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JEIM 19,3

Demand chain effectiveness – supply chain efficiencies
A role for enterprise information management
David Walters
Sydney Graduate School of Management, Parramatta, Australia
Abstract
Purpose – The purpose of this research is to argue that a number of organisations focused their efforts on developing sophisticated supply chains such that their managerial focus became myopic, and many lost sight of their markets and their customers, missing the fact that the customers, failing to realise their expectations, switched their loyalties. Thus it is argued here that it is essential to understand the demand chain prior to making supply chain structure decisions. Design/methodology/approach – The first step is to reinforce the point that both supply chain management and demand chain management are about process management. The second step is to re-validate the notion of the demand chain as a separate entity from the supply chain. Findings – It is interesting to postulate that the differences between the demand chain-led organization and the supply chain-led organisation are based on emphasis. The paper attempts to make this point by suggesting that, while supply chain management is to a degree customer-focused, the emphasis is on efficiency. Management concern is cost-led and attempts to provide an adequate level of service. The danger here is that customers may be “aggregated” or fitted into categories that appear to be nearly relevant. Thus the link between supplier relationship management and customer relationship management is tenuous. By contrast the demand chain approach is a broader view of relationship management, taking a view that supplier and customer relationship management overlap, and that effective management is to integrate the two. If this is achieved, it results in bringing often conflicting objectives more closely together. Research limitations/implications – Contrasting the demand chain approach as a broader view of relationship management, and taking the view that effective management is to integrate the two. The view is that, if this is achieved, it results in bringing often conflicting objectives more closely together. Clearly more research is needed before such a view can be held with conviction. Practical implications – This paper argues that a number of organisations focused their efforts on developing sophisticated supply chains such that their managerial focus became myopic, and many lost sight of their markets and their customers, missing the fact that the customers, failing to realise their expectations, switched their loyalties. Originality/value – It is argued here that it is essential to understand the demand chain prior to making supply chain structure decisions. Keywords Supply chain management, Demand management, Customers, Process management, Information management Paper type Research paper

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Journal of Enterprise Information Management Vol. 19 No. 3, 2006 pp. 246-261 q Emerald Group Publishing Limited 1741-0398 DOI 10.1108/17410390610658441

Introduction The notion of the supply chain manager as the new corporate hero, championing reduced costs, improving efficiencies, and rewarding customers with reduced prices, seems somewhat incongruous to those brought up on the notion that Marketing was the dominant corporate philosophy. Indeed at least one generation of business students and practitioners were taught that it was marketing that was responsible for

Supply chains – too much emphasis on efficiency? The notion that organisations have supply chains that require active management to maximise efficiency is well recognised. But even a cursory glance at today’s financial pages suggests that instead it is firms that consistently and persistently manage their cost structures that are seen as the over-achievers. The problems that Marks and Spencer. It is also suggested that their response to competition has been cost-led – by “looking at ways to buy products more cheaply” Demand chain effectiveness 247 . or should. 2004) industry analyst comments suggest Marks and Spencer continue to be supply chain driven. experienced during the 1990s were not because they mismanaged the operational effectiveness of the business. This reflected a business model dominated by a downstream-oriented supply chain. A number of potential dangers arise from this new supply chain dominance of corporate thinking. Sainsbury (the former UK market leader in food retailing) noted in the late 1990s in an annual report the positive impact on overall profitability of its increased logistics productivity and saw this as a key corporate strategy. at least partially. with undue short-term emphasis on cost reduction at the expense of contribution to broader goals. operations and objectives that its proponents have claimed. This may. arguing that they have not responded to competitive threats to core merchandise groups by new entrants and certainly have ignored customer expectations for quality. which encompasses a more holistic view of all of those processes in the firm that do. The notion that an effective supply chain alone will ensure adequate customer satisfaction by reducing costs and therefore prices is not necessarily an adequate model by itself (Childerhouse and Towill. Indeed across a number of industries. In response this paper proposes a broader perspective. In Australia two dominant retailing groups. In particular customer needs may ultimately be seen in simplistic terms revolving simply around reduced price as a major determinant of satisfaction. reflect a failure by marketing as a discipline to provide the coherence to corporate organisation. including the retail sector. assuming a relatively “steady state” amongst its customers. He cites Marks and Spencer in the UK as having “long been regarded as leaders in this”. Woolworths and Coles Myer. but rather because they missed the shift in customer expectations and did not appear to respond to those expectations. Not the least is that supply chain efficiency is mistaken for effectiveness. Recent events would suggest this as a fraught strategy. rooted in efficiency strategies. by suggesting that a customer approach will ensure supply chain efficiencies. supply chain efficiency has become a dominant corporate paradigm. Recent (June. 2000). Waller (1998) discusses “customer driven” logistics as an increasingly accepted concept. have made “every day low prices” their primary offer to customers. driving business models and at least in the short term delivering improved profitability. and to a degree Sainsbury. respond to the customer. based on the notion of the demand chain.inculcating customer values into the organisation and that this was the ultimate means of fostering competitive advantage. In the UK the efficacy of the supply chain is prominent in the recent (ongoing) battle for control of Marks and Spencer.

