| Evolution of Management Concepts in the Demand | | | | process re-engineering and time-based management |
| Chain Management (DCM) | | | | caught on and, if properly applied, could serve as a |
| Management concepts come and go. Some rise, | | | | basis for effective and efficient use of new ICT tools. |
| explode and fall back like fireworks. Some remain like | | | | The fourth and fifth generations of logistics – |
| the North Star brightly shining and serving as guidelines | | | | respectively the time and process one and the |
| for navigation on the stormy seas of management. | | | | IT-based one – were born. They served as the |
| The first major issue, then, is to learn how to distinguish | | | | launching pad for increased and improved integration in |
| between fads and lasting, innovative concepts. The | | | | supply chains. They also pointed to the need to focus |
| next issue is to find out how to implement concepts; | | | | on inter-Projectal processes, rather than on institutions |
| what kind of methods and tools we need; how to | | | | in the chain. Different definitions of SCM illustrate this |
| educate to change mindsets; and what the best way | | | | change of focus (Cooper, Lambert and Pagh, 1998). |
| is to design the transformation process. | | | | The implementation of SCM was enabled and |
| One way to distinguish between concepts and the | | | | facilitated by two important toolboxes that were |
| rest is to use a holistic approach and see how the bits | | | | developed in the 1990s – business resource |
| fit together to create a new pattern. When Taylor | | | | management and e-logistics. |
| wrote about scientific management, he observed and | | | | |
| summarized things that were happening in research | | | | Business resource management |
| and practice. He established a theory – or a frame | | | | In the 1980s, the need for deeper integration and |
| of reference – for the emerging industrial society. | | | | synchronization of processes across functional areas |
| One reason for the success of scientific management | | | | became urgent. In order not to get stuck in traditional |
| was the obvious need for a new paradigm to guide | | | | functional or departmental silos, the focus was on |
| the transition from handicraft to industrial manufacturing. | | | | interdepartmental resources and processes. This |
| Today there is a need for a new paradigm for the | | | | holistic view was called business resource |
| shift from the industrial to the digital society. It is obvious | | | | management (BRM) (Ericsson, 1990). It had its roots in |
| that 'something is trying to happen'. There are islands | | | | classical management literature, where the four main |
| of rethinking and new frames of reference popping up | | | | resources were 'men, materials, machines and money' |
| in the ocean of business strategy and management. | | | | – with information as a major new resource. The |
| What is needed is a holistic frame of reference that | | | | aim was to create a framework for integration of |
| can help bridge the troubled waters separating those | | | | resources, flows and processes. |
| islands. | | | | BRM is a broad, holistic management approach, and |
| Demand chain management (DCM) is an important | | | | soon it became evident that it also could be used as a |
| new business model to help with this. Electrolux, one of | | | | basis for inter-Projectal process management. The |
| the world's leading appliance projects, has created its | | | | focus on resources, flows and processes was an |
| own version of DCM, called demand flow leadership | | | | excellent starting point for process-oriented SCM and |
| – and these words are carefully chosen. Demand | | | | DCM. |
| means consumer-centric, with all activities based on | | | | E-logistics |
| consumer insight. Flow suggests an even, steady, | | | | BRM is a forerunner of the broadening of the logistics |
| uninterrupted and quality-assured value stream – as | | | | concept into e-logistics – which is a toolbox for |
| opposed to a chain of sequential, connected links. | | | | improving inter-Projectal relations. It was a response to |
| Leadership refers to the fact that the demand flows | | | | the increasing interdependence between logistics and |
| are not Projectal units that have to be managed. | | | | ICT. |
| Demand flows are processes where leaders can | | | | The evolution of the logistics concept illustrates the |
| emerge anywhere in the value network. Their efforts | | | | interplay between visions and tools. In the early history |
| have to be supported by executives with a vision of | | | | of logistics development, tools were lagging behind |
| what can be achieved. | | | | visions and we were asking for more tools – in the |
| Man is limited not so much by his tools as by his | | | | mid-1990s, however, the tools surpassed the visions |
| visions. | | | | and the next issue was to renew the vision and |
