Business to Business Marketing and Supply Chain Management - Essay Example

? Business to business marketing and supply chain management Introduction SCM and B2B Innovation seen in the marketing industry has been moving faster than it was ever before. According to Gerry Murray who is the research manager for the CMO advisory service team at IDC (International Data Corp) “marketing is no longer a long-cycle and event planning and collateral building and annual cycle process,” Murray says. “it’s now happening minute by minute through twitter and Facebook and all the other social media channels, and it’s kind of blown up the whole model” (Mantell, 2012, p.6). Two concepts that need to be mentioned here are the supply chain management or SCM and business to business (B2B) marketing. A supply chain is an inter network for facilities and distribution solutions that does the functions for procuring the materials, transforming these raw materials into usable intermediate and finished goods, and finally distributing these finished goods to the customers (Hugos, 2006, p.3). It consists of all the stages that are related in completing a customer request. The goal of SCM should be to link the marketplace, the distribution network, the manufacturing process and the procurement (or purchasing) activity in such a way that customers are serviced at higher levels and yet at a lower cost (Business-to-business marketing and supply chain management, 2008, p.4). Business-to-business (B2B) describes the commercial transactions between businesses that can be between manufacturers and wholesalers or in between wholesalers and retailers. Relation between SCM and B2B For any supply chain management to sustain in a B2B environment, the focus must lie on providing the customers with the best in quality of services. The B2B customers usually have very particular demands (Withey & lancaster, 2012, p.258), and the best solution in these situations is to have a consumer friendly supply network chain which would operate in a real-time, would be data driven and would be able to supply the products on demand. The key features of B2B marketing such as placing demands, the buying process need to be incorporated in the SCM of a company to boost sales (Business marketing and supply chain management, 2008, p.19). Relationship marketing in B2B communications Effective business to business (B2B) relationships in the context of supply chain management are mostly important for the organizations to strengthen their ability in order to be more competitive and leader in the marketplace (Clement, 2009, p.3). There has to be certain limitations between the supplier and the purchaser so as to maintain a healthy relationship. The relationships also need to focus on the pricing issues that are determined by the market forces. Apart from this, there must be continuous initiatives to strengthen the partnerships in the B2B marketing scenarios. Aim of the paper The paper is based on a case study what will try to highlight the importance of relationship management in SCM and in a B2B marketing. It will be based on the conditions of the chemical industry as presented in the case study and draw insights from it regarding the issues of supply chain management, B2B marketing, key account management and how they are related with each other. The case study – Chemco and the chemical industry Chemco is a company operating at the global level in the chemical sector. Its products include chemical additives designed to enhance a base chemical’s properties. These products are used by blenders/manufacturers to create branded products for the global market, including the oil and petroleum sectors. Chemco was once regarded as the highest owner in market share and the technical leader. This had been achieved through their investment in R&D and a widespread geographical coverage of the local agents by offering close customer liaison. Towards the end of the decade, the condition in the chemical industry was deteriorating because of which the demand was cut down. This forced the manufacturers to cut down on their costs. Chemco's conflicting goals made them neglect their relations with their partners at the local and the national level. The focal firm had short term goals that were not profitable for any of the two parties so the manufacturers were forced to adopt a powerful measure that had put the company in an unbalanced position. The companies were made to enter into consolidations because of which the 300 local companies with which Chemco had its business was curtailed to only seven businesses ("seven sisters"). Chemical industry in the early 1990 In the early 1990s the sector had an attractive operating environment. One of the main characteristics seen in the chemical industry was that it saw a many new processes and several product innovations during the next years (Murmann. 2002, p.3). In most of the leading economies, chemical production had represented an almost similar pattern in gross domestic product (GDP) with 4.1% in the USA, 4.4% seen in Japan, 5.4% as in Germany, 3.6% found in the united kingdom, and 5.5 % GDP in France, which suggested that chemicals had become an indispensable part of the developed economies (Murmann. 2002, p.2). In the beginning of 20th century chemists all over Europe and USA had begun to study the technology behind long-chained molecules (polymer chemistry) which later provided the founding principle for polymer products (Murmann. 