Why integration creates value
It is very important to realize that customers have at least 3 perspectives of value so when the firm’s decision makers realize and understand well all of those values they design the firm’s strategy according to meet the customer’s perspective.
We can divide the customer’s perspective of values into 3 factors:
- The traditional perspective: is an economic value that builds on an economy of scale and this economy of scale could be in operations as the source of efficiency, the economy of scale pursues to gain the benefits from fully utilizing fixed assets to attain the lowest total landed cost the main concentration of the economic value lies on the efficiency of the creativity of product/ service, and the economic value considered as the factor which seeks to doing the jobs as well as possible. And the customer always searching for products and services that are high quality at a reasonable price.
2. Market value: The customer’s takeaway in terms of market value is convenient product/service assortment and choice. Realization of economic value and market value are the criteria which very important to customers. However, firms are recognizing that’s the way to business success but also should depend on the following point.
3. Relevancy value is considered as the third perspective, relevancy value involves the customization of value-adding services or the customization of the product itself according to different locations and different customer’s appeals and demands, relevancy value means the right product /service as reflected by the market value at the right price as reflected by economic value In a consumer context for example, relevancy means transforming ingredients into ready-to-eat meals. In general merchandise retailing, relevancy means transforming products into fashionable apparel. When integrating particular components into the product to increase functionality, which is desired by customers, which results in relevancy value is achieved within the manufacturing and assembly stage. Customers need unique products & services that are addressed especially to them, and then the relevancy value is reached. To achieve economic value, market value, and relevancy, the integration of the overall business process is required, and this is known as the integrative management proposition.
More strategic integration between marketing and supply chain management,
A network business model has developed over the last 3 decades, which means the firms have moved from a hierarchal and vertically integrated shape to more closer, even virtual network of partnership with key suppliers (Christopher and Ju ̈ttner, 2000). According to this concept, the network is considered a series of nodes, which connected through links. So it’s critical and really important to manage those links through an effective integration between partners within the supply chain network to ensure the sustainability and firm’s competitive advantage. The network is viable to expand so if the network fails to act in a concert for whatever reason the potential risk for the focal firm could be in consideration (Ponomarov and Holcomb, 2009). Within the network business model the integration of the strategic decisions is something important but to integrate the network from the customer end to the supplier end is something very complicated so the strategic integration between marketing strategies and supply chain strategies is highly required. As the marketing strategies focus on the decisions associated to customer demands, market segmentation, distribution, and the marketing mix 4 p’s “product place, price, promotion” strategies (e.g. Kotler and Armstrong, 2007).
Supply chain management includes a focal firm behavioral orientation toward collaborative partners within the supply chain network as well as it also involves the process configurations across the key supply chain process (e.g. Green et al., 2006; Tokman et al., 2007). Supply chain strategies are also concerned with optimizing across organizational activities which rely on a close relationship with a high degree of interactions and integrations with marketing and sales.
The marketing strategies should be infused across organizational business processes to transform the customer perspective within the supply chain network.
On this topic, the researcher wants to mention that the interface between marketing and supply chain management results in mutual benefits to both fields through close alignment, according to this point many researchers such as (Martin and Grabc 2003) suggest that supply chain management leverage marketing strategies as well as the firm’s market orientation also it could ease and support the marketing strategy in global supply chain contexts and it has a significant positive effect on increasing customer value ( Flintand Mentzer 2004), many studies such as (Green et al,2006) suggest that firm’s supply chain strategy has a positive effect on marketing orientation such as mediate the relationship between market orientation and financial issues that lead to marketing success. A lot of studies such as (Min and mentzer 200) discussed some of the key theoretical concepts of marketing and supply chain management and concluded the following (marketing concepts, market orientation, and relationship marketing are considered factors that are inextricably linked with supply chain management. at the operational level, also the studies investigate the impact of marketing activities within the supply chain management.
The interface between marketing and supply chain management can be discussed through three different perspectives (inter-functional perspective & process perspective & integrating business concepts perspective.)
A) Inter-functional perspective:
Inter-functional perspective is considered the first contribution, which lies in the integration between marketing and logistics & manufacturing. Logistics and manufacturing are considered they have the biggest influence on the development of supply chain management, as well as seen as conceptual processors in the last three decades. Logistics is the function, responsible for managing the flow of materials & information as well as it’s contributing to supply chain management. Many researchers such as (Cooper et al., 1997) recommended and stressed the need to broaden the scope of supply chain management beyond logistics.
The interference and relation between logistics and marketing could be through the origins of logistics as the physical side of distribution as well as the coordination between both increasing the firm’s customer value creation and have a positive impact on the customer service performance.
Some researchers such as (Chen et al., 2007 and Ellinger, 2000) stressed the rapid change in the global business environment and customer demands, and here the role of local upstream marketers with the assistance of downstream marketers emerges and should be on the strategic level within the global supply chain network for the Multinational firms. The manufacturing and marketing interface has very important relationships of integration due to these rapid changes in the external business environment and customer perception & demands. The integration enables the factory to respond quickly to dynamic market changes. Many researchers such as (Kahn and Mentzer, 1998, and O-Leary-Keller and Flores, 2002). Confirm the importance of collaboration and integration between both as well as the joint decision-making on a range of performance toward customer’s value propositions.
