY: DESIGN AND SPECIFICATIONS

• Design to meet• Design to meet• Design for• Exceed standards organizations specifications

QUALITY: PROCESSES

• Works right the first time and every time!

• – A batch lot sampling approach to quality [percent

defective]– At a customer specified level– Standards might include

• Mil-Std-105E; ANSI/ASQC Z1.4-1993 and 2003; ISO 2859-1 [1999]

– It is frequently found in• food, pharmaceutical, medical device, communications,

apparel, software, and many more industries.

QUALITY: PROCESSES

• are 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

QUALITY: PROCESSES

• – A statistical approach to quality– It is frequently found in

• communications, financial services, healthcare, many manufacturing firms, and others.

• Supplier rating / categorization– Suppliers are rated / categorized and each

supplier level has its minimum requirements– Ship-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.

QUALITY: SERVICE

• Exceeding 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!

QUALITY: COST

• Continuous improvement drives process efficiency!

• The International Metric is Landed cost [LC]

LC = Standard Cost + Transportation1 +

Insurance + Duties + Other Fees

1 Inland location to outbound port + port fees + transportation to inbound port + port fees

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

QUALITY: DELIVERY

• • Correct products shipped• Correct quantities [exact amounts, no partial orders

unless requested by the customer]• Correct • Correct order

• An automotive supplier may be required to provide parts for the truck in the order they need to go to the assembly line.

QUALITY: INNOVATION

• – Suppliers can provide excellent advice. Get them

involved early and you may get a nice surprise.

• Joint teams with hand-picked members from each entity address– – Design

• – Process improvement– Cost reduction– Major opportunities or problems

CUSTOMER SATISFACTION …

1. 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; and

2. It depends on understanding customer needs and wants then providing solutions with meaningful benefits, and

3. It must become deeply ingrained into the corporate culture.

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.

THE VALUE OF CUSTOMER SATISFACTION

• SCENARIO 1– Benefits greatly exceed expectations = Very satisfied

customer• Customer is loyalty and recommending

• SCENARIO 2– Benefits exceed expectations = Satisfied customer

• Customer is less loyal, provides a weak if any recommendation

THE VALUE OF CUSTOMER SATISFACTION

• SCENARIO 3– Benefits meet expectations = customer is indifferent

• Customer is neutral, not recommending you

• SCENARIO 4– Benefits are below expectations = Dissatisfied customer

• Customer is not loyal, not recommending you

• SCENARIO 5– Benefits are far below expectations = Very dissatisfied

• Customer will not purchase from you again. Customer shares their bad experience others.

CUSTOMER SATISFACTION

• Metrics – ways to measure customer satisfaction – Percent on-time delivery– Percent of order complete – Percent defective products– Speed of response

• Product / service gaps– What products / services are we missing?

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 asks – What are the real needs of our

• customers?• customer’s customers?• ultimate end-use customers?

– What • information must be shared, and• capabilities developed, through the supply chain to meet

these needs?– How can we improve the overall supply chain’s

customer fulfillment capabilities?

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.

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 for– understanding the needs of market segments,– – developing market segment profiles,– – determining an effective marketing mix, and–

CUSTOMER ANALYSIS

• To 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?

• • • …•

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 tier– For 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.

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!

CUSTOMER SEGMENTATION

• As you do your customer segmentation make sure you also define expected service levels. – Examples of things to consider could include

• Communications: frequency, levels, …• Role of teams• Information systems• Processes

– ?

EVALUATING CUSTOMERS• What 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!

CUSTOMER SERVICE GAPS

• Our 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 in– Speed of response– Quality of response– Not delivering as promised– Poor or untimely information flow– ?

MARKETING DEGREE:Emphasis in Supply Chain Management

• MKT 3353 Supply Chain Management• MKT 4358 International Marketing• MKT 4370 Logistics Management• MKT 4371 Logistics Analytical Methods• IB 4361 International Commerce

See my website for the brochure or your advisor for degree plan information.

http://awhitebread.ba.ttu.edu

SUPPLY CHAIN MANAGEMENTOnline/Distance Learning Course

SECTION 1Understanding the Market – Supply Chain Relationship

2 – THE SUPPLY CHAIN: AN OVERVIEW

ALAN L. WHITEBREAD

THE FIRM’S ENVIRONMENTS

- Competitive

- Cultural

- Economic

- Legal

- Political

-Corporate culture

- Functional and cross-functional relationships

- Reward systems

- Strategic priorities

- Comparative advantages

-Core competencies

- Overall competitiveness [key success factors]

SUPPLY CHAIN MANAGEMENT

FIRM’SENVIRONMENT

MARKET POSITION

STRUCTURE &OPERATIONS

[SCM]

THE PROCESS IS SOUND.

