marketing and procurement and logistics

How Does Marketing Affect the Day to Day Activities of Procurement and Logistics Managers?

QUESTION:

How does marketing influence the day to day activities of procurement and logistics managers?
 

EXPERT ANSWERS:

Ron Giuntini
Consultant and Principal
Giuntini & Company, Inc.

Marketing is a strategic function which is focused upon creating the demand for an organization’s products. In theory, Marketing’s forecasts should be shared with the Supply Chain Management [SCM] function, who in turn will convert the Marketing plan into a tactical plan, which will drive the Master Production Schedule [MPS], if a manufacturing organization, or the Distribution Plan if a distributor. 

In turn, ALL the SCM resource requirements should be driven by the Marketing-driven tactical plan; warehouse cube, transport, inventory investment, warehouse personnel, material handling equipment and much more.

But alas, the above scenario often does not occur. From lack of communication between Marketing and SCM, to overblown Marketing forecasts, to inadequate SCM planning tools, and much more, most organizations miss a golden opportunity to materially improve the efficiency and effectiveness of the Supply Chain by the SCM function working closely with Marketing.

The Sales & Operations Planning [S&OP] process and the accompanying software is designed to coordinate Marketing/Sales and operations, including SCM; it has had success in many organizations that have employed the process, but these firms are a minority of the overall population of companies.

My recommendation is to develop a relaitonship with Marketing leadership and show them that it is in their self interest to work closely with SCM; it is all about trust and the ability to deliver what you say.

 

Tan Miller, director of the Global Supply Chain Management Program at Rider University, College of Business Administration

I agree with Ron's comments.  Briefly I would add the following:

It is critical that there be very strong collaboration between Marketing and Logistics in planning and executing short run (day to day) operations, as well as in developing intermediate and long-term plans and strategies.  What immediately comes to mind in thinking about how important the linkages between these functions are - is that a strong alignment between Marketing, Logistics, and Manufacturing/Supply Chain positions a firm to develop and maintain the appropriate inventory levels to efficiently support both routine replenishment operations as well as all promotional efforts.  Briefly however, the importance of these relationships extends much further.  The following are a couple illustrative examples:

Marketing and Logistics must work closely together on an ongoing basis to determine the profitability and long-term value of all promotional efforts.  Marketing needs cost and operations input from Logistics and Manufacturing to evaluate accurately the true costs of each promotion. 

This input facilitates making good decisions as to the true incremental value of promotions - both before and after the fact. 

Marketing typically has a major role in new product development for firms – working closely with a firm’s Research and Development Group on potential additions to a firm’s product line.  Even in the initial stages of new product development, a firm must consider the potential costs and requirements to deliver a product to the market (customers) – so that the viability (profit potential) of a product is understood right from the outset.  For example, suppose a consumer products company is considering the development of a new product that will require “refrigerated transportation”.  Further, suppose that the firm’s current product line does not require that any products be shipped in refrigerated transportation.  In a firm where strong relationships exist between Marketing, Logistics and R&D – the higher incremental cost of delivering this potential new product will be appropriately factored into the ultimate decision on whether to develop this new product.  In a firm which doesn’t cultivate these inter-departmental relationships, there is a greater likelihood that decisions will be made based on inaccurate and/or incomplete information.  This results in poorer overall firm decision-making.  In this specific example, without advanced planning for the need for refrigerated transportation to support a new product line, Logistics (and the firm) would be very challenged to obtain the profit margins forecast for a new product.

These are just two examples of the countless ways that Logistics/Supply Chain and Marketing are linked.  A truly integrated, cross-functional organization can address these types of challenges more efficiently and effectively than can a firm which lacks these collaborative characteristics.
 

James A. Tompkins, Ph.D., CEO,
Tompkins International,
supply chain consultants

In today’s competitive Omni-channel world, promotions play a huge part in building brand loyalty to keep consumers  coming back.  Smart companies utilize an integrated planning process whereby marketing and logistics have early and frequent interactions to insure that products are available when they are needed, where they are needed, and in the right quantities.   Promotions are a way of life for most retailers today and with each promotion there is an expected payback.  Demand-driven companies especially know the importance of integrated planning at the SKU level to maximize sales.  This is the way smart companies determine initial stocking and replenishment plans.

Russell Meller, Vice President of Research & Development for FORTNA (with collaboration from Mike Wood, Materials Handling group)

When addressing the challenge of marketing's impact on logistics, SKU proliferation's effect on inventory must be considered. There can be cases where the sales lift for a category doesn't outweigh the inventory impacts of adding the additional SKU in a category.  The "square root rule" is a simplistic view of inventory, but can, at least, start a conversation.  For example, by going from 10 SKUs in a category to 11, the square root rule would predict a 4.9% increase in inventory for the category. Would the projected sales lift justify this increased investment (capital, storage, handling, etc.), or, if not, are there reasons to believe that the increase in inventory would be less in this situation than the rule predicts (for example, cycle stock is constant, but safety stock follows the rule, etc.)?

*Square root rule applied to this example:  The percent increase from 10 to 11 is 10%.  The square root of 1.10 is 1.049, which implies a 4.9% increase in inventory.


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