| (Christopher Columbus) | | | | create ways of using the new tools (Ericsson, 1996, |
| The evolution of management concepts is influenced | | | | 2003). E-logistics was launched to provide a |
| by several things. One of the most important is | | | | framework for using the new tools of logistics, |
| executive vision, which is important for identification | | | | process management and ICT – and the |
| and application of relevant methods and tools. Another | | | | opportunities created by the interplay between them. |
| is new tools, which create new possibilities. Information | | | | E-logistics is the enabler of increased collaboration in |
| and communication technology (ICT) is a major trigger | | | | the supply chain and it also creates opportunities for |
| for renewal – and also a major enabler in the | | | | true consumer orientation. |
| transition from the old industrial to the new digital world. | | | | New tools are continuously developing, while old ones |
| The availability of new ICT tools is increasing rapidly, | | | | change focus and use. For example, the concept of |
| and the trick is to know which ones to use and for | | | | quick response is not new, but it has a new and |
| what purpose – with implementation driven by | | | | deeper meaning when used to give customer |
| business needs and not by technology availability. | | | | orientation in fast-moving industries. New ICT tools – |
| External developments also have to be analysed and | | | | especially customer databases – improve relations |
| classified in order of importance. External opportunities | | | | with customers and enable point-of-sale and |
| and threats should be transformed into action and | | | | point-of-demand techniques. New tools for linking |
| internal adaptation – triggering internal rethinking and | | | | enterprise databases, applications and business |
| restructuring. Increasing global competition puts heavy | | | | systems are also developing fast. |
| stress on proaction rather than reaction – and it is | | | | Supply chain management |
| important to identify trends early and benefit from | | | | The concept of supply chain management evolved as |
| them. For example, identification of emerging consumer | | | | a response to the necessity of improving and |
| needs, and efforts to turn market volatility from a | | | | extending cooperation. The relationships in supply |
| threat to an opportunity are two of the major goals of | | | | chains moved from arm's length, often adversarial, |
| DCM. | | | | transactions to different levels of integration – |
| A lot of today's thinking has its roots far back in | | | | ranging from coordination, through cooperation to |
| history, but visions that earlier could not be reached | | | | collaboration. Then e-logistics, with its focus on process |
| because of lack of efficient tools can now be realized. | | | | management, is a major enabler of both SCM and |
| The next issue, then, asks how new concepts should | | | | DCM. |
| be implemented to create lasting change. To get a | | | | There are several ways of defining processes in |
| better understanding of this it is worth looking back in | | | | business (Cooper, Lambert and Pagh, 1998). I have |
| history, to learn from experience and see how lasting | | | | chosen to distinguish between three core business |
| management concepts have developed over time. | | | | processes:time-to-cash,time-to-market, andcustomer |
| In order to look forward we have to look back. | | | | creation and retention. |
| The diffusion of a concept like DCM follows the usual | | | | The time-to-cash process includes the total materials, |
| S-shaped curve, with early adopters and laggards. It is | | | | information and payment flows. |
| also clear that there will never be complete | | | | Time-to-market is the total process for creation, |
| implementation in any sample of projects, as the | | | | development and improvement of products and |
| concept simply does not fit all conditions. We can see | | | | services. |
| this in the development of other management | | | | The customer creation and retention process creates |
| concepts. In 1981, it described the development of | | | | and retains customer relations all the way from the |
| production, sales and marketing orientation to provide a | | | | first contact, via after-sales, follow-up and continuous |
| background to the evolving materials flow concepts | | | | improvement (Ericsson, 2003). |
| (Ericsson, 1981) I wanted to show how concepts build | | | | The difference between logistics and SCM becomes |
| on each other and develop partly in response to | | | | clear if we take these processes as the starting point. |
| problems created by an old concept. The best parts | | | | Both concepts focus on the flow from raw materials |
| of the old concept remain and are refined, while the | | | | to ultimate user. MA/logistics has its main focus on the |
