MANAGING COMPLEX HYBRID CHANNELS

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MANAGING COMPLEX HYBRID CHANNELS
Prof. Horst O. Bender, Ph.D. Rotterdam School of
Management Erasmus University (NL) THESEUS
Institute (F) hobender_at_B2B-MSI.com
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SELLER/BUYER PARTNERING ELIMINATES DUPLICATION OF
EFFORTAND PAPER-CHEWING TRANSACTIONAL
NIGHTMARES
Michael Katzorke, VP of Supply Chain Management,
Cessna Aircraft Co.
Market/Discovery
Transaction
Service
Market/ Product Research
Market/ Stimulation/ Education
Order Billing/ Payment Mgmt.
Order Scheduling/ Fulfillment Delivery
Order Selection and Policy
Customer Service and Support
Terms Negotiation
Order Receipt
Product Evaluation
Product Discovery
Order Payment
Order Tracking
Product Service and Support
Product Receipt
Terms Negotiation
Order Placement
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EFFICIENCY REASONS TO ENGAGE IN e-SUPPLY-CHAIN
INTEGRATION
Logistics Partner
Supplier
Logistics Partner
OEMs
Manufac- turer
Demand Forec.
Order Placem.
Order Confirm.
Prod. Planning
Parts Order
Order Confirm.
Prod. Planning
Production
Expediting
Shipping order
Tracking
Tracking
Receipt
Production
Expediting
Shipping order
Tracking
Tracking
Receipt
Invoice Appr.
Invoicing
Paym. Instr.
Book entry
Invoicing
Invoicing
Invoice Appr.
Paym. Instr.
Book entry
Book entry
Invoicing
Invoice Appr.
Book entry
Paym. Instr.
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THE VALUE STREAM FOR COCA COLA
Aluminum
Bauxite
Can maker
Steel
Iron ore
Sugar
Corn
Concentrate
Bottler
Store
Special Ingredients
Cardboard
Fir trees
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THE VALUE STREAM FOR COCA COLA ALUMINUM CANS

• Incoming Processing Finished Process Cumulative
  storage time storage rate
  days
• Mine 0 20 min 2 weeks 1000
  t/hr 319
• Reduction mill 2 weeks 30 min 2
  weeks 305
• Smelter 3 months 2 hrs 2
  weeks 277
• Hot rolling mill 2 weeks 1 min 4
  weeks 173
• Cold rolling mill 2 weeks weeks 800 m/min 131
• Can maker 2 weeks 1 min 4 weeks
  2000/min 89
• Bottler 4 days 1 min 5 weeks
  1500/min 47
• Chain store warehouse 0 0 3 days
  - 8
• Chain store 0 0 2 days
  - 5
• Home 3 days 5 min -
  - 3

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MANAGING SUPPLY CHAIN ADVANTAGE
CONSUMER
CONSUMER
VALUE
VALUE
VALUE / COST / SPEED
CUSTOMER
CUSTOMER
COST
VALUE
VALUE
VALUE
COMPANY
COMPETITOR
COST
SUPPLY CHAIN ADVANTAGE
VALUE
VALUE
SUPPLIER
SUPPLIER
COST
Co-production of value Co-elimination of
cost Co-generation of speed
VALUE
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SUPPLY CHAIN INTEGRATION PRINCIPLES
Produced
Marketed
Produced
Marketed
Purchased
Purchased
Produced
Marketed
Alignment
Alignment
Purchased
Good
Good
Good
Good
Good
Good
Good
Good
Good
Alignment
COMPANY
SUPPLIER
CUSTOMER

• The value stream must go beyond the firm and look
  at the whole
• The entire set of activities entailed in
  creating and producing a specific product
• From concept through detailed design to actual
  availability
• From initial sale through order entry and
  production scheduling to delivery
• From raw materials produced far away into the
  hands of the customer