THAT IS WHY WE USE CONTINGENCY THEORY.

CONTINGENCY THEORY

• Contingency 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 …–

TREE DIAGRAM

Underdeveloped Nations:

Poorly educated

Lack of water

Lack of food

Very poor infrastructure

…

Rapid increase in population

Normal increase in population

What will they do?

?

What will they buy?

?

SUPPLY CHAIN MANAGEMENT

• requires – a 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.

SUPPLY CHAIN MANAGEMENT

MARKETS

Consumers:CustomersProspectsSuspects

CUSTOMERS

SUPPLY CHAIN MANAGEMENT

Entities and their Roles

PLUS – Information Requirements – Flows and Processes – Repelling Competitive Thrusts – Building Relationships

SUPPLIER’SSUPPLIERS

FOCAL FIRM

CUSTOMERSSUPPLIERSCUSTOMER’S CUSTOMERS

THE SUPPLY CHAIN AT WORK: A product flow view

STEEL

COMPANY

3RD TIER

STEEL

UPSTREAM

SUPPLIER

2ND TIER

FASTENERS

DIRECT

SUPPLIER

1ST TIERManage all other tiers.

RADIATORS

FORD, GM

CHRYSLER

FOCAL FIRM

VEHICLES

DEALERS

RENTAL

AGENCIESFLEETS

SPECIAL

VEHICLES

CONSUMERSBUSINESSES

CONSUMERS

SCM:

• INFORMATION– Market research

– Supplier research

– Process or system research

– Technology research

SCM: PULL AND PUSH INFORMATION

SUPPLIERS

FOCAL FIRM

CUSTOMERS

SUPPLIERS

RESELLERSCUSTOMERSFOCAL

FIRM

Suppliers accessing Wal-Mart’s store data.

Toyota suppliers advising deliveries will be short due to the earthquake.

SCM: FLOWS AND PROCESSES

• FLOWS AND PROCESSES– FLOWS

•

– PROCESS INTEGRATION• Suppliers

– Upstream

• Focal firm– Internal Integration

• Customers– Downstream

• Complete– End-to-End Integration

SCM: FLOWS AND PROCESSES

– MAJOR PROCESSES [SYSTEMS]• Suppliers

– Supplier relationship management

• Focal firm– Demand management

– Manufacturing flow» »

– Order fulfillment»

– Product development and commercialization

–

• Customers–

– Customer service»

SUPPLY CHAINS VS. VALUE CHAINS:AN HISTORICAL PERSPECTIVE

SUPPLY CHAIN

The connected set of all value-added business entities and flows that

perform or support the

logistics function

required for production.

Focus on upstream

supplier and producer

processes, efficiency,

and waste reduction.

LOGISTICS

All discrete and Interrelated activities

[regardless of ownership] that seek to enhance

firm performance

VALUE CREATION

in every single event,

process, and/or system

from raw materials

through

customer satisfaction.

Focus on downstream

value creation for the

customer

SUPPLY [VALUE] CHAIN SUPPORT ACTIVITIES

• Infrastructure

• Human resources

• Materials Management– Purchasing or procurement function

• Technology development

SUPPLY [VALUE] CHAIN:DIRECT ACTIVITIES

• Inbound logistics

• Operations

• Outbound logistics

• Marketing and Sales

• Customer Services

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].

EXTERNAL SUPPLY [VALUE] CHAINS

• CUSTOMERS

• SUPPLIERS

• MARKETS

• STAKEHOLDERS

SUPPLY CHAIN PRINCIPLES:

• MAXIMIZE VALUE AT EVERY OPPORTUNITY FOR ALL YOUR STAKEHOLDERS [PUBLICS].

VENDORS

INTERESTEDPARTIES

WHO ELSE?

