Supply Chain Management: The Integration of Logistics in Marketing

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Abstract

Based on the phenomenon of Efficient Consumer Response (ECR), the nature of Supply Chain Management (SCM) is conceptualized from a channel governance point of view. The theoretical typology of interfirm governance, introduced by Heide [1], is applied. While ECR gains in importance for retailing business practice, few theoretical explanations for the effectiveness of ECR and SCM have been put forth. It is suggested that there is a need to conceptually capture the fundamental structure and processes for an effective relationship to exist between manufacturers and resellers. This is even more so given the importance of logistics integration into the marketing realm of channel management to successfully implement these critical systems. Once the theoretical precepts are discussed, a preliminary case study is presented and is based primarily on qualitative research—both secondary and primary data—accumulated from various ECR working groups within Europe and with greater emphasis on the Austrian ECR initiative.

Introduction

On the threshold of the new millennium, academia is observing major changes in business practice. Many companies have gained, and continue to gain, competitive advantage from the implementation of powerful, information technology-driven logistics solutions to their distribution systems. An excellent example of this phenomenon is that of Wal-Mart Corporation's distribution strategy [2]. Wal-Mart has consistently made improvements to its bottom line by streamlining its distribution operations to better serve its customers. Importantly, it is not only Wal-Mart's distribution policy, but also the consumer focus of the policy's execution throughout the retailer's operation that has translated itself into greater profitability for the company [3]. From this example, as well as others, it is no wonder that while the seventies and eighties are described as the “The Decades of Marketing,” the nineties are being touted as the “Decade of Logistics” [4].

Even with these advances in business practice, marketing academicians have been slow to rise to the occasion of combining logistics research into their studies of channel systems [5]. Witness the latest “call to arms” by veteran channel researchers such as Weitz [6] and Nevin and Jambulingam [7] for the necessity of integrating logistics—usually defined as the physical side of distribution—into marketing channel research. An in-depth investigation into the strategy of Supply Chain Management (SCM) may be the answer to this call for the integration of logistics and channels research in marketing.

In this paper the phenomenon of SCM is targeted by looking at both the management of the transactions required by the channel members and the management of the relationships between manufacturers and resellers. To begin, SCM is defined as the integration of business processes among channel members with the goal of better performance for the entire channel system. As Bechtel and Jayaram [8] have pointed out, the majority of the research on SCM has been a focus on the logistics functions of the strategy. This is primarily due to the majority of SCM research having been conducted by logistics academicians. However, Bechtel and Jayaram suggest that the future research on SCM will need to integrate both the transactions and the relationships among the various firms to fully understand the strategy.

We answer this call for integration by applying Heide's [1] theoretical typology of interfirm governance. Heide's framework is especially useful in outlining the market and nonmarket forms of governance, which are used throughout the marketing channel. Importantly, Heide's perspective combines these forms of governance with three main relationship dimensions: Relationship Initiation, Relationship Maintenance, and Relationship Termination. In doing so, Heide's framework lends itself to an integrated study of a channel system.

Therefore, the investigation of supply chain management at various stages of development is critical in order to apply the propositions in Heide's framework. For this research, the focus is on the Supply Chain Management developments, which are currently being implemented in the European and North American grocery industry under the guise of Efficient Consumer Response [9].

The initial methodology used and the one that is presented in this paper focuses on examining exploratory data. This includes qualitative research such as descriptive data from an attitudinal survey as well as secondary data accumulated by the various ECR working groups. In focusing initial efforts on exploratory dimensions, the objective is to better conceptualize the proposed theoretical typology. By doing so, we may eventually structure a theory that will effectively test the conditions under which a governance form will be optimal for both suppliers and their resellers.

The next section provides an overview of Supply Chain Management (SCM) and its application within various industries. The paper continues with general background and insight into a particular form of SCM, that of Efficient Consumer Response (ECR). Theoretical issues are discussed next, with an emphasis on outlining Heide's [1] framework on relationship governance forms. Insights into the focal “site” of study—the Austrian ECR initiative—are then provided. Included in this part is a discussion of the applicability of Heide's framework. Finally, the paper concludes with managerial implications of the initial findings and suggests avenues for future research.

Section snippets

Supply chain management

Supply Chain Management is a recent movement in logistics research that has been defined in various ways [8]. The Global Supply Chain Forum defines SCM as “the integration of business processes from end-user through original suppliers that provides products, services, and information that add value for customers” ([10], p. 504). Following Cavinato [11], Kotzab and Schnedlitz [12] define SCM as a special form of strategic partnership between retailers and suppliers, with positive effects on the

The Grocery Industry in the United States and in Europe

In the late eighties and early nineties a majority of the companies that form the grocery industry (e.g., manufacturers and supermarket businesses) suffered from “the trade practice wars that had separated manufacturers and distributors” ([31], p. 33). The term “war” seemed to apply given the way business was managed between the partners: they “had squared off against each other over a variety of issues, including slotting allowances, coupon misredemption, forward buying, promotional fees…” (

Theoretical Foundation for SCM Strategies

While the greater use of SCM strategies such as ECR is occurring, few theoretical explanations for the effectiveness of these phenomena have been put forth.2

A Case Study of ECR-Austria

An initial study in close cooperation with the Austrian ECR-initiative, which is the Austrian branch to the ECR-Europe movement, has been completed. ECR-Austria, as do the other member organizations, reports on its current progress at the annual ECR-Europe meetings. The Europe-wide forum provides a good opportunity to see many aspects of the ECR initiatives from various European members while also providing the chance to see more specific country outcomes, as needed.

The Austrian grocery market

Results: applying heide's typology to ecr-austria

Based on the vocabulary of Heide's typology we have concluded that ECR-Austria is an example of a bilateral, nonmarket governance relationship. To begin with, the establishment of the working groups is evidence of a form of relationship initiation that does exhibit selective entry. Becoming a member of ECR-Austria is not simply a matter of paying dues (annual financial contribution of approximately US$10,000); it also involves a demonstration of a degree of cooperation on behalf of its member

Discussion and managerial implications

Based on a case-study examination of the problem, there is evidence supporting the proposition that the Austrian Efficient Consumer Response is a form of bilateral nonmarket interfirm governance [1]. Table 5 summarizes the ECR-Austria standards according to the dimensions outlined in Heide's framework for a bilateral governance structure. In particular, we found that members seem to be committed to the standards they have jointly developed and continue to implement. The values they have adopted

Conclusions and future directions

Looking at the existing ECR-results, one might argue that planning is often easier than implementing. After nearly eight years of ECR, Kotzab [38] claims that none of the results have been realized. While this may be true, ECR involved managers can now reply “not yet.” In the case of the Austrian market, it could not realistically be expected that managers change their attitude within 1 year, after running their supply chain in the “old way” for more than 20 years. Kotzab [80] points out that

URSULA Y. ALVARADO is an Assistant Professor of Marketing at Texas A&M University. Her research interests include investigating the partnerships that channel members form in order to effectively enter new markets, and the consequences to the firms from these alliances.

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    URSULA Y. ALVARADO is an Assistant Professor of Marketing at Texas A&M University. Her research interests include investigating the partnerships that channel members form in order to effectively enter new markets, and the consequences to the firms from these alliances.

    HERBERT KOTZAB is an Assistant Professor of International Supply Chain Management at the Copenhagen Business School. His research focuses on the critical success factors of retail logistics systems and the application of new information technology for supply chain management.

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