Chapter 14 Competing Effectively through Global Marketing, Distribution, and Supply-Chain Management

The Four Ps

As we saw in the opening case, KFC has had great success in China after a first failed attempt. Why did KFC try again after its first failure? For the same reason that most companies market their products globally. Specifically, companies expand internationally to reach more customers, gain higher profit opportunities, balance sales across countries in case one country experiences problems, and compete with other brands that are expanding internationally and with global firms in their home markets.

Reaching new consumers is often the main reason for international expansion. The rising standards of living in the developing world, especially BRIC countries (i.e., Brazil, Russia, India, and China) mean billions of new consumers.MIT Center for Transportation and Logistics, “Crossroads of Supply Chain and Strategy Symposium 2008” (symposium, MIT, Cambridge, MA, March 27, 2008). In fact, 80 percent of the world’s population lives in emerging-market countries. Companies based in the mature economies of the West are attracted by the potential for double-digit growth in emerging markets.

What is the best way to reach those international customers? You begin with the core of marketing knowledge—the four PsThe four key elements of marketing—product, price, promotion, and place.—product, price, promotion, and place. While you likely learned this framework in your marketing class, it’s important to recognize how this essential tool will help you think about marketing in the context of international business. In a flat world, the answers to questions about the four Ps are all the same; however, because the world isn’t really that flat, country differences will have important implications for how product, price, promotion, and place play out when an organization takes its offerings across borders.

The first P—productAny physical good or intangible service that is offered for sale.—refers to any physical good or intangible service that’s offered for sale. For example, the product could be physical, like a laser printer, or it could be a service, like printing or photocopying services. The product could also be access to information, such as stock-market reports. Given the differences between countries (e.g., language, culture, laws, and technology standards), a company’s products may need to be adapted to different countries. Some products, like Coca-Cola or Starbucks coffee, need little, if any, modification. But even these companies create product variations to suit local tastes. For example, Starbucks introduced a green tea Frappuccino in China. The new flavor was very successful there. We’ll learn more about product standardization and customization in the next section.

The second P—priceThe amount of money that the consumer pays for the product.—is the amount of money that the consumer pays for the product. Pricing can take different forms. For example, pricing can be by item (e.g., a can of corn), by volume (e.g., gasoline), by subscription (e.g., monthly cable service), by usage (e.g., cell-phone minutes), or by performance (e.g., paying more for overnight delivery versus two-day delivery).

Let’s spend a little more time on price, because pricing has even more nuances when applied to international products. For example, emerging-market countries often have a less-developed financial system and limited credit available to local consumers and businesses. Some of the biggest challenges in selling to emerging markets involve making the product affordable. In Brazil, 26 percent of the population lives below the poverty line. However, companies have devised ways to help even the poorest consumers afford products. Let’s see how Casas Bahia has succeeded in selling to the bottom-of-the-pyramid (BOP) consumers in Brazil.

The third P—promotionAll the activities that inform and encourage consumers to buy a given product, including advertising (whether print, radio, television, online, billboard, poster, or mobile), coupons, rebates, and personal sales.—refers to all the activities that inform and encourage consumers to buy a given product.Michael Solomon, Lisa Duke Cornell, and Amit Nizan, Launch! Advertising and Promotion in Real Time (Nyack, NY: Flat World Knowledge, 2009). Promotions include advertising (whether print, broadcast radio, television, online, billboard, poster, or mobile), coupons, rebates, and personal sales. Like products, promotions are often customized to a country to appeal to local sensibilities. One obvious mistake to avoid is a language translation that misses the nuances of native speakers. For example, a straight translation of Clairol’s “Mist Stick” curling iron into German misses the nuance that “mist” in German is slang for manure. Likewise, Coors’ “turn it loose” slogan, when translated into Spanish, is interpreted by some locals as “suffer from diarrhea.”Richard P. Carpenter, “What They Meant to Say Was…,” Boston Globe, August 2, 1998, M5. Less obvious, but important to know, are the different countries’ regulations affecting advertising. For example, as discussed in Chapter 8 "International Expansion and Global Market Opportunity Assessment", Section 8.2 "PESTEL, Globalization, and Importing", regulations in Germany prohibited discounts, free gifts, or money-back guarantees with purchase. When US clothier Lands’ End expanded into Germany, it was taken to court for its guarantee that “If you’re not satisfied with any item, simply return it to us at any time for an exchange or refund of its purchase price.” Only recently have these German laws been repealed to bring them in line with European Union laws.Jan Peter Heidenreich, “The New German Act against Unfair Competition,” German Law Archive, accessed August 9, 2010, http://www.iuscomp.org/gla/literature/heidenreich.htm#D3c.