SHAREHOLDERS

EMPLOYEES

CUSTOMERS

A SUPPLY CHAIN

• REPELLING COMPETITIVE THRUSTS– Market [segment] share

– Large customers

–

–

–

SUPPLY CHAIN PRINCIPLES:

• Builds relationships– Suppliers

– Focal firm stakeholders• Customers • Employees• Shareholders• Suppliers• Special interest groups• …

SUPPLY CHAIN MANAGEMENTOnline/Distance Learning Course

SECTION 1Understanding the Market – Supply Chain Relationship

3 – INFORMATION [research for the supply chain]

ALAN L. WHITEBREAD

WHAT ARE THE COMMON GOALS OF SUPPLY CHAIN MANAGERS?

• In rank order–

–

–

– Increase sales

– Get more value from current investments

– Reduce the amount of direct labor and material

– Migrate to a higher percentage of variable cost through outsourcing

SCM MANAGEMENT PROCESSES

1. Customer relationship management [CRM]2. Customer service3. Demand forecasting4. Inventory control5. Order fulfillment6. Manufacturing flow and scheduling7. New product development &

commercialization8. Procurement9. Returns – Rework – Replace - Disposal 10. Supplier interfaces

THE RESEARCH PROCESS

Co

llect data

Analyze thedata

Develop the research

plan

Present thefindings

INFORMATION

• What information do we need about our external environment?– Competitive

• Actions, new developments, new products, new entrants, …

– Legal• New laws, regulations, and procedures

– Cultural• How do we appear to be native to this culture?

– Economic• How well do we understand the impacts of economic

trends and cycles on our business[es]?

– Political

INFORMATION

• What information do we need about consumers [markets]?– Strategy analysis

– Market research• What are their needs?

– New / existing business analysis

– Market segmentation / share

– How do markets view our competitors and their offerings?

– ?

INFORMATION

• What information do we need about suppliers?– Capabilities

• Facilities, output, technological prowess, … ?

– Financial status and prospects [10K and 10Q]– Management team and style– How well do they comply with security needs?

– How well do they meet standards and compliance needs?

– What are there systems, processes, process flows, …

– ?

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 inventory

– Do we have an above average supplier management program?

– Do we have exceptional • market segmentation? • customer classifications?

– Have we implemented best practices throughout the organization?

– How do we expand and streamline global operations?– ?

INFORMATION

• What information do we need about our organization?– Are we prepared to handle emerging key issues?

• The rapidly rising cost of transportation• The falling or rising value of the dollar• Technology challenges

–

• The challenge of energy efficiency?• The challenge of becoming ecology friendly?• ?

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?

– ?

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?

– ?

SUPPLY CHAIN MANAGEMENT

SECTION 1Understanding the Market – Supply Chain Relationship

4 – MARKET DEFINITION, SEGMENTATION, AND TARGET MARKETING

ALAN L. WHITEBREAD

MARKET SEGMENTATION

• This 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.

MARKET SEGMENTATION- A SIX-STEP PROCESS -

MARKET SEGMENTATIONWhat 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.

MARKET SEGMENTATION: BASESMARKET SEGMENT AND TARGET MARKET

1+ CHILDREN

HISPANIC

AGES 25-34 HOUSEHOLD INCOME

OVER $50,000

TARGET

In 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]

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!

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.

CONSUMER MARKET SEGMENTATION METHODS – DEMOGRAPHIC [1]

REGION Great Lakes, Southwest, Mountain States, …

CITY SIZE Major metropolitan areas [SMSA], small cities [<100,000], …

DENSITY OF AREA Urban, suburban, exurban, rural

CLIMATE Temperate, hot, humid, rainy

“Lubbock’s leading radio station”

CONSUMER MARKET SEGMENTATION METHODS – DEMOGRAPHIC [2]

CULTURE American, Italian, Chinese, Mexican, …

RELIGION Catholic, Protestant, Jewish, Moslem, …

SUBCULTURE /

RACE / ETHNICITY

African-American, Caucasian, Asian, Hispanic, …

FAMILY LIFE CYCLE Bachelors, young married, empty nesters, …

GENDER Male, female

CONSUMER MARKET SEGMENTATION METHODS – DEMOGRAPHIC [3]

AGE Various age groups that match the Census Bureau categories

MARITAL STATUS Single, married, divorced, living together, widowed

INCOME Under $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 -

EDUCATION Some high school, high school graduate, some college, college graduate, postgraduate

OCCUPATION Professional, blue-collar, white-collar, agricultural, military [Be careful, subjective definitions like blue-collar can lead to problems.]