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MANAGING SUPPLY CHAIN ADVANTAGE
CONSUMER
MANAGEMENT OF THE ULTIMATE CONSUMER - Consumer
value- Brand value- Corporate image
VALUE
CUSTOMER
VALUE
DOWNSTREAM CUSTOMER MANAGEMENT- Perceived value,
value-in-use - Value-adding relationship-
Product, service, systems value
COMPANY
VALUE
SUPPLIER
UPSTREAM SUPPLIER MANAGEMENT- Lowest total cost
- Sourcing philosophy - Technology access-
Product, service, systems value
VALUE
SUPPLY CHAIN EFFECTIVENESS- Network management-
Quick response- Low-cost distribution
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EXAMPLE STEEL INDUSTRY
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EXAMPLE STEEL INDUSTRY
Collaborative Commerce
Collaborative Commerce
Inventory Reduction
Current communication of demand and production
plan
Adjusted
Adjusted
Sales
Sales
Operations
Operations
Adjusted
Adjusted
Adjusted
Adjusted
Adjusted
Adjusted
Estimated
30-35 days

65-75 days
6070 days
20-25 days
Inventory
40-50 BN
20-30 BN
5-10 BN
20-30 BN
100-120 Billion
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EXAMPLE STEEL INDUSTRY
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U.S. STEEL INDUSTRY UPSTREAM SUPPLY CHAIN 2000
AND 2003
(A) Integrated Process ca. 2000
Iron Ore
U.S. Hot Cold Rolling
U.S. Basic Oxygen Furnace
U.S. Blast Furnace
Steel Slabs
Iron
Coal
Limestone
(B) Minimill Process
Electric Furnace
Steel Slabs
Scrap Steel
Cost advantage of 15-20 over (A)
(C) Integrated Process ca. 2003
Iron Ore
Brazilian Steel Slabs
U.S. Hot Cold Rolling
Brazilian Basic Oxygen Furnace
Brazilian Blast Furnace
Iron
Coal
Limestone
Cost advantage of 10-20 over (A)
Note Products with U.S. origin in black letters,
with Brazilian origin in blue letters (italics)
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PROCTER GAMBLES SUPPLY CHAIN IN THE
MID-NINETIES
Supplier
PG
Retail
Inventory throughout the supply chain
30 days
60 days
50 days
Total 140 days
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PROCTER GAMBLES INTRODUCTION OF ECR
Efficient Store Assortment
Optimise the productivity of inventories
and store space at the consumer
interface
Efficient Replenishment and Payment
Optimise time and cost in the replenishment
system Automate the payment system
ER delivers up to 38 of total ECR savings
Efficient Promotion and Pricing
Maximise the total system efficiency of
trade and consumer promotion and
pricing
Efficient Product Introductions
Maximise the effectiveness of new
product development and introduction
activities

• ECR is timely, accurate, paperless information
  flow together with smooth, continual product flow
  matched to consumption via PG software
• It is pulled by the consumer at retail and
  extends to the distributor, PG and its suppliers

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PROCTER GAMBLES SUPPLY CHAIN IN THE LATE
NINETIES
Manufacturer
Distributor
Store
Supplier
Raw materials
Retailers warehouse
Retail store
PG
Scan data
EDI
EDI
Benefits Elimination of excess inventories,
LTL shipments, stock outs
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RESULTS FROM ECR LATE NINETIES
Retailer profit margin
Retailer added cost
PG profit margin
Unit Cost
PG added cost
Cost of supply
Before forward buying
With CRP radical redesign
Before forward buying
During forward buying
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EXAMPLE OF A COMPLEX HYBRID CHANNEL
Manufacturer
Master Distributor
Master Distributor
e-Channels
Telemarketing
Dealer
Retail Distributor
Own
(e.g., Grainger,
Salesforce
Home Depot)
or Reps
Dealer
Installer
Customer
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MANAGING COMPLEX HYBRID CHANNELS
The Cost of Market Coverage
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MARKET COVERAGE MATRIX AND USE OF TELECHANNELSTO
IMPROVE COVERAGE
Key
Accounts
Field
Indirect Channels
Sales
(Distributors/Business Partners)
Force
Mid-sized
corporate
Direct
Small
marketing
(No Sales)
corporate/
(e.g., internet,
individual
telesales)
Customized
Bundled Standard Solutions
Products
Solutions
Key
Accounts
Telecoverage
(existing accounts)
Mid-sized
Telesales
Teleprospecting
corporate
Small
corporate/
individual
Customized
Bundled Standard Solutions
Products
Solutions
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THE AUGMENTED CHANNEL PRODUCT AND CHANNEL
POSITIONING MATRIX
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SALES/CHANNEL ALIGNMENT CHART
TELESALES, TELECOVERAGE, TELEPROSPECTING
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MEASURING TELECHANNEL SUCCESS
Measurement Type
Telesales
Telecoverage
Teleprospecting
Effectiveness Metrics (increase revenue growth
and customer satisfaction)