The second supply chain function is what is termed market mediation that insures. includes the conversion of raw materials into parts. and their transport between the various parts of the supply chain. . However. He is great at cost control and squeezing cash out of a business. “the Zip children’s wear strategy has failed to improve sales – largely because this is now a commodity market driven by price”. that the mix of product variants which is brought to the market matches what customers want to buy. proposing that these are either functional or innovative. It is argued that it needs to give them exact specifications and to control the process much more closely. . In Fisher’s model functional products require an efficient supply chain in which the costs of production. who commented upon one of his earliest appointees: “will concentrate on the back-of-house systems. . Porter is suggesting that the attraction of the cost-efficiency offered by the increasing range of production techniques has directed management towards short-term profitability at the expense of increased strategic advantage gained from understanding customer value expectations. Further comments add to this author’s view that the company’s problems are due to this failure to understand the demand chain and its management processes.3 248 resulting in “taking away from the quality of the product and that takes away the reason people used to buy from M&S”. . and eventually finished goods. Fisher then constructs a supply chain that links the nature of demand with the function of the supply chain. components. and significantly. Fisher argues that the supply chain has two distinct functions. they do everything else”. there is a suggestion that much of this “advice” is likely to go unheeded as the article suggests tight cost control in not only just the supply chain will be a major strategy of the newly appointed CEO. rather than tackling the strategic issues of making the organisation effective in the market place. They “give only ‘rough design ideas’ to its suppliers. Innovative products have short life cycles with volatile demand that is difficult to predict. The efficient supply chain is characterised by materials resource . A physical function: .” It is arguable that the future cannot hold much different for the company if the current attempts to apply stringent cost control on operational activities continue. To be successful supply chain processes should be linked to those of the demand chain through an effective information system. This lack of an understanding of the demand chain and its processes is made clear in a comment from another industry analyst (Richard Hyman. transportation and inventory holding are minimised. This suggests that a purely mechanistic supply chain approach entirely driven by cost efficiency needs to be replaced with a broader view of overall effectiveness. Verdict Research) suggesting that not too long ago Marks and Spencer met customer “needs” but in an age of persuasion led “demand” a very clear understanding of a target market preferences is necessary. Functional products are typically staple fast moving consumer goods that are widely available and satisfy basic needs that do not change much over time.JEIM 19. has suggested that the first step in devising a supply chain strategy is to consider the nature of the demand for an organisation’s products. Clearly both Sainsbury and Marks and Spencer would appear to have been doing just this! Fisher (1997) for example. It is interesting to recall a comment by Porter (1996) concerning the mistakes that can be made by confusing operational efficiency with strategic effectiveness. .

