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Can Demand Chain Management Make the Grade?
Terminology is like currency--invaluable, but if too much of it is thrown around, it becomes devalued. Is demand chain management simply CRM under a new label, or a truly breakthrough business model?
Posted Nov 13, 2001
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The numbers sound small, but saving 3 percent on transportation costs and shaving a day and a half off of inventory levels are the types of things that make business executives cheer. Those in the CRM space have long looked upon the achievements their back-office counterparts have logged with a blend of envy and appreciation. Despite their lack of glamour, supply chain management systems are one of the best enterprise technology stories going.

Success guaranteed that, in time, people would begin thinking seriously about the implications of the term "supply chain." If business can be markedly improved by applying an intricate technology system to the inflow of materials into an organization, what sort of benefits could be realized if there were a counterpart demand chain operating on the other end?

"Companies have done an amazing job of ruthlessly eliminating inefficiencies from [the supply chain]," says Bob Runge, chief marketing officer of Pivotal. "Ninety percent of products today have been commoditized to the point that price and availability are the only things companies can compete on anymore, and that's where demand chain comes in--the edge of competition now is in how you create and manage demand for those products and services."

It seems counter-intuitive that demand would not already be encapsulated in the concept of supply chain. After all, what good is the efficient procurement of raw materials if there has been no order and there is no customer? Runge and others contend that demand has only been a blip on the radar for SCM operations: the moment in time that sets the supply chain in motion, but not otherwise significant.

Demand chain management (DCM) advocates are quick to point out that they are leading the way to a new era in business operations. "We're definitely talking about a shift in business practice as well as the introduction of new technology when an extended enterprise is adopting a customer demand chain solution," says Stephanie Langenfeld, director of B2B programs for E.piphany. But between the emergence of e-commerce and an explosion in bandwidth and data transfer technologies, the history of the past decade overflows with shifted business practices and new technology.

Meet the New Boss...
In its DCM marketing materials, one vendor promises, in no particular order, that DCM will provide the customer information necessary to make critical business decisions, boost efficiency, improve customer satisfaction and improve the number and quality of leads and new customers. "Does that sound like CRM? It is," says Paul Hagen, senior analyst with Forrester Research.

Although he qualifies that he does not believe the enterprise community has started to reject the vision of CRM outright, "it is an attempt to shake some legacy baggage off the name," Hagen says. With everyone from traditional marketing data providers to end-to-end solution suites proclaiming themselves CRM providers, the badge has lost some of its resonance.

Without going quite so far as to admit their own guilt, some CRM vendors now singing the demand chain gospel are remarkably candid nonetheless. "What we've seen happen over time is that the promise of CRM, the high-level ROI, has not materialized," says David Golan, vice president of product marketing for CRM analytics vendor, Applix.

Runge suggests the effect of this disillusionment. "We think that the CRM concept is starting to run out of steam," he says. "Companies heard that the failure rate for CRM is 'unacceptably high', and we think that the failure rate is being measured in the context of their expectation set, but the problem wasn't the right problem in the first place."

Yet Runge rejects the notion that this is an outright ploy to package yesterday's news as tomorrow's revolution. "We didn't just make this up. We were led into this by what we see customers doing with our products," he says. "The first iteration of demand chain networks was the intersection between CRM and e-commerce," where it became relatively easy to build accurate, timely pictures of customer behavior, preferences and attitudes.

Siebel Systems General Manager of partner management Scott Creighton says that companies now want to build a complete profile of customer activity not just through Web sites and call centers, but also through the retail market and an array of channel partners. Their goal: to ditch planning and forecasting rooted in the past. "Companies typically do demand planning through the ERP side of the world, and it's very much based on 'what did we sell last month?'" he says. "Demand chain strategy is more real time, so you can see where the streams of revenue are coming from."

Such insight is highly coveted. "One of the key reasons people embraced [sales automation] was the funnel report," says Mike Kozub, chief marketing officer of MarketSoft. In his view, the basic yet crucial insight sales managers gained into the pipeline and performance of their organizations has been the envy of marketers for some time, but the principles of DCM finally make it possible to develop more sophisticated notions of marketing success.