CONSUMER MARKET SEGMENTATION METHODS – PSYCHOGRAPHIC [1]

NEEDS-MOTIVATION Shelter, safety, security, affection, sense of self-worth

PERSONALITY Extroverts, novelty seeker, aggressives, low dogmatics

PERCEPTION Low-risk, moderate-risk, high-risk

LEARNING-INVOLVEMENT

Low-involvement, high-involvement

ATTITUDES Positive attitude, negative attitude

SOCIAL CLASS Lower, middle, upper, …

CONSUMER MARKET SEGMENTATION METHODS – PSYCHOGRAPHIC [2]

LIFESTYLE

SEGMENTATION

Economy-minded, couch potatoes, outdoors enthusiasts, status seekers, …

ATTITUDES, INTERESTS, & OPINIONS [AIO] for instance:

Spends 1+ hours per day on the Internet, heavy e-mail user

Buys on the Internet, goes to stores only as required

Professional, income above $75,000 per year

Belongs to multiple frequent traveler programs

The market profile should provide almost everyone that reads it a very similar picture of the people in this target market segment!

CONSUMER MARKET SEGMENTATION METHODS - BEHAVIORAL

USAGE, LOYALTY, INNOVATIVENESS

Frequent flyer programs

OCCASION Hallmark

U.S. CONSUMER COMMUNICATIONS MARKET SEGMENT PROFILES

1. 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]

2. Middle-aged, higher income, empty nester [no children at home], who talks a lot on the phone

3. Technology interested [extensive user of several communications modes], well educated, high discretionary income

You must define every term so there is a clear understanding of the profile!

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.

MARKET SEGMENTATION:FILLING THE GAPS

4

MARKETS / SEGMENTS

CHANNELS OF DISTRIBUTION

PRODUCTS

SERVICES

APPLICATIONS2

4

1

TWO LARGEST TARGET MARKET

SEGMENTS

3

In 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.

• MEASURABLE• Can I quantify the size of the market [segment]?

• ACCESSIBLE• Can I access the market [segment] with my current

channels of distribution?

• SUBSTANTIAL• Is the market [segment] large enough to be worthwhile?

• DIFFERENTIABLE• Can our products be clearly differentiated?

• ACTIONABLE• Does my company have the necessary staying power?

B2C TARGET MARKET SEGMENT CRITERIA: Kotler’s 5 tests

YOU ALWAYS NEED TO IDENTIFY A UNIQUE OR NEARLY UNIQUE RESPONSE / BEHAVIOR PATTERN FOR EVERY SEGMENT!

LEVELS OF MARKET SEGMENTATION

UNDIFFERENTIATED [MASS] MARKETING

The firm decides to ignore market segment differences.One marketing mix

Same product to all segmentsSalt Sugar Early Ford

DIFFERENTIATED [SEGMENTED] MARKETING

The firm decides to target several [large] market [s] segment[s] Each market or segment has a marketing mixDifferent products for each market segment

Proctor & Gamble detergents Current auto manufacturers

LEVELS OF MARKET SEGMENTATION

CONCENTRATED [NICHE] MARKETING

The firm decides to pursue a larger market share of selected [smaller] market segments, sub-segments, or niches

Different products to the [sub-]segmentsDifferent marketing mix for each segment or sub-segment

SUV’s standard to family to luxury

MICROMARKETING

Specialized products for individuals and locations

LOCAL MARKETING INDIVIDUAL MARKETING [Brands, promotions] [1:1 marketing]Local chain grocery stores Amazon, Dell

#2 – DIFFERENTIATED MARKETING

• A different marketing mix for each large segment.

– Marriott International [circa 2000]• Marriott Suites…………...Permanent vacationers• Fairfield Inn……………..……...Economy Lodging• Residence Inn………….……….....Extended Stay• Courtyard By Marriott………..Business Travelers

TRANSITIONED TO CONCENTRATED [NICHE] MARKETING [beginning in 2008 -13 brands]

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?