He depicted a triangle with customer demand at the pinnacle and supply chain and demand chain management at the bases. 1998). suggesting first a simultaneous standardisation and differentiation in consumer preferences for products (the demand chain). and cost efficiency are achieved. Towards an alternative model – the emergence of the demand chain as a concept Fisher goes a long way to addressing the limitations of the uni-dimensional. skills and resources. A very useful point in their argument is that demand chain analysis and management helps to improve an organisation’s processes by aligning the organisation around a common plan. Holmstrom et al. owned and/or “leased”. The secret of its success is demand-led management. He cites the success of 7-Eleven Japan. In this way the typical supply chain performance criteria of high availability.planning/enterprise resource planning (MRP/ERP) software packages driven by EDI (Electronic Data Interchange) linkages between suppliers and customers. not by suppliers. It could be argued that it [supply chain management] should be termed “demand chain management” to reflect the fact that the chain should be driven by the market. emphasise efficiencies in the production and logistics processes. improves coordination within the supply chain by using forecasts and plans. Fisher also identifies the importance of effective enterprise-wide information management systems. . manage. and ultimately create consumer demand. They define the demand chain as: “The complex web of business processes and activities that help firms understand. Supply chains. cost focused supply chain. . and exploits the commercial processes by understanding consumer demand and by selecting those markets that best meet an organisations. (Christopher. simply changing the name is unlikely to change behaviour. and second a continued emphasis on cost minimisation in manufacturing supply chains. This is an interesting differentiation between the supply chain and the demand chain and between demand management and demand chain management. resulting in increased sales and profitability. while the demand chain emphasises effectiveness in the business. whose stock prices kept rising despite Japan’s recession for the past ten years. Tierney (2003) quotes Lee in saying that customers form a central part of the enterprise. Some authors have taken the argument a step further however and suggested that the whole concept of the supply chain has changed through evolution so that: . Unfortunately. Demand chain effectiveness 249 This is insufficient. by contrast. (2000) add emphasis to the argument a pure supply chain focus is inadequate if we are seeking to add value for customers. which led it to identify sales patterns and customer preferences and to match those by reengineering its category management and store product layouts.” They emphasise the point that demand chain management attempts to analyse and understand overall demand for markets within the firm’s current and potential product range. They suggest: the supply chain is a “customer service-led” process. rapid replenishment. Langabeer and Rose (2001) take the argument a step further by looking at the demand chain as an entity in its own right. . . these two are often at odds with each other.

and an infrastructure business. competitive and cultural dimensions.JEIM 19. They suggest that these. Supply and demand chain comparison .organisational) boundaries and are independent of formal organisational structures. Effective organisations now work together to identify core processes. They offer a useful summary comparison of the two approaches. not short term constraints Historical focus on demand management and supply chain alignment Table I. Hagel and Singer (1999) argue that the traditional organisation comprises three basic types of business: a customer relationship business. a product and brand strategy (focusing on key product requirements and customisation needs). customer strategy (customers and markets). a product innovation business. Hagel and Singer clearly identify the “attitudinal and behavioural” differences that Supply chain Efficiency focus. create a demand strategy: “The direction that a firm pursues to attract and retain desirable customers and improve its product positioning in profitable markets”. They also cross organisational boundaries. product-market fit Processes are focused more on planning and delivering value Cash flow and profitability are the key drivers Long-term-oriented.3 250 This introduces the notion that an effective approach to demand chain management first requires the organisation to understand its current and potential markets and second to identify the essential (or core) processes and capabilities that are required for success. The scope of process management is such that it may be applied to strategic and operational tasks and structures alike. sales and strategic operations managers Focuses on long term capabilities. they normally occur across or between organisational (either intraor inter. shown in Table I. within the immediate and controllable future Typically the domain of tactical manufacturing and logistics personnel Focuses on immediate resource and capacity constraints Historical focus on operations planning and controls Source: Langabeer and Rose (2001) Demand chain Effectiveness focus. when coordinated. They argue that as the exchange of information and “digestion” increases through electronic networks the traditional organisation structures will become “unbundled” as the need for flexible structures becomes an imperative and as “specialists” offer cost-effective strategy options in each of these basic businesses. That is. and a sales and marketing strategy (creating awareness and demand). The demand chain as a distinct entity Processes rather than functions Processes have defined business outcomes for which there are recipients that may be either internal or external to the organisation. within the next planning cycles Typically the domain of marketing. cost per item Processes are focused on execution Cost is the key driver Short-term-oriented. customer-focused. distribution and network optimisation). The authors go on to propose a demand strategy comprising a supply chain strategy (focusing on manufacturing. They suggest each of these differ concerning the economic.