The final P—placeThe location at which the company offers its products for sale.—refers to the location at which a company offers its products for sale. The place could be a small kiosk in a village, a store in town, or an online website. Place poses a particular challenge when selling internationally. Many of the things we take for granted in the United States—national retailers, grocery stores, and extensive railways and roadways to reach them—aren’t prevalent everywhere. Section 14.4 "Global Sourcing and Distribution" discusses how to overcome these challenges.

Products reach consumers through a channel of distributionThe series of firms or individuals who facilitate the movement of the product from the producer to the final consumer., which is a series of firms or individuals who facilitate the movement of the product from the producer to the final consumer. The shortest channel, called the direct channelThe shortest channel of distribution, consisting of just the producer and the end consumer. The consumer buys the product directly from the producer., consists of just the producer and the consumer. In this case, the consumer buys directly from the producer, such as when you buy an apple from a local farmer. An indirect channelContains one or more intermediaries between the consumer and the producer. These intermediaries can include distributors, wholesalers, agents, brokers, retailers, international freight forwarders, and trading companies., in contrast, contains one or more intermediaries between the consumer and the producer. These intermediaries include distributors, wholesalers, agents, brokers, and retailers. In international business, the number of intermediaries can expand due to the regulations affecting import and export across national boundaries. Agents, brokers, international freight forwarders, and trading companies may get involved. Then, once a company’s product is in the foreign country, that country may have its own wholesalers who get involved. The firm must pay all these intermediaries for their services, which increases the cost of the product. Firms must raise prices or accept lower margins when confronting these added channel costs.

Even when sales are direct, as with Internet sales, place differences can affect marketing. For example, as mentioned previously, laws in Germany prohibit retailer Lands’ End from advertising its unconditional money-back guarantee because returns are allowed only up to fourteen days.Charles W. Lamb, Joseph F. Hair Jr., and Carl McDaniel, Essentials of Marketing (Mason, OH: South-Western Cengage Learning, 2009), 131.

The Marketing Mix

The four Ps together form the marketing mixA combination of the four Ps (product, price, promotion, and place) that can be customized for different countries.. Because the four Ps affect each other, marketers look at the mix of product, price, promotion, and place. They fine-tune and adjust each element to meet the needs of the market and to create the best outcome for the company. Promotion has an impact on the other Ps because a product’s price, for example, may be lowered during a promotional event. Likewise, holding a special promotional event like a two-for-one deal on a product impacts place, because the company must ensure that it supplies stores with enough product to meet the anticipated demand. Finally, the promotion might affect the product’s packaging, such as bundling a shampoo and conditioner together.

A company’s marketing mix will often be different for different countries based on

• a country’s culture and local preferences,
• a country’s economic level,
• what a country’s consumers can afford, and
• a country’s distribution channels and media.

Global Branding

A global brandThe brand name of a product that has worldwide recognition. Some of the most recognized brands in the world include Coca-Cola, IBM, GE, and McDonald’s. is the brand name of a product that has worldwide recognition. Indeed, the world does become flatter to the extent a brand is recognized, accepted, and trusted across borders. Some of the most-recognized brands in the world include Coca-Cola, IBM, Microsoft, GE, Nokia, McDonald’s, Google, Toyota, Intel, and Disney.“Best Global Brands Report 2010,” Interbrand, accessed October 22, 2010, http://issuu.com/interbrand/docs/bgb_report_us_version?mode=a_p.