2002, p.11) Exports from 1899 1913 1929 1937 1950 1959 1990 2000 United kingdom 19.6 20.0 17.5 16.0 17.9 15.0 8.4 6.6 France 13.1 13.1 13.5 9.9 10.1 8.6 9.1 7.8 Germany 1 35.0 40.2 30.9 31.6 10.4 20.2 17.7 12.1 Other western Europe 13.1 13.1 15.3 19.4 20.5 21.1 31.7 32.0 United states 14.2 11.2 18.1 16.9 34.6 27.4 13.2 14.1 Canada 0.4 0.9 2.5 2.9 5.2 4.4 1.8 1.6 Japan 0.4 1.0 1.8 3.0 0.8 3.1 5.4 6.1 Other 4.2 0.3 0.4 0.3 0.5 0.2 12.8 19.8 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total in billion $ U.S. 0.26 0.59 1.04 0.98 2.17 5.48 309.2 566.0 Share of chemical exports in %) by country of origin: 1899-2000 (Murmann, 2002, p.7). Chemical industry towards the end of the decade Towards the end of the decade, the chemical industry witnessed a decline in most of the major economies. The chemical industry which saw rapid progression in the 20th century was declining towards the end (Freng, 2002). In Europe, the growth had declined after 1994. The spending capacity of consumer had dropped, chemical shipments had declined and exports made to Asia were down as china cut imports. In 1995customers were seen as purchasing ahead of the demand pull in order to avoid any increase in price which led to increased inventories. There was huge rise in the price of raw materials thus increasing the selling price which led the demand to decline consequently (Chemical industry slowdown may be 'pause' before growth resumes in 1996, 1995). Comparison between the two periods As seen in the two periods, during the early 1990s, the chemical industry witnessed a boom in the major economies of the world. But in 1996, chemicals industry recorded a fall of 1.1 per cent in total EU gross domestic product that was below 1.5 per cent as in 1995. The supplier enjoyer more power as demand was high but later they faced loss as consumers began purchasing chemical products before any increase in price and there was reduction in demand. The buyers demanded that the prices be brought down. The bargaining power made by the manufacturers had gone up because of centralized purchasing that led to greater purchase volumes. Price based competition had become the common feature amongst suppliers. The product standardization made the competition fiercer amongst the suppliers. Chemco’s relationship management- pros and cons Pros The first advantage that Chemco had during the early 1990's was that the company was a market share leader in the face of only eight suppliers operating as its competitor. This was done by the widespread network of their local agents who would offer good customer relations at different strategic geographic locations. Chemco’s lead in investments in research & development helped them to become the leader in technical aspects as well. This facilitated them in achieving product differentiation very smoothly. The demand in chemical products during that period actually helped Chemco to set premium prices as a result of their product differentiation. As each of its local subsidiary for the global majors were performing on their own initiative, the relationship seen between the purchasing managers of Chemco with their local representatives was pretty good. The biggest advantage of this move was that on any specific requirement, the company would set a premium price label for the exclusive approval. This was known to few of their buyers but they seemed largely contented because of the regular personal contacts that the sales agents of the company maintained with them. This helped them to boost their relations with the buyers. Cons Apart from this there were many negative sides in their relationship management. The company lacked in effective interactions amongst the industrial buyers. There was poor co-ordination in the manner the customers were handled. There was no other point of contact with the firm which was important for answering technical queries. Internal conflicts observed between the managers were evident post the market changes as increased emphasis was put on the global major companies while those at the national levels were neglected. The demand for price discounting which had resulted because of the centralized mode of purchasing had led to the commoditization of the chemical products that provided no means for product differentiation the company also suffered from opportunistic behavior due to which it failed to build a strong relation with its customers. This had also resulted in limited number of customer contacts. What becomes evident from the above facts is that the company lagged in inter-organizational relationships. Inter-organizational relationship management is a crucial component of business strategy in the B2B markets. Collaboration between the firms over issues of development, their supply and the support of their products and services forms the core element in B2B marketing along with SCM. Organizations worldwide or more precisely the company managers who represented them need to realize the importance to form and sustain business relationships with the customers that can include key stakeholders and even the competitors (Murmann. 