CHARACTERISTICS OF BUSINESS VERSUS CONSUMER MARKETS

BUSINESS MARKETS CONSUMER MARKETS

Market Structure

Geographically concentrated

Many types of markets [segments]

Fewer very-high volume buyers

Fluctuating, derived demand

Geographically dispersed

Mass markets

Small volumes

Primary demand

Products Standard / complex / custom

Service[s] etc. are critical

Business applications

Engineering / Quality / Testing involvement

Standard

Service etc. of some note

Personal use

No formal evaluation

Buyer Behavior

Professionally trained

Multiple levels involved

Performance hurdles

Individuals purchasing

Some family influence

Social / psychological drives

Buyer-Seller Relationships

Technical expertise

Close interpersonal relationships

Long-term focus

May be very dependent on each other

Amateur

Impersonal

Immediate / Short-term

CHARACTERISTICS OF BUSINESS VERSUS CONSUMER MARKETS

BUSINESS MARKETS CONSUMER MARKETS

Supply Chains / Channels of distribution

Predominant

Often shorter [more direct]

Not seen by consumer

Usually indirect

Promotion Often technical

Personal selling

Often involves resellers

Simple

Advertising

Price Professional negotiating / purchasing

Volume sensitive

Complex formalized process

Competitive bid / Many strategies

Individuals limited purchasing skill

Little, if any, leverage

Simple process

N/A

Demand Fluctuating, derived demand

Inelastic in the short-run

Volatile and discontinuous

Direct

Elastic

Limited volatility

THE ECONOMY AND NAICSEvery economy has a similar economic organizational structure.

Agriculture

Mining

Utilities

Construction

Manufacturing Wholesale

Retail

Transportation

Information Finance

Real Estate Professional

Management Administration

Entertainment Health

Education Accommodation

Other

Public Administration

SELLGROW, BUILD, OR MAKE SERVICE GOV’T

BUSINESS CLASSIFICATIONYou can find NAICS details at www.census.gov

• NORTH AMERICAN INDUSTRIAL CLASSFICATION SYSTEM [NAICS]– SUPPLY-ORIENTED SYSTEM– 20 SECTORS: 1,065 INDUSTRIES [in 2012]– Compatible with

• NAFTA: 5 DIGITS + 6TH FOR COUNTRY CODE• ISIC Rev. 3 [UN]

READING NAICS TABLES - PAGERS

• 51 Economic sector » Information

• 511 Economic sub-sector» Broadcasting and Telecommunications

• 5111 Industry group» Telecommunications

• 51111 Industry group» Wireless Telecommunications Carriers

• 511111 U. S. Industry specialized identification» Paging

TYPES OF MARKETS

• HORIZONTAL MARKET– Numerous NAICS codes define it.

• B2C – Inexpensive pens, pencils, pads of paper, …• B2B – floor sweeping compound

• VERTICAL MARKET– One or a few NAICS codes define it.– May be very profitable [niche]

• B2C – $1,000 fountain pen • B2B – CT scanner

Organizational Characteristics

-Industry-Size

-Channel-Operating characteristics

Organizational Characteristics

-Industry-Size

-Channel-Operating characteristics

Product[s] or Process[es] or

Technology[ies]-Level of technology

-Configuration-Design

Product[s] or Process[es] or

Technology[ies]-Level of technology

-Configuration-Design

Buying Approach-Centralization

-Functional involvement-Partnering

Buying Approach-Centralization

-Functional involvement-Partnering

Application[s]of Products / Services

-What are they used for?-How they are used?

Application[s]of Products / Services

-What are they used for?-How they are used?

BUSINESS SEGMENTATION VARIABLES

BUSINESS MARKET SEGMENTATION

• ORGANIZATIONAL CHARACTERISTICS– GEOGRAPHIC

• How can I sell my new pen to ALL 400,000 businesses in the Chicago area?

– DEMOGRAPHIC• How do I get my resume to all firms with 500 or more

employees?

INDUSTRY / INDUSTRY / INDUSTRY / INDUSTRY /SEGMENT NAME SEGMENT NAME SEGMENT NAME SEGMENT NAME

DESCRIPTION DESCRIPTION DESCRIPTION DESCRIPTIONNAIC(S) NAIC(S) NAIC(S) NAIC(S)

APPLICATION 1 PRODUCT 1 PRODUCT 2

APPLICATION 1 PRODUCT 1

PRODUCT 1 APPLICATION 1 APPLICATION 2 APPLICATION 3

Brief verbal descriptionMARKET (SEGMENT) NAME

BUSINESS MARKET SEGMENTATION MATRIX

You get the same result using products within applications or applications within products.