Companies invest a lot in building their brand recognition and reputation because a brand name signals trust. “Trust is what drives profit margin and share price,” says Larry Light, CEO of Arcature brand consultancy and a veteran of McDonald’s and BBDO Worldwide and Bates Worldwide advertising agencies. “It is what consumers are looking for and what they share with one another.”David Kiley and Burt Helm, “The Great Trust Offensive,” BusinessWeek, September 17, 2009, accessed November 4, 2010, http://www.businessweek.com/magazine/content/09_39/b4148038492933.htm.

The advantages of creating a global brand are economies of scale in production and packaging, which lower marketing costs while leveraging power and scope. The disadvantages, however, are that consumer needs differ across countries, as do legal and competitive environments. So while global branding, and consumer acceptance of such, is a flattener, significant country differences remain even when a firm has a strong global brand. Companies may decide to follow a global-brand strategy but also make adjustments to their communications strategy and marketing mix locally based on local needs.

The decision companies face is whether they should market one single brand around the world or multiple brands. Coca-Cola uses the Coke name on its cola products around the world but markets its water under the Dasani brand. Nestlé uses a local branding strategy for its 7,000 brands but also promotes the Nestlé corporate brand globally.

Global Brand Web Strategy

Companies that are promoting their global brands successfully on the web include Google, Philips, Skype, Ericsson, Hewlett-Packard, and Cisco Systems. These companies are mindful of the cultural and language differences across countries. They have created websites in local languages and are using images and content specific to each country. At the same time, however, each country website has the same look and feel of the main corporate website to preserve the overall brand.Chanin Ballance, “Speaking Their Language: How to Localize Your Message for Global Customers,” Marketing Profs, March 24, 2009, accessed November 4, 2010, http://www.marketingprofs.com/9/speaking-their-language-localize-message-global-customers-ballance.asp.

Planning a Brand Strategy for Emerging Markets

Entering an emerging market with a developed-country brand poses an extra challenge. As noted in Section 14.1 "Fundamentals of Global Marketing", income levels in emerging markets are lower, so companies tend to price their products as inexpensively as possible. This low-cost strategy may have consequences for the company’s brand, however. For example, if a company introduces its brand as a “premium” product despite having a lower price, how will it introduce and differentiate its true “premium” brand later as consumers’ incomes rise?

Branding Issues: How Low Can You Go?

Many emerging markets call for lower-cost goods. But how low can a company go on quality and performance without damaging the company’s brand? The challenge is to balance maintaining a global reputation for quality while serving local markets at lower cost points.

One way to resolve the challenge is to offer the product at quality levels that are the best in that country even though they would be somewhat below developed-country standards. This is the tactic Walmart has successfully used in Mexico. Walmart’s flooring, lighting, and air conditioning make its Mexican stores better than any other local stores even if they might seem Spartan to US consumers.

Walmart stores in Mexico attract the country’s growing middle-class consumers.

© 2011, Walmart Inc.

Centralized versus Decentralized Marketing Decisions

Who has the authority to make marketing decisions? In a centralized-marketing organizational structureThe home-country headquarters retains decision-making power for marketing in all countries., the home-country headquarters retains decision-making power. In a decentralized-marketing organizational structureLocal regional headquarters have the power to make marketing decisions affecting their region., the regions are able to make decisions without headquarters’ approval. The advantage of the centralized structure is speed, consistency, and economies of scale that can save costs (such as through global-marketing campaigns). The disadvantages are that the marketing isn’t tied to local knowledge and doesn’t reflect local tastes, so sales aren’t optimized to appeal to regional differences.