"If you can tie revenue into a campaign, you can measure if that given campaign is pulling its weight," he says. Rather than relying on crude ratios of responses to contacts, demand chain practices would open up visibility into more refined notions of marketing performance. With insight not just into when and where the money was spent, but how the campaign affected the customer's propensity to buy and conformity to a particular profile, the accuracy and relevance of marketing efforts can grow over time.

Weak Links
In theory, the prospect is fantastic. The problem with building these illuminating pictures is that data and insight are often only common between the two most direct links at any portion along the demand chain. The grocery store knows it bought a case of soda for $5 and sold it for $6. The soda distributor knows it bought the case for $4 and sold it for $5, and so on. Each player can formulate certain guesses as to how the world looks beyond its own buy-and-sell activity through analysis of pricing and demand trends. The question is, is anyone truly motivated to share beyond that?

"Visibility is going to help grow the piece of the pie for both of them, because the customer is going to be more satisfied," Creighton says. Yet miscalculations in manufacturing or distribution inventory have long presented opportunities for players further down the demand chain to flex their buying muscle and obtain attractive discounts. Why share more information than necessary if it flies in the face of self-interest?

The decision will rarely be a slam-dunk, Hagen contends, but the advantages of having full understanding of when peaks in demand are likely to occur benefit all concerned, so that the demand can be profitably and thoroughly satisfied.

"The concept of B2B hasn't been as successful as many of us thought because it was the concept that communism would work, that all of the people in the supply and demand chain would openly and willingly share information," says Rick Tanler, president and CEO of Minneapolis, Minn.-based e.Intelligence, a predictive analysis software specialist.

Complete visibility is unlikely to occur, Tanler says, because it tends to disproportionately benefit the most powerful participants in a given demand chain. "This is much more like bringing people together to play poker. I don't want to show you all my cards, and that's the process we have to be able to support."

Of course, everyone is looking for the win-win example. Operators near the top of a full-disclosure demand chain can use their insights to reinforce partner loyalty and satisfaction by alerting the group of potential opportunities or pitfalls identified in the market data. For example, consider a car manufacturer and dealerships linked through demand chain visibility. If the manufacturer, through its own research as well as the trends it recognizes from dealership data, recognizes that interest is likely to shift from one vehicle to another, it can collaborate with the dealerships with large inventories of the soon-to-be-unfashionable line in order to free up money and inventory space for the more promising product. "Today, without the demand chain, they could send that down. But what changes when you have a demand chain CRM solution in place is you have the data and detailed analytics that uncover those customer trends," Langenfeld says.

New Efficiencies
Not all of demand chain's potential payoffs are rooted strictly in analyzing shared data. Consider the relationship between a large manufacturer and large retailer, with hundreds of plants and warehouses on one side and thousands of stores and distribution centers on the other. "Is it realistic to think they're going to have a unified CRM strategy, that they're going to have [the same software] implemented across 145 plants? Not likely," says Joanie Rufo, research director for AMR Research. "But you can get efficiencies in economy of scale and profitability if you can make the relationship look like one relationship between companies."

AMR expects to see growth in private trading exchanges that can enforce data exchange and transaction procedures effectively throughout a complex demand chain that may have several thousand units acting as semi-autonomous suppliers and buyers.

Whether these models will take form in practice remains to be seen. Noting that there are few meaningful ROI models for demand chain performance, Hagen points out that enterprises should align profit and loss measurements around customers, not products, if they truly intend to grasp the notion of how well the demand chain is meeting its goals.

There is no single technology blueprint as of yet for a demand chain system. "Marketing, sales and service are opportunities and places to start. An enterprise doesn't have to adopt technologies to support all those strategies [as demand chain components] at the same time," Langenfeld says. "We're typically seeing in the market a modular approach, which might mean collaborative marketing as the first step."

While demand chain may not be the exact same concept as CRM, they certainly share the same objectives, much the same pedigree and to an extent, the same technology. As for whether the terms "demand chain" and "supply chain" are needlessly distinguished, perhaps it's a matter of semantics. "If we're really optimized, my supply chain should be anticipating my demand chain," says PeopleSoft Vice President of CRM marketing Robb Eklund. "I think [supply chain and demand chain] are one thing, and the astute organization is building a business process that is customer-centric and not just about supplying product, but rather understanding your customer."

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