” This is not simply another re-statement of the marketing concept. The answers to these questions identify opportunities to add value and determine the shape of both the demand chain and of the required supply chain responses. To this end the following definition of demand management may add some direction: “An understanding of current and future customer expectations. . . This has been defined in a number of ways. However. Marketing is a philosophy. . The demand chain is a practical description and analysis encompassing all those processes within the firm that adopt and apply that philosophy. The mapping process to identify the consumption chain comprises a series of questions aimed at establishing aspects of behaviour that occur. or the consumption chain. How then should we view this broader notion of the demand chain? Possibly a first step is to reinforce the point that both supply chain management and demand chain management are about process management. market characteristics. Hammer (2001) agrees that as businesses become accustomed to the customer economy. Such a process identifies numerous ways in which value can be added to a product or service. some of which can be categorised as demand driven and some as supply . would never have thought possible. and another has been to develop the notion of the Value Net (Bovet and Martha. They are not necessarily complementary and indeed are often in conflict. One approach has been to modify the scope of the supply chain. Demand chain effectiveness 251 “Mapping the Consumption Chain” captures the customer’s total experience with a product or service.occur between the “businesses” thereby adding emphasis to the difference between an “efficiency driven” supply chain orientation in comparison to the analytical and effectiveness approach of the demand chain. and of the available response alternatives to meet these through the deployment of operational processes. These models are valuable to the extent they explicitly recognise the role of the customer and their demands in maximising value for the firm. can uncover opportunities to position their offerings in ways that they and their competitors. From an analysis of the answers it then becomes possible to identify the different process drivers. The second step is to re-validate the notion of the demand chain as a separate entity from the supply chain. is a means by which firms: . Perhaps an example here will help. Their business model is an example of Bucklin’s postponement (as opposed to speculation) channel model of some years ago. rather than assume some composite model it should be explicitly recognised that there are in fact two different forces at work – the supply chain and the demand chain. There would seem to be little argument that the old downstream supply chain model is too limiting and that the customer needs to be brought into the equation. “process thinking” becomes essential – customer satisfaction is process led. stressing the customer centric goals of an organisation. Dell Computers operates a demand-led customer response supply chain. . An interesting way of viewing this is to apply the model developed by MacMillan and McGrath (1997) who suggest that the customer life cycle. ”. 2000). One relevant to this discussion is offered by Trinca (2003) and is particularly useful in that it addresses the need to consider both suppliers and customers: “It’s a systematic way of improving internal processes as well as the way you work with suppliers and customers .