B2B TARGET MARKET SEGMENT CRITERIA

1. MEASURABLE– The degree to which you can measure buyer

characteristics

2. ACCESSIBLE– The ability to focus on target market segments

3. SUBSTANTIAL– The degree to which target market segments are large

enough and potentially profitable enough to pursue

B2B TARGET MARKET SEGMENT CRITERIA

4. COMPATIBLE -The extent to which marketing and business strengths

compare to current and expected competitive and technology states

5. RESPONSIVE-The extent to which target market segments respond to

elements of the marketing mix

POSITIONING: ESTABLISHING CUSTOMER VALUE

• POINTS OF PARITY [POP] AND POINTS OF DIFFERENCE [POD]

– RELEVANCE • It must be relevant and important.

– DISTINCTIVENESS• It must be distinctive – superior [actual or perceived] is

nice.

– BELIEVABILITY • It must be believable and credible.

STARBUCKS POP AND POD

COMPETITOR POParity PODifferenceFast food chains / convenience stores

Convenience

Value

Quality

Image

Experience

Variety

Supermarket brands for home

Convenience

Value

Quality

Image

Experience

Variety

Freshness

Local café Quality

Experience

Price

Community

Convenience

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 advertising

• COMPETITIVE FRAME OF REFERENCE– Comparative advertising– Negative advertising

COMMUNICATIONS MARKET EXERCISE

POINTS OF ANDROID IPHONE

…Parity

…DifferenceMust be relevant and distinctive and believable

…Contention

SUPPLY CHAIN MANAGEMENTOnline/Distance Learning Course

SECTION 1Understanding the Market – Supply Chain Relationship

5 – SYSTEMS THINKING AND SUPPLY CHAINS

ALAN L. WHITEBREAD

FUNCTIONAL ORGANIZATION THINKING AND GOALS

PURCHASING

Metrics: Standard cost [SC], PPV

PRODUCTION

Metrics: SC / volume / automation

MARKETING

Metrics: Average unit price [AUP]

LOGISTICS

Metrics: Inventory & transportation

SUPPLY CHAIN MANAGEMENT:PROCESS THINKING AND GOALS

• – aligns decisions with corporate strategy, and– coordinates actions across

• SCM 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.– – –

SYSTEMS THINKING

•

• Systems 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 Accuracy– Teamwork– Metrics– Systems Thinking

INFORMATION

– Bar Codes

– Radio Frequency Identification [RFID]

– Data Warehousing

– Data-Mining

– Materials Requirements Planning [MRP] or Enterprise Resource Planning [ERP]

TEAMWORK

• Hand-pick teams to accomplish specific objectives.– Process improvement– – Cost improvement–

• They may be– – –

METRICS

• With 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.

SYSTEMS THINKING

• Requires all firms and employees anywhere in the supply chain to understand their place in the larger chain.

• All entities must participate in– Establishing the core goal[s]– Defining systems and their boundaries– Determining the nature of the interrelationships– Determining the information requirements– Performing trade-off analysis– Evaluating and implementing system constraints

THE FIRM AS A VALUE-ADDED SYSTEM

• Everything the firm does must be focused on 1. increasing

2. building

3. strengthening

THE FIRM AS A VALUE-ADDED SYSTEM

– Core Competency •

– • The 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.

STRATEGIC DIRECTION OF THE FIRM[“THE CORE COMPETENCE OF THE CORPORATION” ARTICLE]

• CORE COMPETENCY – The 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

• –

• –

• –

KEY SUCCESS FACTORS

• NOT CORE COMPETENCIES

• YOU MUST DO BETTER ALL THE TIME TO

• Take 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 services– Design

SWOT ANALYSISYour firm and your major competitors

STRENGTHS

BUILD

Take advantage of the firm’s strengths

WEAKNESSES

CORRECT

Offset the firm’s weaknesses

OPPORTUNITIES

EXPLOIT

Use the firm’s strengths to offset competitive

threats

THREATS

AVOID

Counter threats

LEVERAGE

PROBLEMS

CONSTRAINTS VULNERABILITIES

IP

Low cost structure

Market position

Breadth of offering

Lack of management

talent

Weak finances

NPD

New markets, channels

Acquisitions

Rapidly changing

market

New entrants

Government regulations

SWOT:EXAMPLE QUESTIONS

• STRENGTH– What do we do better than others?

• WEAKNESS– Where has performance declined?

• OPPORTUNITY– What new trends [short-term and long-term] are

emerging?

• THREAT– Is a major technology change underway or expected in

the industry?

COMPETITIVE ADVANTAGE OF THE FIRM:PORTER’S THREE GENERIC STRATEGIES

Understanding and focus.

No direct battles with major competitors.

Examples = ?

OVERALL COST

LEADERSHIP

STRATEGYHard to maintain

long term.