Straight Product Extension

Companies deciding to market their products in different countries typically have a choice of three common strategies to pursue. The first is the straight product extensionTaking the company’s current products and selling them in other countries without making changes to the product.. This means taking the company’s current products and selling them in other countries without making changes to the product. The advantages of this strategy are that the company doesn’t need to invest in new research, development, or manufacturing. Changes may be made in packaging and labeling, but these are driven by local regulatory requirements. The disadvantages, however, are that its products may not be well suited to local needs and that the products may be more costly due to higher manufacturing and labor costs in the United States.

Product Adaptation

The second strategy is product adaptationThe company strategy of modifying an existing product in a way that makes it better fit local needs. and refers to modifying the company’s existing product in a way that makes it fit better with local needs. For example, when Procter & Gamble (P&G) introduced Tide laundry detergent in emerging markets like India, it changed the formulation to remove softeners. The reformulated Tide cost less than the original Tide. This change was important because price was an important factor in India where income levels were lower. Indian consumers were more able to afford the reformulated Tide.

Another way to localize a product is through packaging. Locally appropriate packaging doesn’t just mean using the country’s language. It also means creating packaging sizes that suit the country. For example, a company wanting to make its products more economical to less-wealthy countries may be tempted to sell larger, economy-sized packaging. But emerging-market consumers often prefer smaller package sizes, even if that increases the cost-per-use. They tend to buy sachets of shampoo rather than economy-size bottles. These smaller sizes are also easier to transport to local villages or to store in smaller-sized homes.

Mobile-phone maker Nokia went a step further in localizing its phones to different markets. The company uses local designers to create mobile-phone handset models that are specifically appropriate for each country. For example, the handsets designed in India are dust resistant and have a built-in flashlight. The models designed in China have a touchscreen, stylus, and Chinese character recognition.

Nokia phones are designed to meet the needs of local consumers.

© 2011, Nokia Inc.

Local designers are more likely to understand the needs of the local population than headquarters-located designers do.

The examples of Tide and Nokia show how companies can create a version of their existing product tailored to specific countries.

Product Invention: P&G Diapers

The third strategy, product inventionCreating an entirely new product for a given local market. In this strategy, companies go back to the drawing board and rethink how best to design a product for a specific country or region., is creating an entirely new product for the target market. In this strategy, companies go back to the drawing board and rethink how best to design a product for that country. You were introduced to this idea in Chapter 13 "Harnessing the Engine of Global Innovation".

The first step in inventing a product for a new country market is to understand the key product characteristics needed to succeed in that market. For example, when P&G wanted to sell diapers in BRIC countries (i.e., Brazil, Russia, India, and China), it started from square one. Rather than merely modifying the existing design, P&G engaged local knowledge and reconsidered all the key features of the design in the context of the needs of the emerging markets.

A major issue was price. To make the diaper affordable, P&G settled on an aggressive price target—each diaper should cost as much as one egg. But the company also wanted a diaper that could uphold the P&G brand name. At first, the designers thought that the lower-cost product needed to do everything that the current developed-world product did. But further discussions refined and narrowed the definition so that P&G could meet the cost target without damaging the brand.

P&G designers debated features such as absorbency, color, fit, and packaging to find a design that was acceptable on cost targets, acceptable to emerging-market consumers, and acceptable as a P&G-branded product. The designers considered materials and how they could avoid using high-paid, specialized suppliers. Some characteristics, such as packaging, could be adjusted to meet local cost standards. In other cases, a characteristic was nonnegotiable—such as corporate social-responsibility issues. For example, P&G wanted to ensure that none of the suppliers to its diaper business used child labor. In the end, P&G succeeded by understanding both the critical elements of the brand and the emerging-market customers’ expectations.