These often result in joint activities that extend into shared components and manufacturing. The demand chain and the supply chain converge rather than conflict in an example of relationship management Processes differ Figure 1 illustrates the major differences between the supply chain and the demand chain. procurement is typically an adversarial process. Given a precise understanding of customer needs (and market trends) it is possible for the procurement process to work with design and development to develop optimal solutions to product and process development options. Value-in-use plays an important role in setting price in this organisation because it is usual to consider how these organisations also consider involving partners in their value propositions. typically minimising downtime by adopting agile manufacturing and QR (quick response) distribution systems. An efficient supply chain alone provides only half the solution. the optimum costs are realised when specific “runs” can be made against sales forecasts and the finished product sold from inventory. For both production and distribution the SCM organisation favours a cost/volume driven approach. thereby removing the risk of discounted sales to clear inventory. This is understandable in markets such as fast moving consumer goods (FMCG) where often there is very little scope for differentiation and even where retailer dominance may pressure suppliers for price led promotions. The DCM-led organisation uses market knowledge to develop strong working relationships with suppliers. Because there is often a budget constraint in SCM-led structures it follows that while the processes may share labels they invariably differ in the tasks they perform. As Figure 1 suggests. The automotive industry offers examples of this. This is often necessary to hedge against the risk of markdowns should sales forecasts not be met. In SCM-focused organisations. For example in an SCM approach. particularly if the forecasts lack accuracy or if some unforeseen event occurs. design and development activities will be seeking to address broad appeal in an attempt to ensure financial viability. Operations processes also differ.3 driven. Suppliers are pressured to produce high margins by customers. The volume bias of the SCM model will often favour price as a primary marketing tool. Working closely with both customers and suppliers concurrently can also avoid the risk inherent in the build-for-inventory (BFI) systems. A demand chain-led approach has more flexibility.JEIM 19. Given a product range. it is also very likely that web-based “buying exchanges” will be developed with competitors. are all essential to motivate customer expectations and subsequently purchase decisions. Demand chain-led organisations adopt more flexible structures. By contrast demand chain management (DCM) organisations empower R&D staff to work closely with customers to develop products and processes cooperatively. as does an efficient demand chain. 252 . As Figure 1 suggests there are problems with this approach. DCM companies often use a build-to-order (BTO) system (and usually not manufacturing unless all or part of the payment has been made). Usually the decision has been made as to the extent to which price is part of an overall “value package” and this is a result of a comparison of competitor value offers. Marketing as a process is also different.

The processes differ .Demand chain effectiveness 253 Figure 1.

and forwards towards marketing and service processes. This will invariably involve working with customers as they identify and crystallise their product-service needs. But differences are apparent between supply chain. The supply chain model shows linkages that are predominantly supplier. It is the notion that the added value created in a demand chain/supply chain structure can be seen to move. being cost-efficiency focused. in the demand chain-led business there is an overall relationship management process that creates a flexible structure capable of responding to market shifts in added value opportunities. This is reflected in the Ford and GM structures that have emerged in recent years. Relationship management is an essential requirement for success. “off-shore” customers operating just-in-time (JIT) procurement and production systems have quite different needs to those who are within the same state and use a materials stockpile approach to inventory management. customer location and lead-time requirements should be used to establish an appropriate order administration process.and customer-based. There are tentative linkages between the two. Using demand chain analysis to focus the supply chain A question remains: how does this all come together? Figure 2 suggests a model. Production was once seen as the focal point of added value creation with attractive returns on investment from vertically integrated structures. This difference is suggested by Figure 1. Service propositions may be as important as product propositions. the added value within the automotive industry has shifted in two directions in recent years. giving a richer emphasis to the overall value proposition. possibly developing them. 2001). assemblies and modules.3 254 The essential differences between service processes are that SCM organisations. Additionally the SCM organisation tends to feature logistics service as the primary service focus. For example. apply this attitude to customer service. Slywotzky and Morrison (1997) suggests that this is a feature of the current business environment. Evaluating the value delivery options suggests a review of not only the manufacturing and logistics issues but suggests that the customers’ relationships with its customers are given . responding to changes in consumer and market expectations (Champion. leading to a move by the industry away from vertical integration towards virtual integration (Drucker. Champion (2001) gives an example of an organisation (Millenium Pharmaceuticals) that is planning its structure around integrating both the demand and supply chains. Product platforms built around buying exchanges. including service as a necessity rather than as a feature that in itself may attract customers. For example. By contrast. Given an understanding of the customer value drivers. The interesting feature that often distinguishes demand chain-led organisations is their response to value migration. The response should be structured around the identified issues.and demand chain-led organisations. It often requires coordinating both customer needs with supplier capabilities to achieve a cohesive as well as an optimal solution to customer product-service needs. these may be used to identify the planning areas that need to be addressed when constructing the supply chain response. have resulted in value migrating backwards in the supply chain towards the component manufacturers. The demand chain-led business structure is essentially proactive. Demand chain management-led organisations embrace all aspects of service in their view of customer service.JEIM 19. 2001).