| flaws are removed. There is a considerable overlap in | | | | materials flow and its connected information flows. In |
| time, with laggards still introducing a new concept while | | | | other words, it is focused on the time-to-cash process. |
| early adopters are leaving for an even newer concept. | | | | The SCM concept also considers the other two core |
| Intense, global competition makes it more and more | | | | processes –time-to-market andcustomer creation |
| dangerous to lag behind, as concept life cycles – like | | | | and retention. |
| product life cycles – get shorter over time. | | | | Hence, the SCM concept is broader than the MA |
| | | | | logistics concept. It focuses on the integration and |
| Production orientation | | | | synchronization of inter-Projectal relations and |
| In the early 1900s, production orientation developed as | | | | processes. This explicitly changes the focus from the |
| a natural response to increasing demand for industrial | | | | individual company to the supply chain as a whole. |
| goods. Scientific management focused on the | | | | SCM developed as a remedy for reoccurring |
| production process and the possibility of increasing | | | | problems at the interfaces between entities in the |
| productivity through rationalization. Taylor 's frame of | | | | chain. It was important to 'get the entities to act as |
| reference and the availability of new methods and | | | | one', which was apparent when the fact that |
| tools hastened development and accelerating growth. | | | | competition takes place more between supply chains |
| Keith (1959) summarized the management philosophy | | | | than between individual projects started to be |
| of Pillsbury for the years 1891 to 1930, saying, 'Our task | | | | recognized and accepted (Christopher, 1992). |
| is to grind flour of high quality and to sell it. However, it | | | | However, in practice, it still was very much 'us' against |
| is important that the business idea is built on the | | | | 'them' both inside supply chains and in relation to |
| availability of wheat and water-power – not the | | | | outside customers. Everyone talked about |
| availability and closeness of growing markets or the | | | | consumer-centric approaches, but they were not being |
| demand for better and cheaper flour.' Such a narrow | | | | implemented. This creates increasingly severe |
| view causes problems when productivity increases | | | | problems when the locus of power shifts down the |
| and getting rid of the product becomes a problem. | | | | supply chain to the final customer. Global competition, |
| Early writers observed this and pointed to the demand | | | | increased volatility and decreasing product life cycles |
| market as the major problem. In 1915 Shaw wrote, | | | | accentuated the problems. It became clear that there |
| 'Even if we are still on the threshold to all the | | | | was a need for a new business model. |
| possibilities offered by increasing productivity, the | | | | The evolution of a new business model |
| development has already surpassed existing | | | | We need a completely new way of thinking in order to |
| distribution systems. We have to find markets for the | | | | solve the problems we have created by using the old |
| products we can manufacture. The most important | | | | way of thinking. |
| issue today is to systematically study distribution in the | | | | The evolution of the DCM concept is, maybe, the first |
| same way as we have been studying manufacturing.' | | | | step towards a major rethinking. The transition from |
| Despite this, laggards still stuck to production orientation | | | | yesterday's business model into tomorrow's is shown |
| until the 1950s and 1960s. | | | | which illustrates that we are moving from a push to |
| Sales orientation | | | | a pull approach – from an SCM to a DCM. We are |
| In the 1920s, the view of sales orientation evolved, with | | | | moving from yesterday's model based on independent, |
| Borsodi (1929) summarizing the change of focus by | | | | inventory-based entities aiming for low-cost production |
| saying, 'The days are gone when the recipe for big | | | | to tomorrow's model with information-based virtual |
| profit simply was manufacturing, more manufacturing | | | | networks aiming for creation of perceived consumer |
| – and even more manufacturing! The distribution | | | | value. Supplier-driven mass production and mass |
| age is here.' Then Pillsbury's philosophy changed to: 'As | | | | marketing are replaced by market-driven mass |
| a flour producing company with many different | | | | customization and one-to-one marketing. |
| products for the consumer market, we need a first | | | | |
| class sales force to get rid of all the products we can | | | | If we believe in this description it is quite clear where |
