Channel Advisor 28-September-2004 Managing Your Demand Chain Part 1 of 5 by Mark Walton, Managing Partner, DemandEdge (www.demandedge.com) The demand chain is the marketing, sales, service, and logistics functions that connect a business with its customers. It is the 'chain' of entities (employees, resellers, partners, etc.) and activities (campaigns, programs, tactics, etc.) that you use to create and convert (to sales) demand for your brands, products, and services with your customers. To put it simply, it's everyone and everything you need to sell stuff. The term originated with Michael Porter, the renowned Harvard Business School Professor whose ideas on strategy and competitiveness are taught in virtually every business school in the world. Besides authoring 16 books and over 100 articles, he has developed several well known management models including, in 1985, the value chain model. In that, he identified and explained the relationship between the various primary (Inbound Logistics, Operations, Outbound Logistics, Marketing & Sales, Service) and support (HR, Technology Systems) functions of a business in its overall goal to deliver value to customers (see Figure). Over time, the value chain model has evolved into two sub-components; the well-known supply chain (that drives the procurement and assembly of products and services) and the lesser-known demand chain (as defined above). While much work has been done on the supply chain, comparatively little has been done to help companies understand their demand chain to the same degree. Some argue that the demand chain is the supply chain, but in reality they are very different. The supply chain is 'pulled' (you procure products from suppliers), while your demand chain is 'pushed' (unless you choose to let your customers take control and 'pull' from you which is a high risk strategy in most competitive markets!). And just as pushing a chain is a harder than pulling one, it can be argued that demand chain management is harder than supply chain management. Yet, there are tremendous benefits to businesses that adopt the demand chain approach. This is particularly true when compared to 'conventional' thinking which often leads to treating marketing, sales, service, and logistics as independent silos. While the demand chain approach must leverage everything we've learned in these silos, there is a huge additional value to thinking about these silos as being connected to one another as a chain of entities and activities that must work together, synchronized over time, to sell stuff. And while there are many other benefits, in many respects this is the real value of the demand chain model - the easier alignment and synchronization of the entities and activities. For example, while marketing can still be creative and own the responsibility to build brand, create awareness and generate leads, the goals of the tactics they use must be in line with the rest of the needs, or limitations, of the demand chain. There's no point in generating more leads than your resellers can respond to while they're still 'hot'. There's no point in generating leads if your resellers aren't ready to receive them. And there's no point in planning tactics to generate leads without first understanding how many leads your resellers need, given their current conversion rates, to achieve the sales goals you need. This is the essence of demand chain thinking - every entity and every activity must be aligned to the needs and limitations of the rest of the demand chain. And once you start thinking this way, you begin to get much more clarity about how to make overall improvements. For example, if you want to set more aggressive sales goals, you are suddenly aware of the different approaches you could or should take to achieve those goals. You no longer only think of the solution as "we need more leads", you also think of solutions such as "we need to help our resellers increase their conversion rates across their sales funnels", or "we need to get more mindshare and selling time from our resellers' sales people - how can we do that?" This is a small introduction to what the demand chain is all about. As you read the next 4 articles, hopefully you'll conclude that it's not only an extremely powerful approach but that it's also, thankfully, very easy to adopt. In Part 2, we'll take a deeper look at the value of thinking 'demand chain' and how it can help you build stronger relationships with your resellers. © 2004, DemandEdge, LLC Portions © 2003-2004, Demand IP, LLC For those of you unfamiliar with the term demand chain, take heart in the fact that it is relatively new (in terms of its use at least) and not many companies have adopted the demand chain approach for managing the creation and conversion of demand for their products and services. But there's a lot of indication this is all going to change and if so, you'll need to know a lot more about it. Hopefully reading the five short articles that will be published over the next few weeks will be an easy and time-effective way to come up to speed. A series of five articles by Mark Walton, Managing Partner at the consulting firm DemandEdge (www.demandedge.com), will explore the topic of distribution channels in the context of the 'demand chain' - a strategic management approach for marketing and sales that is rapidly gaining support across the high-tech industry. The five parts of the series will be as follows: Part 1: What Is A Demand Chain? This article, published below in this newsletter, provides a brief review of how the concept of a demand chain came about, what the components of a demand chain are, and how it compares to traditional marketing and sales thinking. Part 2: The Value Of Thinking 'Demand Chain': Partners Not Resellers This article will discuss how when you think 'demand chain', you realize that your resellers are an integral part of how you create and convert demand for your products and services with your end-customers. This can and should change your relationship with your resellers. They are partners; in fact, they are members of your team. Once you understand how to manage them as an integral part of your demand chain you can dramatically impact their, and your, success. Part 3: Managing Your Demand Chain: De-Fragment Your Touchpoints This article will discuss how success with your demand chain comes from recognizing that your end-customers have multiple touchpoints, including through your channels. To maximize your success, you need to identify these touchpoints and ensure they are integrated to properly develop and manage your demand chain mix and, in particular, your demand chain campaigns. Part 4: Automating Your Demand Chain: PRM Can Really Help This article will discuss how once you are thinking demand chain the next step is to find ways to improve your demand chain's efficiency and effectiveness. While various tools and systems exist to help you maximize the efficiency and effectiveness of your internal marketing, sales, service, and logistics teams, Partner Relationship Management (PRM) systems can help you maximize the efficiency and effectiveness of your channels. Part 5: Measuring Your Demand Chain: It's All Relative This article will discuss how the key to measuring your demand chain is the understanding that everything is relative. As such, things are continually changing and you need to identify and measure the right set of Key Performance Indicators that can give you a crisp, clear view of how things are working over time. © 2004, DemandEdge, LLC Portions © 2003-2004, Demand IP, LLC