3 Key Relationships of Marketing & Supply Chain Management
How is marketing and supply chain management (SCM) related?
It is important for marketing and supply chain professionals to have a strong understanding of how the two fields harmonize. The marketing and SCM fields are so broad and interconnected, that it can be harder to think of how they differ, than how they relate.
When decisions and efforts from both functions unify together, organizations can pack a more powerful punch in the results they pursue. They can satisfy customer demand triggered by the company’s advertisements, and by making their products and services consistent, companies can build long-term trust. When the two perform disjointedly, the organization starts pursuing different internal goals, which frequently leads to dysfunction or even disaster.
The first step to understanding how the two business functions come together is through definition.
As defined by the American Marketing Association: “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” (AMA, 2019).
As defined by the Council of Supply Chain Management Professionals: “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. 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, 2019).
Let’s look at some examples of how marketing and SCM are related.
1. Supply and demand:
This might be somewhat rudimentary, but it’s a powerful concept here. The whole basis of a free market economy is supply and demand.
Supply is overseen by the company’s SCM personnel. Such functions include sourcing, procurement, logistics, inventorying, distribution, and more. Demand is overseen by marketing managers, like advertising, sales, differentiation, and customer feedback through surveys and focus groups.
When these two components come together, a business can effectively supply the products that their marketers promoted. Marketing is the recognition of what customers need. SCM is the delivering of those customer needs. This is the broader essence of the relationship between SCM and marketing, but there is much more behind this face value.
2. Avoiding stockouts from promotions:
When items are promoted with advertisements and discounts, the number of sales tend to increase. Hopefully not so much as to cause stockouts, which is when the inventory of items is sold out completely. Stockouts are a SCM’s worst nightmare.
Of course, it’s bad for the customer because they will lose trust in coming to your business for things, but it’s a huge opportunity missed for the retailer and manufacturer to earn profits. One saying goes “Stockouts cause walkouts”. Customers lose confidence in shopping at locations that fail to stock enough of what they came to purchase. This leads to the risk of customers developing new habits of shopping at competitor locations. For example, if CVS keeps running out of milk, people might start shopping at Walgreens.
When the marketing team is setting up promotions, it is important to communicate with supply managers to ensure some measures are put into place to prevent stockouts. Some SCM considerations to prevent stockouts:
- Forecasting accuracy
- Safety stock utilizations
- Fast resupply logistics capabilities (Just-in-time)
3. Brand quality:
Quality can be the key differentiating factor for many products and services, especially heavily competitive markets. A trust in a company’s standard of quality often keeps customers coming back for more.
Take Häagen-Dazs ice cream, for example, the level of quality in their ingredients is held to a higher standard than most other brands of ice cream. They source their vanilla beans very precisely to keep consistency in their vanilla ice cream. This builds customer trust. Sourcing and procurement are critical SCM functions that facilitate a company’s quality standard.
On the flip side, marketers need to be able to convey the right messaging in their advertisements regarding things like product quality. Good marketers know their products well. Häagen-Dazs marketers would benefit from having an understanding of their ice cream’s quality so they can formulate marketing strategies that speak to their target market.
SCM personnel must communicate with marketing to ensure the right products are being produced and the right messages are being sent out. If the marketing department is sending messages that are inconsistent with the company’s SCM capabilities, customers can get misleading information and lose trust.
A company’s SCM and marketing departments are more interconnected than it may seem on the surface. The reality is that organizations that encourage communication and collaboration between the two are poised to be more in-tune with customer needs and delivery expectations. When properly integrated, the business model becomes inherently more cohesive and high-performing.
SCM needs marketing to facilitate communication with potential customers. Marketing needs SCM to fulfill the products and services advertised. The two go hand-in-hand.
Perform planning and goal-setting sessions with representatives from both functions. Ensure processes are in place that promote communication and knowledge sharing between the two departments. Then encourage and recognize the efforts of collaboration.
Interested in learning more about Supply Chain Management or Marketing? Reach out to the MC360 Team.
CSCMP, 2019. Definitions and glossary. Retrieved from: https://cscmp.org/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms.aspx
AMA, 2019. What is marketing. Retrieved from: https://www.ama.org/the-definition-of-marketing-what-is-marketing/