| produce at a good price' (Keith, 1959). | | | | we are and where we are heading. The question is |
| The sales orientation was sufficient in a seller's market, | | | | how to get there. The first step is to make some |
| when demand is higher than supply. However, when | | | | internal as well as external adaptations and alignments. |
| the situation was reversed, a change of mindset was | | | | Internal alignments |
| needed. The sales orientation was successively | | | | There is clearly a need for closer integration of |
| replaced by a marketing orientation. | | | | logistics/SCM and relationship marketing (Ericsson, |
| Marketing orientation | | | | 2003). The concept of relationship marketing has |
| A 'new marketing concept' was launched in the early | | | | evolved into customer relationship management |
| 1950s – with authors making a distinction between | | | | (CRM), which allows a business to target customers |
| the old production and sales concepts and the new | | | | more closely and implement one-to-one marketing |
| marketing concept. It was stressed that marketing is | | | | strategies where appropriate, and which makes the |
| consumer-centric and focuses on analysis, planning, | | | | alignment with SCM even more important. The key is |
| product development and profitability – and not only | | | | to knit together the knowledge and expertise from |
| sales volume. | | | | SCM with the knowledge of marketing/sales and |
| Pillsbury's philosophy changed again to: 'Today | | | | buyer behaviour. Internally, this is a question of getting a |
| marketing in our company is seen as the function that | | | | common demand chain strategy that is based on both |
| plans and executes sales – the whole way from | | | | the marketing/sales and logistics/SCM strategies. |
| idea generation, through development and sales to the | | | | Demand creation has to be synchronized with demand |
| customer. Marketing starts and ends with the | | | | fulfilment. In theory, this is obvious, but there still is a long |
| consumer… the marketing department leads all | | | | way to go before this is implemented in practice. |
| company resources in the transformation of the idea | | | | External alignments |
| to a product and the product to a sales agreement' | | | | Externally, processes and systems must also be |
| (Keith, 1959). This statement could have been written | | | | aligned and synchronized: |
| today, with the major difference that we now have | | | | 1. Perceived customer values and the market |
| the tools to carry it through. The focus had shifted | | | | segments have to be defined to answer the question, |
| from production to marketing, from the products we | | | | 'What are the explicit and implicit demands and |
| can manufacture to the products the consumer really | | | | requirements of the customer?' |
| wants and from the company to the market. | | | | 2. Value chain processes are defined to answer the |
| But the new marketing concept started to create its | | | | question, 'What processes should be synchronized in |
| own problems, most of which came from too | | | | order to fulfil the needs and demands in the value |
| far-reaching customer orientation with focus on | | | | segments?' |
| service and delivery – without any deeper analysis | | | | 3. The network structure of the customized supply |
| of the concepts and the consequences. Scattered | | | | chain (the value chain) must be defined, answering the |
| remedies were popping up, but most of these were | | | | question, 'Who are the key value chain members with |
| fads rather than cures. They generally demanded | | | | whom to link processes?' |
| more flexibility and smaller batch sizes in | | | | 4. Value chain management components are defined |
| manufacturing, while focusing on delivery lead times | | | | based on the question, 'What level of integration and |
| – and gave higher inventory, transportation and | | | | management should be applied for each process link?' |
| handling costs. The lack of a theoretical framework | | | | (Cooper, Lambert and Pagh, 1998). |
| and a common language resulted in tension and | | | | Most contemporary DCM research focuses on |
| conflicts between marketing and manufacturing – | | | | interfaces in the commercial channel, ie on B2B |
| and increasing struggles for power. These problems | | | | relations, but the interface between the commercial |
| initiated the development of the materials flow | | | | channel and the consumer is the most important one. |
| orientation, when it became clear that the problems | | | | Because of the direct demand, the consumer's wants, |
| could only be solved with a more holistic approach. | | | | desires and needs are of a different nature. The focus |
| Materials flow orientation | | | | on consumer insight and deep knowledge of consumer |
| In the early 1960s the materials flow approach started | | | | needs and wishes is the major difference between |