Demand chain effectiveness 255 Figure 2. Using demand chain analysis to focus the supply chain .

Questions should be asked concerning the effect of changes in business direction and the implications for alignment between this and the infrastructure support requirements. the actions of the major manufacturers suggest some migration has occurred. The process of order assembly and inventory management may differ markedly between customers. and a business dimension that concerns market characteristics such as volume and variety expectations. Implications of process choice. Where once the largest proportion of total industry-added value occurred in manufacturing. Dell and Microsoft now coexist as a value chain. are biding. computer assembly and delivery. tended to break down into a few separate. shifts have occurred such that module and component manufacturing create more added value than assembly. software and support services. Within manufacturing. This is not unusual with relationships between large retailers and their suppliers. Intel. but processes such as design. a customer operating in a non-price competitive market may see advantage from offering an established brand feature as a component of its own product-service offer and consequently demand some exclusivity and a guarantee of service if the arrangement is to be formalised. Type of process. Product/service profiling. once committed. and organisational infrastructure. Three broad considerations were suggested.JEIM 19. development. Marketing decisions clearly have important considerations. and typically requires opportunity cost or trade-off decisions that. and marketing are responsible for an increasing share of total added value. The development of concepts such as mass customisation have far-reaching implications for product strategy and. Customer and market characteristics can influence the selection of a manufacturing process. after all. Where once IBM was dominant across the whole industry. is important because it accounts for a large proportion of the investment. Product platforms have proven to be a successful response for industries within which incremental differentiation is an important factor in seeking competitive advantage. which are now all quite independently distinguishable but interlinked markets. Quite clearly this has implications for investment decisions in the .3 256 priority. He argues that the value chain for other high-tech products has. Mark Levin. In some industries we have seen specialist suppliers establish “industries” around components manufacturing. operating costs. Levin suggests that the structure of computer hardware industry success factors has changed. therefore. The movement of added value activities in the automotive industry makes this point. For example. is important because success will only occur if the marketing strategy is supported by the operations strategy. in which considerations involve two “dimensions”: a technical dimension – involving the specification of the product and the implications this may have for process technology. Previously the concept of value migration was introduced and it has significance for supply chain design and management. Hill (2000) identifies some of the decisions to be made when considering the operations process appropriate to a market opportunity. An interesting development is the management of share of market value. on manufacturing decisions. largely independent markets (each majoring in specific value positioning characteristics). The computer industry is such an example with chip manufacturing. Champion (2001) reports the view of Millennium CEO. A well-established and reported case study features the working arrangement between Wal-Mart and Proctor and Gamble.

Milan and Paris once dismissed Zara et al.. Example: Zara – effective demand chain management leads to supply chain efficiency in the “fast fashion” segment of the ladies’ apparel market There are several examples of successful demand chain/supply chain organisations. and style at low prices and have found it necessary to make changes to speed up the production cycle. Rohwedder reports on the reaction of the responses of Europe’s elite fashion houses to the activities and influences of companies such as Zara. The company has linked its procurement and production system with those of its suppliers in a process that reduces time for commissioning prototypes and replenishment. Hennes & Mauritz and large retailers (e.g. Rohwedder (2004) comments on developments in the “fast fashion” segment of the apparel industry. Ferragamo used ICT (Information and Computer Technologies). Birtwhistle et al.g. and providing after-sales support. Customer service decisions are important for both customer relationship development and management. mini-collections reflecting trends that develop mid-season. and its users as internal customers. (2003) define and discuss the level of quick response (QR) implementation by fashion retailers by exploring its impact on replenishment processes. Wal-Mart). suggesting that partnership arrangements within manufacturing are becoming increasingly favoured options. and distributed them much faster and cheaper than the established designer brands. This may be a larger issue than indicated. The marketing response has been to introduce “hot fill-ins” (e. advertising. Escada stores receive new merchandise every two to three weeks. it suggests that retailers have not explored their demand chains and identified a suitable supply chain structure to service their customer markets efficiently. “knockoffs” of the designs appear in the outlets of the fast fashion retailers who have copied. It has introduced the notion of centralised inventory management. London. variety. The “fast fashion” retailers have influenced consumer expectations for speed. resulting in lower inventory holdings and more rapid stock-turns. They comment that their results suggest that retailers have not fully understood the benefits of implementing a QR strategy and suggest the retailers perceive it more as a strategy for internal supply chain management rather than an external supply chain strategy. 2004) suggests that companies should treat a customer relationship management solution as a product or service. manufactured.supply chain. Escada). A recent study by McKinsey (Agarwal et al. as irrelevant but have found it necessary to understand this market segment and how to react to its characteristics. by making it valuable. pricing it appropriately. Demand chain effectiveness 257 . bringing it down to ten weeks from the usual three months. Etro SpA (Italy) divides their product line into theme and colour schemes from the moment of conception and changes the style and dominant colour monthly. They found that information technology is particularly important in driving supply chain response. reducing the time-to-market of its designs by some 20 percent. They suggest success can only occur if it has relevant structure with specific managerial responsibility and accountability. This is supported by a supply chain process that reduces both time and cost. Typically long before the “elite fashions” reach the boutiques.