Nuances of Product Extension, Adaptation, and Invention

The product-adaptation strategy is easier for firms to execute than product invention. Nonetheless, even product adaptation requires understanding the local market well. Consider Ford Motor Company’s missteps in adapting its midpriced car model to the Indian market. Ford realized that it needed to lower the cost of its car to make it more affordable to Indian consumers. Ford brought a team of designers together in Detroit and tasked them with figuring out how to reduce the cost of the car. The designers looked at removing nonessential elements. The first feature to go was air conditioning. Next, the team decided to remove power windows in the back, keeping them only in the front. These and other such tweaks brought the total cost of the car down from $20,000 to $15,000. Reducing the cost by 25 percent is notable, but unfortunately the design team lacked vital local knowledge about India. First, even though the price of the car was lower, the $15,000 price point in India is still way above what the middle class can afford. The Indians who can afford a $15,000 car are the very rich. Second, the very rich in India who can afford to pay $15,000 for a car can also afford (and will have) a chauffeur. Remember the clever idea of removing the air conditioning and the power windows in the back? The consequence is that the chauffeur is the only one who gets a breeze. Given the sweltering summer temperatures and traffic congestion in Indian cities, you can guess that the Ford car didn’t sell well.Vijay Govindarajan, “Ten Rules for Strategic Innovators” (presentation, World Innovation Forum, New York, NY, May 5–6, 2009).

Country-of-Origin Effect

The country-of-origin effectA situation in which consumers use the country where a product was made as a barometer for evaluating the product’s quality. Their perceptions of the country influence whether they perceive the product favorably or unfavorably and thus whether they’ll purchase the product. refers to consumers using the country where the product was made as a barometer for evaluating the product. Their perceptions of the country influence whether they will perceive the product favorably or unfavorably. That perception influences consumers’ purchasing decisions. For example, France is known for its wines and luxury goods. Wines from Chile may be just as good and more affordably priced, but consumers may perceive French wines to be better due to the country-of-origin effect. In the 1960s, “Made in Japan” was a signal of low quality, but over time Japan has changed that perception through a dedicated focus on high quality. Specifically, Japan adopted Total Quality Management (TQM)A set of management practices initially introduced by W. Edwards Deming. The focus of TQM is increasing quality and reducing errors in production or service delivery. TQM consists of systematic processes, planning, measurement, continuous improvement, and customer satisfaction. which is a set of management practices initially introduced to Japan by W. Edwards Deming. The focus of TQM is increasing quality and reducing errors in production or service delivery. TQM consists of systematic processes, planning, measurement, continuous improvement, and customer satisfaction. These days, “made in Japan” is viewed positively, but “made in China” faces more of a stigma. Likewise, consumers in Colombia don’t want products that are made in Colombia. A similar problem happens with Mercedes-Benz—Mercedes-Benz cars assembled in Egypt have much lower resale value than those assembled in Germany. In these cases, local assembly in Egypt might be taken as a sign of inferior quality.

Reverse Innovation: How Designing for Emerging Economies Brings Benefits Back Home

Increasingly, marketing and innovation are directly linked. Reverse innovationDesigning a product for a developing country and bringing that innovation back to the home country. means designing a product for a developing country and bringing that innovation back to the home country. Creating new products and services for developing countries requires radical innovation and opens new opportunities in developed-world markets as well. For example, GE Healthcare sells sophisticated medical-imaging devices around the world. Historically, GE has sold these high-end machines in emerging economies like India. But only 10 percent of Indian hospitals can afford a $10,000 electrocardiogram (ECG) machine. Reaching the other 90 percent of the market takes more than simply cutting a few costs. It requires radical innovation and an in-depth understanding of local conditions.

One important local fact to know is that most Indians live in rural areas. That means they don’t have a local hospital to visit. Therefore, medical equipment needs to go to them, and no rural health care clinic is going to lug a $10,000 ECG machine into the field even if it could afford the device. Achieving the goal of a lightweight, reliable, simple-to-use ECG device took radical rethinking. GE built such a device that could fit in a shoulder bag or backpack. The device has a built-in replaceable printer and costs only $500. In addition, because the device would be used in rural locations with scant access to electricity, GE designed a battery that could do 500 ECGs on one charge. To make it easy to use, GE designed the device to have only three buttons. Finally, just because the device is inexpensive doesn’t mean it’s dumb. GE installed professional-level analysis software to aid rural doctors.