2002, p.22). The company Chemco was more oriented towards maintaining relations with the companies at the global level. They sidelined the local and national companies which affected their strategy. There were in fights and disputes within the company too. There was lack of communication between managers over increasing the prices. The business strategy that was adopted by their company was not in accordance with the one adopted by their partners. The company relied on long term relations whereas the partners believed in short term goals. Key account management Key account management (KAM) is an integrated process in the marketing strategy. The main purpose behind a KAM is to ensure a long term and sustainable business development by profitable means by coordinating with partners who are assumed to be strategically important for the business. The term “key” often refers to the business partners at the national or global level who are known to be the key accounts. The primary question that is to be considered in KAM is who would be the authority responsible for these key accounts (Business-to-Business Marketing and Supply Chain Management, 2008, p.131). With regards to planning in B2B relationships, the key account managers are required to frame strategic objectives which would present convincing targets for both the parties and help to strengthen the relationship itself. Flexibility becomes essential sometimes, as seen in cases of a possible conflict resolution as well as the willingness of the parties to modify business practices in cases of changes in the market scenario. Some ‘give and take’ policy might have to be implemented inevitably, especially in cases if the partnership is formed between cross cultures (Business-to-Business Marketing and Supply Chain Management, 2008, p.133). In order to be tagged as a key account it is essential for the business customer to maintain a high level in sales potential (David, 2008, p.278). The important feature of the key accounts or key customers is that they need to be handled very carefully as they are vital foe any business entity especially the supply chain (David, 2008, p.278). Key account management leads to an increased demand from the buyers to reduce costs, the customers to improve communications and an increased demand for partnerships (David, 2008, p.278). Impact of KAM on the company KAM was implemented in the company because of its poor relationship management. The centralized buying strategy adopted by the company was not a good decision as it looked like a traditional choice. The centralized buying strategy adopted by the manufacturers had become inevitable as the suppliers had "screwed" the manufacturers for quite some time by quoting higher prices in the pretence of product differentiation. The result of centralization was that customer satisfaction, market penetration and customer loyalty were accepted as the chief goals in the company sales departments. In order to achieve these objectives, the suppliers began to frame strategies to increase their closeness with their customers. The key account managers are regarded as the main point of contact for the key customers with the local and regional managers (Budde, et al., 2008, p.314). In the case study, the key account management was seen to make its impact on both the internal and external stakeholder of the business. Impact of KAM on the internal stakeholders The key account managers undertake the job of internal coordination seen between the functional units and the regions (Blomsterm & Sharma, 2003, p.131). The internal co-ordination was lacking in Chemco as there were conflict that were observed across the functional units as well as between the key account managers. It is known that when companies fail to recognize the importance of esprit de corps, there is lack of commitment by the workers to the organizational goals for the key accounts as they begin to pursue their personal agenda which increases the difficulty to attend to the requirements of the key accounts (Tozer, 2012, p.443). The case shows that there were conflicts between the department managers and the key managers as the prices that were placed by the company functional manager got lowered by the Key account managers. Because of KAM the key managers were restricted from making any other decision other than related with the price. ChemCo must had faced problems with their logistics cost. There was opportunistic behavior which was seen in both the parties to transaction. The narrow mindset of the company also created tensions amongst the buyers. The company maintained a single point of contact while making deals. This was a very unhealthy practice as it would then become very easy for a competitor to snatch the customer by offering a better price. KAM and the External Stakeholders of the company As ChemCo was the market share leader, any cutting introduced in their prices would make a direct impact on the prices in the supply chain. Before the global majors were consolidated, ChemCo used to negotiate on its prices going by its product differentiation. But it was changed to price negotiation after the market conditions changed towards the ends of the decade. The KAM led to company to focus on the global majors instead of the local and national partners who still encouraged product differentiation. Recommendations Chemco had suffered because of its wrong strategies. It had relied less on its relationship management. The companies need to collaborate with