By the way, most of the studies about the inter-functional perspective are based on the resources dependence theory that existed in 1978 (Pfeffer and Salancik) also Anderson and Salancik 1982) which has developed until now as the fundamental changes in the economic system as well as the continuous change of the global business environment and customer perception & demands. By the way, both theories (Pfeffer and Salancik 1979 and Anderson and Salancik 1982) emphasize the specialization of functional areas within organizations and the interdependence between them. However logistics & manufacturing are considered the key functions within supply chain management but they are not sufficient to reflect adequately the breadth of the conceptual domain as well as its cross-organizational nature, they just reflect a subset of the relation and interface spectrum between both disciplines. So it should be related and integrated to the other factors within the supply chain network.
B) Process perspective
The inter-functional perspective often conceptualizes the interplay from an interdepartmental stance as well as focuses on the relationships between the organizational units. But the process perspective is independent of the structure of the organization when we look at business activities that are traditionally related to marketing and supply chain management, also the process perspective is expanded to involve suppliers & customers within the supply chain
The process integration within and between organizations or partners in the supply chain is a key characteristic of the conceptual domain. By the way according to the marketing point of view which sees the operation is an element that increases customer value marketing is embedded in the way that customer value is maximized, because of their cross-functional nature process which facilitates the interpretation of the relation and integration between demand creation which marketing is embedded and demand fulfillment process as the supply chain management process (Christopher and Payne, 2002, Ju ̈ttner et al., 2006). From this point, we can say that the integration between demand creation and fulfillment processes is considered the key to delivering products that transform value to the customers through efficiently deploying resources. (Srivastava et al., 1999). Said that the exploration of the interdependence among the processes should lead to high success in the marketplace rather than concentration on improving the individual processes. ( Rainbird 2004) provides a processes fusion model that focuses on the integration between demand and supply chain processes, “Rainbird” differentiates 8 supply processes which start from order receipt/entry until delivery option and he introduces 7 demand processes such as customer relationship management and one of the essential processes is macro market definition. “Rainbird” mentioned the following “The linkage or the fusion between those processes can be achieved among 2 factors management, specific organizational capabilities or technology. From this point (Ju ttner et al. 2007) built his vision and suggested three layers of processes integration model that links between demand which marketing is embedded, and supply chain process to the customer’s buying life cycle that’s related to customer value propositions through adopting the expanded supply chain perspective and linking marketing & supply chain processes to customer value creation, from this point the process perspective captures a wider range of the interface spectrum between marketing and supply chain management rather than the inter-functional perspective.
C) Integrated business concepts perspective:
In the last decade, diverse business concepts have emerged associated with ideas that focus on the integration perspective between marketing and supply chain management, such as “QR” quick response, agile supply chain management, as well as the last one that was introduced recently “DCM” demand chain management approach. All these three concepts seek to bridge the gap between the supply chain management and the market by increasing the supply chain’s response time, flexibility, or its differentiated customer focus which confirms the purpose of SCM toward customer value creation.
First lets explain
1) The concept of QR movement began in the North American textile and apparel industries and was introduced to the market as a competitive response to low-cost competition from offshore manufacturers, the description of “QR” (Christopher and Towill, 2002, p. 2). Can be described as the following; it’s a model of time compression that aims to reduce the time in the supply chain management that builds on the recognition which closer to the customer means creating value for the customers. Closer refers to closer on time more than closer in distance, The QR concept was the first concept that exploited bi-directional feedback and feedback forward flows of information between the expanded supply chain, among fast exchanges of demand information between not only apparel& retailers manufacturers but it was also textile industry producers. QR concept identifies that demand-driven decisions could be made at the last possible moment, and this guarantees the maintenance of diversity offerings while also enabling the firm to decrease the lead time cost and inventory.
2) Agile supply chain management: The origins of agile supply chain according to the business concepts can be described as the flexibility system of manufacturing, but flexibility as its key characteristic was soon expanded to the supply chain level as (Naylor et al 1999) mentioned. The main objective of agility lies in using market knowledge and virtual corporations to exploit profitable opportunities in a changeful marketplace.
Some researchers such as (Christopher 200) focus on and stress the ideas of the process–driven and network–based as two further distinguishing elements of agile supply Chains., Agile supply chain management is viewed as a proper approach in contexts with the important need for quick reaction to the violate changes in the market demand, either in volume, variety, marketing mix, by the way, and according to (Goldman et al 1995) who said that this helps the firm to exploit the unpredictable changing customer opportunities.
3) DCM concept: this concept is considered the most recently introduced approach and it is still being developed now, as well as it lacks a consensus on its characteristic definition. Some of its supporters such as (Selen and Soliman 2002) define it as a factor that has a set of activities that aim to manage and coordinate the whole supply chain starting from the end customer as well as working backward to the raw material supplier. However other researchers who criticized this concept see this concept, as’s broad understanding and also mentioned that this concept would imply that, the demand chain term could effectively replace the supply chain. Instead, they recommend restrictions of the concept to demand chains for products with innovative demand, where supply chain efficiency is a trade-off for customer service (De Traville et al.2004). In any case, the DCM concept focuses on linking supply chain management to market characteristics and this perspective came from the idea that explained that customers are becoming increasingly sophisticated and demanding.
Hence the importance of integrating local marketing talent into the global supply chain management design for multinational firms on a more strategic level.
All three concepts emphasize the behavioral orientation within the supply chain toward the customers such as the supply chain should be designed and operated from the customer backward rather than the factory outwards.
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