With its new portable ECG device, GE has unlocked a whole new market in developing countries. Beyond that, GE has also opened up new opportunities back home—and that’s the reverse innovation side of the story. How? The portable ECG machine with a $500 price tag is ideal for use in ambulances, saving lives of accident victims in developed countries as well. Cheap, portable, and easy-to-use devices are desirable in any country.Vijay Govindarajan, “Reverse Innovation: A New Strategy for Creating the Future” (webinar, HSM Global, March 18, 2010), accessed November 23, 2010, http://us.hsmglobal.com/contenidos/hsm-webinars-vijay.html.^,“An ECG for Less Than Rs 10? New, Made-in-India, GE Device, Does IT,” India Tech Online, November 25, 2009, accessed August 1, 2010, http://www.indiatechonline.com/ge-mac-i-ecg-168.php.

Sole-Sourcing Advantages

• Price discounts based on higher volume
• Rewards for loyalty during tough times
• Exclusivity brings differentiation
• Greater influence with a supplier

Sole-Sourcing Disadvantages

• Higher risk of disruption
• Supplier has more negotiating power on price

Multisourcing Advantages

• More flexibility in times of disruption
• Negotiating lower rates by pitting one supplier against another

Multisourcing Disadvantages

• Quality across suppliers may be less uniform
• Less influence with each supplier
• Higher coordination and management costs

Whichever sourcing strategy a company chooses, it can reduce risk by visiting its suppliers regularly to ensure the quality of products and processes, the financial health of each supplier, and the supplier’s adherence to laws, safety regulations, and ethics.

Distribution Management

Selling internationally means considering how your company will distribute its goods in the market. Developed countries have good infrastructure—passable roads that can accommodate trucks, retailers who display and sell products, and reliable communications infrastructure and media choices. Emerging markets, on the other hand, often have very fragmented distribution networks, limited logistics, and much smaller retailer outlets. Hole-in-the-wall shops, door-to-door peddlers, and street vendors play a much larger role in emerging-market countries. In the emerging countries of Africa, for example, books might be sold from the back of a moped.

In addition, the standards of living in emerging countries vary widely. Most of the middle class lives in cities, but the percentage of the population that lives in rural areas varies by country. In India, 70 percent of the population lives in rural areas, whereas in Latin America only 30 percent does.

Rural logistics are especially problematic. Narrow dirt roads, weight-limited bridges, and mud during the rainy season hamper the movement of goods. An executive at computer storage device manufacturer EMC noted that sometimes the company’s refrigerator-sized, data-storage systems have had to be transported on horse-drawn wagons.

Strategic Choices: Export, Local Assembly, and Local Production

When deciding where and how to produce products for international markets, companies typically have a choice of three strategies. The strategies vary in terms of levels of risk, cost, exposure to exchange-rate fluctuations, and leveraging of local capabilities. Companies need to tailor their strategy to fit their product and the country.

Outsourcing and Offshoring

OffshoringSetting up operations in a low-cost country for the purpose of hiring local workers at lower labor rates. Offshoring differs from outsourcing in that the firm retains control of the operations and directly hires the employees. means setting up operations in a low-cost country for the purpose of hiring local workers at lower labor rates. Offshoring differs from outsourcing in that the firm retains control of the operations and directly hires the employees. In outsourcingThe company delegates an entire process (e.g., accounts payable) to the outsource vendor. The vendor takes control of the operations and runs the operations as they see fit. The company pays the outsource vendor for the end result; how the vendor achieves the end result is up to the vendor., by contrast, the company delegates an entire process (such as accounts payable) to the outsource vendor. The vendor takes control of the operations and runs the operations as they see fit. The company pays the outsource vendor for the end result; how the vendor achieves those end results is up to the vendor.