each other to compete and remain in the market (Morgan & Hunt, 1994, p.20). The company manufacturers had adopted an opportunistic behavior with its buyers. This was not a very good strategy for the future prospects. As ChemCo functions in the global markets, it must include continuous value addition in its offerings that can be brought in terms of its products, innovative technologies and latest mode of operations. The relationship management theory had also stated that it becomes important for the company to examine the business entities with whom it might be getting into a partnership (Morgan & Hunt, 1994, p.20). For increasing the value addition of the company, it needs to increase its interactions at different levels (Ravald & Gronroos, 1996, p.19). The present KAM model that is followed by the company is not sufficient to bring back its previous position. The diamond model of KAM can be suggested here to improve its buyer and seller relationship at several points (Cheverton, 2004, p.145). Outsourcing their functions The company can outsource several of its functions in the supply chain without actually building a unit. This is known as the creation of a virtual firm. It would make the job easier, faster and cheaper. Virtual firms will also ensure that the company, manufacturers, suppliers and the buyers remain in constant touch with each other. Logistics The company can employ techniques like just- in- time or JIT to ensure a faster supply and logistic chain. They can also employ Quick Response (QR) logistics in their firm. ChemCo need to implement better working conditions with their end users (OEMs) and should motivate other players in the business to maintain a healthy cooperation that would help to share information that would be helpful for the managers at all levels. It would reduce the various costs such as in administration, operation, inventory as well as control costs on order to add greater value to their product and still be competing on the price as per the levels in the competition. This would help the company to keep an eye on its competitors and improve on its productivity and quality. Conclusion Relationship management, supply chain management and B2B marketing are all interrelated. Relationship management can be seen as the binding factor between the two. In case of Chemco, it was lacking in this factor after the consolidation of the companies. It aimed at greater market share thus focusing more at the global majors. The company was losing its relations with the local and national level companies. Apart from this there were differences seen between the managers at various levels. KAM was applied in the company but instead of solving its problems the strategy worsened it. The company was facing problems in its logistics department too as there was lack of communication between the suppliers and the manufacturers. The manufacturers were exploiting the buyers on price differentiation. But this was somewhat accepted by the local traders because of the relation built by the local company agents. The company lagged in certain features too. There were lack of co-operations between the company and the buyers. Apart from the key managers there was no other point of contact for them. Tough the company enjoyed a superior position in its research and development, it was forced to cut down on its partners because of globalization and market changes. The supply chain management theory was well understood from the case study. It showed that a constant contact or relationship needs to be maintained across the different chains in the SCM. In B2B marketing, the concepts of relationship management and SCM play an important role. Chemco was basically an example of B2B marketing and how it is related with other components. It highlighted how it is necessary to maintain relations between the suppliers, manufacturers and the end users. Any sort of changes introduced in the marketing plans must b e made keeping in mind the effect it would have on the business as whole. As Chemco was held responsible to have started the price wars it shows that it had lacked in planning the pricing strategies. Again adopting misleading strategies in the guise of an added feature like price differentiation cannot sustain a company for long in the B2B market scenario. There should be uniform practice for all the shareholders. As was seen in the case, the company was favoring the global majors by proving them quotes at a lower price while charging high from the regional and local players. These practices led them to bitter their relations with the other market players. This can attract legal actions too. For building a long term relation, the company needs to focus not only on their prices but other customer values as well. They need to provide different value added services so as to retain their customers. As the company was making loss, there can be strategies like outsourcing, introducing concepts like just-in-time which would facilitate production. Relational marketing becomes particularly important in industries like the chemical industry. As the business prospects begins with the suppliers and ends with the end users, it is very important to maintain relations with each component as all the chains in this network are interconnected with each other. 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