• Revenue per rep
• Average ordersize
• CustomerSatisfaction Rate
• CustomerReorder Rate

• Account share ofwallet
• Customer purchase frequency
• Average order size
• Customersatisfaction

• Number of leadsgenerated
• Lead-to-close rate
• of opportunitiesgenerated
• Prospect per-ceptions of sales telereps

Efficiency Metrics (increase productivity
and reduce costs)

• Cost per orderclosed
• Orders per rep
• per (day/week/
• month)

• Number of buyersper telerep
• Increase in salesforce productivity

• Calls per telerepper day
• Average cost perlead generated

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IBMs CHANNEL APPROACH (I)
Resource
Primary Role of Resource
Systems Integrators
Provides consulting on defining end users needs
and designing custom solutions.
Solution Providers
Provides solutions involving configuration and
integration, based on end-users definition of
needs.
Resellers
Supplies products with straightforward
configuration and integration.
Value Distributors
Provides products and value-added services and
expertise primarily to customers that sell to
end-users.
Volume Distributors
Provides products to customers that sell to
end-users.
Retailers
Business with street frontage, selling on the
premises to end-users.
Sales Agents
Third parties that cover specific territories on
a fee basis.
Direct Response Co.
Third party company that sells IBM offerings
through direct marketing methods.
ISV
Independent Software Vendor. SW provider having
no contractual relationship with IBM.
Influencers
Companies or individuals that provide comment,
evaluation, consulting advice, and guidance.
OEM
Original Equipment Manufacturer. Provides product
as one component of a system,usually repackaged
or privately labeled.
Source IBM Approach to Hybrid Marketing
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IBMs CHANNEL APPROACH (II)
BP Type
Customer Behavior
Offering Life Cycle
Focus of Activity
Source of Profit
Margins
Systems Integrator
One of a kind- Complex Customized Projects
Introduction
Meeting all of the cus-tomers needs Sells to end
users
Proprietary software or services
18-20
Solution Partner
Mass Customization- Replicable Customized Solution
s
Solution
Finding new opportunities to sell existing
solutions to end users
Proprietary SW and services lev. By resold
products
16-18
Reseller
Off the rack - Standard Offerings
Distribution/ Commodity
Selling as much product as possible to end users
High Volumes Resale margins and some services
8-10
Value Distributor
Mass Customization- Extensive Tech Support
Distribution
Selling as much product as possible with
some added-value to second tier
Margins and stock turns leveraged by
educ/support sev.
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Volume Distributor
Off the Rack - Standard Offerings
Distribution
Selling as much product and solutions as
possible to second tier
Product margins and stock turns
3
Retailer
Off the Rack
Commodity
Selling as much product as possible
Resale margins and turns
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Sales Agent
Varies
Varies
Territory Coverage Finding and selling total
solutions
Fees from Vendors
6-8
ISV
Mass Customization
Solution
Finding new opportunities to sell existing
expertise to end users
Proprietary software or services
6-12
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• MAKE-AND SELL ORGANIZATION
• Assumption
• Predictable Demand
• Goal
• Become an Efficient Enterprise
• SENSE-AND-RESPOND ORGANIZATION
• Assumption
• Unpredictable Demand
• Goal
• Become an Adaptive Enterprise

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ACHIEVING PULL IN THE SUPPLY CHAIN
Customer Preference and Choice
Naked Product with Options Approach
Product Configuration Device
Modular Product/ Service Design

• Information and Customer Relationships Become
  Strategic Assets