one for folded apparel. The network of workshops. The distribution centre is built on two levels. It acquires fabrics in only four colours and postpones dyeing and printing until close to manufacture. The value expectations of customers can be summarised as follows in the order of their importance to customers: current fashion designs. Quality of the garments and low prices are very important as well. The implications for Zara and its partner suppliers are clearly identified: rapid new product development and time-to-market. and these are supported by in-store displays that offer “ensemble” ideas.. enables Zara to react quickly to market changes and new designs during a season. variety/choice.e. Figure 3 represents the Zara demand chain/supply chain decision structure. 2000). by road and air. 2001). Zara is an interesting organisation in the Inditex group. the resources of Inditex) supplemented by selective outsourcing.000 workers are employed but none of the workshops is actually owned by Zara or Inditex. Tagliabue (2003) reports that the system is capable of handling 40. with a low risk that the items will be rejected. A Web site provides customers with fashion hints. Zara checks each delivered item twice for quality. . Chanel etc. together with an ability to ensure the resulting product is manufactured and in distribution while the style remains fashionable. The Demand Chain Profile identifies a demographic segment of 17 to 22 year olds that are fashion but budget conscious.000 items an hour and completing store deliveries within 24-48 hours. boxed in cardboard cartons.). In these 350 workshops more than 11. Generally fast fashion products cost only 10 per cent of the price charged by elite fashion design houses. Garments are “cut” by Zara staff and sent for completion by outsourced workshops that are sent clear instructions for the work to be “finished”. Staff identify with customers demographically and in fashion appeal. The company’s response to the value drivers is a value proposition that specifies merchandise characteristics. the other for plastic-covered garments on hangers. Customer value drivers are clearly identified suggesting the company has no doubt concerning the market segment within which it operates. together with modern distribution centres.JEIM 19. and retail location strategy. Customer service is focused on developing both customer satisfaction and customer loyalty.3 258 Customers of fast fashion expect to have a great variety and choice of up-to-date well-designed clothes. and service that includes an attractive store design. thereby reducing waste and minimising the need to clear unsold inventories. Zara is able to deliver new design apparel from the drawing board to the stores in one or two weeks and therefore can respond very quickly to fast-changing tastes of their young urban customers (Walker et al. Zara’s production model includes a large outsourcing activity in which products are sewn by external workshops located close to Inditex factories (Heller. low price with commensurate quality (10 per cent of the price charged by elite fashion design houses). Zara’s supply chain responses are also shown in Figure 3. What is clear is the use made of in-house skills (i. Prada. Schedule and quality controls are essential features of the supply chain design: manufacturing is a process managed by Zara. immediate availability of trends (garments from established high-end fashion European elite design houses such as Gucci. customer targeting. Physical distribution is a structured process within which product packaging needs play an important role. Fabric is pre-cut into pieces and these delivered to the workshops where the worker stitches the fabrics with easy-to-follow instructions into finished products.