| to spread in Sweden. It grew rather slowly to the end | | | | demand-driven SCM and DCM. |
| of the 1960s, and then took off when the concept of | | | | Demand chain management |
| materials administration was developed through close | | | | In recent years, there has been intense discussion of |
| collaboration between universities and major industrial | | | | SCM and DCM. Is there a choice of either one or the |
| projects such as Volvo, SKF, Atlas Copco, Sandvik | | | | other? Should DCM replace SCM? Is DCM just |
| and Astra. The approach was called materials | | | | another name for demand-driven supply chain or is it |
| administration because it was a much broader and | | | | completely new? My conclusion is that DCM is a |
| more strategic concept than logistics at that time (see | | | | natural next step in the evolution of the SCM concept |
| Ericsson, 2003). In particular, materials administration | | | | based on the necessity for adaptation to changing |
| (MA) was defined as 'Planning, development, | | | | external and internal conditions and the availability of |
| coordination, Project, control and review of the | | | | new tools. It is a matter of adapting to changing |
| materials flow from raw materials supplier to the | | | | circumstances and creating and using the right tools. |
| ultimate user' (Ericsson, 1969b). | | | | Responsiveness is the key to the new global |
| The concept focused the need for integrated | | | | economy – and also to the DCM approach. |
| management of the inflow, throughput and outflow. | | | | 'Customer ecstasy – at a profit' is the battle-cry of |
| From the start, MA stressed coordination and the | | | | the new global economy (Ericsson, 2003). The key is |
| strategic aspects of effective materials flows, but it | | | | to create value to the consumer, but in a |
| also emphasized that implementation had to start | | | | cost-effective and efficient way. This is, in a nutshell, |
| internally with synchronization of purchasing, production | | | | the mission of the DCM approach. |
| and physical distribution on an operational and tactical | | | | From a theoretical point of view, DCM is a logical way |
| level The internal structuring of the company must | | | | of refocusing and creating a new business model for |
| increase cooperation and synchronization of activities | | | | the digital and global society. Intensified competition and |
| in different departments. | | | | the availability of new tools push for a change of |
| The focus on internal processes was the starting point | | | | focus. The question is can we see any sign of a new |
| for the implementation, but it was clear that internal | | | | model in practical applications – or is the concept |
| efficiency was not enough, and links with suppliers and | | | | just another academic fad? |
| customers also had to be improved and coordinated. | | | | Practical applications |
| The first step was to improve cooperation on the | | | | There is some evidence of DCM emerging in business. |
| supply side. Supplier development and evaluation, | | | | Over the years, power in the distribution channel has |
| stockless buying, systems contracting and | | | | moved from the manufacturer to the wholesaler and |
| co-makership became key words in this development | | | | retailer. Today, the power rests with the consumer. |
| (Ericsson, 1969c). | | | | This makes direct contact between the manufacturer |
| The next step was to increase cooperation with | | | | and the consumer a vital ingredient in creating |
| first-tier customers. Early writers on marketing focused | | | | competitive strength. Dell has solved this problem with |
| on consumer markets, but now the interest in industrial | | | | close collaboration with suppliers and customers. |
| marketing – and hence in industrial buying – | | | | However, most projects cannot bypass intermediaries, |
| increased (Ericsson, 1969a). the term 'control' in the | | | | so relationships with retailers are crucial, as they form |
| definition of MA refers to the use of developing | | | | the main interface with consumers. |
| computer tools for managing materials flows. Initial | | | | The car industry has been trying to handle this problem |
| steps focused on operational and tactical levels in the | | | | for some time and has used all types of electronic |
| company, but soon the strategic aspects of MA came | | | | tools. However, in 2001, an industry analyst stated that |
| into focus – not only for directly flow-related | | | | 'The business model for the car industry is broken' |
| functions such as purchasing, production and physical | | | | (USA Today, 2001). GM had already started to create |
| distribution, but also with marketing and R&D and | | | | a new model for the car industry, and they launched a |
| engineering. | | | | project for 'Building a digital loyalty network through |