Examples = ?

Focus on perceived

value.

Examples = ?

Low Cost PositionCustomer Perceived Uniqueness

STRATEGY AND SYSTEMS

FIRM’S

GOAL

→

INNOVATION

DELIVERY

FLEXIBILITY

QUALITY

COST LEADERSHIP

• Short concept-to-market cycle time [autos]

• Technological sophistication for advanced products [lasers]

• Unique service options

• On-time, exact quantity delivery

• Availability [inventory]

• High-quality products and/or services

• Customer responsiveness

• Optimize the cost–service level

• Beware of “the low cost producer” versus “among the lowest cost producers” position

STRATEGY AND SYSTEMS

FIRM’S

GOAL

→

INNOVATION

DELIVERY

FLEXIBILITY

QUALITY

COST LEADERSHIP

Identify and develop suppliers who will provide:

• Design expertise

• Technological support

• Flexibility to changes in specifications

• Ample process capabilities

Identify and develop suppliers who will provide:

• Rapid, consistent delivery

• Certified quality

• Full line availability

• Responsiveness

• Identify and develop suppliers who will provide:

• Productivity

• Low prices [quantity price discounts]

• Learning curve efficiencies

• Scale / scope economies

STRATEGY AND SYSTEMS

FIRM’S

GOAL

→

INNOVATION

DELIVERY

FLEXIBILITY

QUALITY

COST LEADERSHIP

• Work closely with R&D [concurrent engineering]

• Support process engineering

• Shop floor control —due-date performance

• Shorten cycle times

• Cross-train workers

• Extensive process control

• Reduce inventories

• Reduce inventories

• Increase repetitiveness

• Increase part commonality [modularity]

• Utilize low-cost labor

• Increase worker productivity

STRATEGY AND SYSTEMS

FIRM’S

GOAL

→

INNOVATION

DELIVERY

FLEXIBILITY

QUALITY

COST LEADERSHIP

• Utilize technology [bar codes, GPS; EDI, …]

• Automated picking/packing for customized services

• Use private fleet and/or dedicated contract carrier for on-time delivery

• Use IT to increase responsiveness [MRP or ERP]

• Implement comprehensive quality approach [AQL, Six Sigma, …]

• Negotiate low-cost transport [utilization, multiple car rates]

• Minimize inventory

• Centralize and/or coordinate decision making

PROCESS ENGINEERING

• is the design of business processes using a methodology to optimize each specific process.

PROCESS REENGINEERING

• is the of business processes using

DECISION MAKING AND UNCERTAINTY

• Economic Value Analysis – Requires 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.

EXPECTED VALUE EXAMPLE

You are deciding between two alternatives with the following payoffs, states of nature, and probabilities. Which alternative should you choose?

15,250 EV

00)(.20)(47,500)(.55)(15,0000)(.25)(-10, EV

17,825 EV

00)(.20)(28,500)(.55)(17,500)(.25)(10,0 EV

2

2

1

1

AlternativePoor Market

Good Market

Great Market

1 10,000 17,500 28,500

2 -10,000 15,000 47,500

Probability 25% 55% 20%

DECISION TREE EXAMPLE

Subsidiary purchases

Buy from U.S.

[10.00 landed cost]

Buy from qualified local

supplier

[9.80 delivered cost]

Manufacture the product

[9.60 cost]

Net cost

10.00 / 100% = 10.00

SUBSIDIARY PIECE PART PURCHASE OPTIONS

Net cost

9.80 / .96 = 10.21

Net cost

9.60 / .9 = 10.67

100%

96%

90%

PROCESS MAPS

• A 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

•

PROCESS MAP PROBLEM

Procurement Input

[materials]

Process

[manufacture]

Output

[finished goods]

Movement

[to warehouse]

Delay

[warehouse inventory]

Movement

[to customer]

Output

[customer receives finished goods]

Process mapping has its own set of diagram symbols.

SUPPLY CHAIN MAPS

• Help 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.

PIPELINE MAP EXAMPLE

Receive custom

er

specificatio

ns

Discuss final s

pecs with

custom

er

Machine custo

mer t

ooling

Test mold

Engineerin

g approves

mold

Make modifi

cations to

impro

ve pro

ductivity

Custom

er appro

ves

sample p

arts

Review customer

specifications

Design customer tooling

Add cooling lines

Make sample parts

Production sample run

Production approves mold

Production begins