Zara – effective demand chain management leads to supply chain efficiency .Demand chain effectiveness 259 Figure 3.

Hammer. Vol. Vol. Holmstrom. Louhiluoto. Operations Management.JEIM 19. P. If this is achieved. Financial Times/Prentice-Hall. as knockoffs beat originals to market. Inside Zara. References Agarwal. J. 337-48. Hagel. “Mastering the value chain”. Harvard Business Review. S. Siddiqui. Thus the link between supplier relationship management and customer relationship management is tenuous. M. NY. (2001).G. (2001). it results in bringing often conflicting objectives together more closely. and Towill.R. Management concern is cost-led and attempts to provide an adequate level of service. “What is the right supply chain for your product?”. No.J. “The other end of the supply chain”. 77 No. (2000). Christopher. G. Drucker. R. McKinsey Quarterly. 1. A. and Morrison. D. C. Creating Demand Driven Supply Chains. International Journal of Retail & Distribution Management. Clearly more research is needed before such a view can be held with conviction. Forbes.. Langabeer. New York. Rohweder. J. Harvard Business Review. . J. Crown Publishing Group. N. Harvard Business Review.P. Slywotzky. Macmillan Business. June. M. 13 No. 1 November. D. J. The Economist. and Schumacher. By contrast the demand chain approach is a broader view of relationship management. The Profit Zone. pp. Harvard Business Review. Bovet. Wall Street Journal. NY. (2001). T.3 260 Concluding comments It is interesting to postulate that the differences between the demand chain-led organisation and the supply chain-led organisation are based upon emphasis. (2000). Chandos Publishing.. D. taking a view that supplier and customer relationship management overlap. Harvard Business Review. November/December. 31 No. Logistics and Supply Chain Management.J. (1997). 3. and that effective management is to integrate the two. MacMillan. “Engineering supply chains to match customer requirements”. Wiley. Harding. “Organising for CRM”. and Martha. W. Value Nets.E.C. New York. (1998). “Style and substance: making fashion faster. J. “What is strategy?”. Hoover. P.L. P. A. (2000). NY. D. Oxford. Birtwhistle. I. designers speed the trip from sketch to store”. Hill. and Singer. (2004). London. Basingstoke. NY. New York. The McKinsey Quarterly. A. the emphasis is on efficiency. Childerhouse. while supply chain management is to a degree customer focused. (2001).. and Fiorito. 6. 24 February. M. (2000). Porter. Logistics Information Management. R. Heller. “Unbundling the corporation”. (1997). “Quick response: perceptions of fashion retailers”. (1999). (1996). Vol. July/August. M. New York. Jr. (2004). Champion. 2. and Rose. March/April. No. M. D. 2. Wiley & Sons. “Will the corporation survive?”. The danger here is that customers may be “aggregated” or fitted into categories that appear to be nearly relevant. (2001). J. Figure 3 attempts to make this point by suggesting that. (2003). The Agenda. and Vasara. “Discovering new points of differentiation”. and McGrath. Fisher. (1997).

au Demand chain effectiveness 261 To purchase reprints of this article please e-mail: reprints@emeraldinsight. “Unlocking the supply chain to build competitive advantage”. 11 No.Tagliabue. (2000). J. Corresponding author David Walters can be contacted at d. Bovet. Frontline Solutions.com Or visit our web site for further details: www.edu. Pan-European edition. p. “The globalisation of business: the role of supply chain management”. (2003). MN. Trinca.. Tierney. 11 April. “Spanish fashion chain Zara rivals Gap by operating like Dell”. (2003). No. 9 June.emeraldinsight.walters@uws. “Tune up for a super-efficient supply chain with a Triangle”. 34. “Reconstructing work”. Journal of Logistics Management. Walker. D. B. (2003). New York Times. Duluth. S. and Martha. A. H. 11. (1998). J. 2. Vol.com/reprints . Waller. Australian Financial Review: Boss. Management Focus.

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