| Phases in the development of the materials | | | | demand and supply chain integration' – with the |
| administration/ logistics concept | | | | purpose of benefiting from closer integration of |
| The early development of the concept shows a | | | | purchasing/SCM, marketing and ICT. |
| typical growth curve: a rather slow start with | | | | On the retail side, Wal-Mart is often cited for its |
| acceleration in the early 1970s, as shown inbelow | | | | intelligent use of information and for running the entire |
| (Ericsson 1981, 2003; Green, 1989). | | | | Project on the basis of consumer demand. This allows |
| | | | | it automatically to delist products from a group of |
| The first generation of logistics – the | | | | stores after only two days of performing badly. IKEA's |
| total-cost-oriented one – came as a response to | | | | ability to move goods quickly from its suppliers, through |
| increasing need for a holistic view on costs. The | | | | warehouses and on to stores is impressive. Products |
| functional and silo-oriented approach that had evolved | | | | are packaged and sold to consumers in a way that |
| as a consequence of the division of labour had gone | | | | facilitates speed through the chain. IKEA measures |
| too far. By the 1950s this approach had started to | | | | total logistics costs for products in terms of |
| show major weaknesses – trade-offs between | | | | transportation, storage and investment in inventory. |
| functions and departments were hard to achieve and | | | | The capital cost is especially important, and the |
| sub-optimization was a major threat. Luckily, some | | | | company often works with double sourcing – one |
| new methods and tools were appearing to solve the | | | | regional supplier and a low-cost supplier in Asia – |
| problem, such as operational research models and | | | | with the control system making it possible to switch |
| emerging computer technology. So the first generation | | | | source quickly depending on sales. |
| of materials administration/logistics was born in 1969 as | | | | Today, the fashion industry is an archetype of the new |
| a response to problems and needs – and the | | | | business model, and the Spanish company Zara is |
| increasing availability of effective tools. | | | | maybe the best example. In the volatile world of |
| The vision is 'to create an even, steady, uninterrupted | | | | fashion, where trends go in and out of style very |
| and quality assured flow from raw materials supplier to | | | | quickly, Zara is efficient at minimizing obsolescent stock |
| the ultimate user' (Ericsson, 1969b). This was a guiding | | | | and bringing new products to shops very quickly. |
| statement of the ideal situation when all members of | | | | Concluded Note |
| the flow think and act as one. This vision is very close | | | | What, then, can we learn about the development of |
| to Towill's (1997) concept of the 'seamless supply | | | | management concepts? We can certainly see that |
| chain'. | | | | history repeats itself – as concepts come and go |
| External conditions changed again with rapid growth in | | | | and reappear in a slightly modified and refined shape. |
| the 1960s replaced by zero growth of the 1970s. The | | | | For example, consumer orientation was stressed in the |
| problem was then to gain a bigger share of a | | | | 1950s as the key to success in 'the new marketing |
| non-growing cake. The solution was the second | | | | concept'. Today, it is the key to success in the DCM |
| generation of logistics – the revenue-oriented one | | | | approach – with consumer insight going deeper and |
| – based on logistics as a means of competition. | | | | having more tools available than the old customer |
| One of the ways of increasing sales was to increase | | | | orientation. However, it is evident that implementation |
| the local presence with sales outlets and warehouses | | | | will be just as bothersome as it was with the |
| close to the customer. The number of warehouses | | | | marketing concept, and it still takes time. |
| and number of items exploded – with the capital | | | | Unlearning is more difficult than learning – so a |
| tied up in inventory creating new challenges. This | | | | change of tools is easier and swifter than a transition |
| triggered the third generation of logistics – the | | | | of mindsets. The change process has to be based on |
| profitability-oriented one – that was born in the | | | | a vision and a consistent frame of reference, which is |
| 1980s. | | | | based on earlier experience. Implementation has to be |
| During the late 1980s and the early 1990s the need for | | | | well planned and systematic, and a common language |
| more and better integration both internally and | | | | must be established within the change network. |
| externally increased – but communication and | | | | Training and education are the key! |
| integration tools were developing fast. Business | | | | |