Companies that choose to offshore face the same location-criteria factors as companies that make production-operation decisions.

The advantages of outsourcing include the following:

• Efficient processes (the outsourcer typically specializes in a particular process or set of processes, giving them high levels of expertise with that process)
• Access to specialized equipment that may be too expensive for a company to invest in unless that process is their chief business

India has long been a favorite location for outsourcing services, such as call centers and software testing, because of its English-speaking, highly educated workforce. The labor-rate ratio has been five to one, meaning that a company based in the United Kingdom, for example, could hire five Indian college graduates for the price of hiring one UK college graduate. Given the high demand for their labor, however, Indian employees’ wages have begun to rise. Offshoring companies are now faced with a new challenge. The firms hire and train Indian employees only to see them leave in a year for a higher salary elsewhere.Hub Potential Analysis Report 2007: Frost & Sullivan’s 2007 Global Shared Services and Outsourcing (SSO) Study (San Antonio, TX: Frost & Sullivan, 2007), accessed May 19, 2011, http://www.frost.com/prod/servlet/cpo/106999825. This wage inflation and high turnover in India has led some companies, like ABN AMRO Bank, to consider whether they should move offshoring operations to China, where wages are still low. The downside is that graduates in China aren’t as knowledgeable about the financial industry, and language problems may be greater.

Diageo, the world’s largest purveyor of spirits, used the following criteria when choosing an offshoring-services location.Burt Helm, “Diageo Targets the Home Bartender,” BusinessWeek, July 6, 2009, 48. Diageo analyzed nineteen locations in fourteen countries, ultimately choosing Budapest, Hungary, as the location of its offshore shared-services operations. The primary criteria Diageo used were

• a low-cost base, both in terms of start-up and ongoing running costs;
• a favorable general business environment;
• the availability of suitable staff—particularly with regard to language skills;
• a high level of local and international accessibility with good transport links;
• the attractiveness for international staff; and
• a robust regulatory framework.Linda Pavey, “OTC Focus & Solutions,” June 6, 2005, accessed August 6, 2010, http://www.ideaslab.info.

Companies save on labor costs when offshoring, but the “hidden costs” can be significant. These hidden costs include the costs of additional facilities, telecommunications, and technological infrastructure. Delays or problems with internal project coordination and the need for redundancy can add even more costs.

Supply-Chain Management

Supply-chain managementThe planning and management of all activities involved in sourcing and procurement, conversion, and logistics. It includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers, and integrates supply-and-demand management within and across companies. encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and logistics. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply-chain management integrates supply-and-demand management within and across companies.“CSCMP Supply Chain Management Definitions,” Council of Supply Chain Management Professionals, accessed August 7, 2010, http://cscmp.org/aboutcscmp/definitions.asp.

Activities in the supply chain include

• demand management (e.g., forecasting, pricing, and customer segmentation),
• procurement (e.g., purchasing, supplier selection, and supplier-base rationalization),
• inventory management (e.g., raw materials and finished goods),
• warehousing and material handling,
• production planning and control (e.g., aggregate planning, workforce scheduling, and factory operations),
• packaging (i.e., industrial and consumer),
• transportation management,
• order management,
• distribution network design (e.g., facility location and distribution strategy), and
• product-return management.

Cross-organizational teams across the supply chain can bring great perspective to the overall team process. Representatives from design, business, purchasing, manufacturing, equipment purchasing, planning, customer, logistics, information technology, and finance all bring their specialized knowledge to the benefit of the supply chain as a whole.C. J. Wehlage, “Supply Chain Transformation Leadership: Intel’s Low-Cost Supply Chain Model,” AMR Research, February 2, 2009, accessed August 4, 2010, http://www.amrresearch.com/content/View.aspx?compURI=tcm:7-39341.