Effectively Managing Different Supply Chain Demands From Different Customers

Effectively Managing Different Supply

Chain Demands From Different Customers

Dissertation Msc. Double Degree Advanced International

Business and Management

Waldo van Bruchem Geerdinkserf 9 7722AZ Dalfsen

Email: waldo@vbruchem.nl

Tel: +31612975574

Rijksuniversiteit Groningen: s1994131

Newcastle University Business School: B4008905

Supervisors: Drs. H. Bahemia Dr. B.J.W. Pennink

Word count: 14.954

First draft: 15th of November 2014

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Abstract

Managing totally differing demands from customers in face of supply chain management is complex and challenging for suppliers active in multiple different supply chains. How these suppliers can manage those differing demands effectively is a topic that is however not researched in contemporary research. The largest differences that came forward in the analysis of Supply Chain Management demands from customers where: the amount of suppliers the customer operates with; their focus on low prices; their focus on product quality; and their demand for technical support. Factors important in the management of such differing demands are the possibility to customize the management approach for individual customers and the need to work together inside the supplying company (involving clear coordination, communication, and regional division of responsibilities). Proactive and reactive Market Orientation methods are needed to discover the (real) needs of customers which is an important factor in managing their differing demands. To be able to effectively manage differing demands in Supply Chain Management types from the different customers first of all a customized management approach is required. Secondly the product portfolio should meet the needs of customers in order to effectively meet customer demands. Finally it is important for the supplier to operate in a customer focussed manner, constantly trying to discover current and future customer needs. Contemporary research on managing these differing demands in Supply Chain Management is only focussing on singular relationships or is done from the perspective of the company leading the Supply Chain. This research contributes to the theory by providing an in-depth look into the complex issues in the Supply Chain relationships between a supplier and its different customers. Shedding some more light on which factors are most important in these relationships and how these relationships can be managed effectively. However more research from the

perspective of suppliers operating within global value chains is needed to create a better understanding of the pressing issues involved in these relationships.

Key words: Supply Chain Management (SCM), Market Orientation (MO),

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Table of Content

1. Introduction Page 4 2. Research design Page 7 3. Literature review Page 9

3.1 Supply Chain Management Theory Page 9

3.2 Resource Based View Theory Page 11

3.3 Relationship Management Theory Page 11

3.4 Trust and Commitment Page 12

3.5 Market Orientation Theory Page 13

4. Research Methodology Page 14

5. Results Page 16

5.1 Main customers Page 16

5.1.1 Beer market consolidation Page 17

5.2 Differences in supply chain demand Page 18

5.2.1 Amount of suppliers Page 18

5.2.2 Price focus Page 20

5.2.3 Product quality Page 21

5.2.4 Technical support Page 22

5.2.5 SCM types demanded Page 22

5.3 Current management of differing demands Page 24

5.3.1 Key management structure Page 24

5.3.2 Potential improvements Page 26

5.4 Competition Page 27

5.5 Product portfolio Page 29

5.5.1 Description of the product portfolio Page 29

5.5.2 Customer product needs Page 30

5.6 Customer needs Page 31

5.6.1 Customer need identification Page 31 5.6.2 Customer involvement in innovation process Page 33 5.6.3 Potentially interesting innovation areas Page 34

6. Discussion Page 36

6.1 The customer management structure Page 36

6.2 Product portfolio Page 39

6.3 Discovering of customer needs Page 40

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1. Introduction

What becomes clear from the Market Orientation (MO) literature and Relationship Management (RM) theory is that working with customers is essential for business, and this also holds true for Supply Chain Management (SCM) relationships. The company that decides on the SCM type implementation is at the top of the supply chain. This leading company enforces a SCM style that they think would give them the most advantages in the industry according to their positioning within the market, on their suppliers. Companies within the same industry can position themselves differently resulting in different SCM type demands. This is very challenging for suppliers who participate in multiple supply chains. For them it means facing different demands from their customers in face of supply chain focus. This is also a part of the SCM relationship that is not being researched in the contemporary SCM theory until this moment. Contemporary research mostly focuses on singular relationships which in reality is not realistic. Suppliers have multiple relationships with different customers demanding different types of SCM implementation (lean, agile, resilient, and leagile). RM theory is an important theory relating to this research topic as well. Since, RM is focussing on how to manage a relationship. In this case distinguishing the different wishes of the customers and deciding on how to address these different needs. Therefore this theory is also considered in this research. To be able to create an idea of what the exact demands of customers are, discovering customer needs becomes an important issue. The SCM style customers incorporate is not that difficult to distinguish, however to fulfil and discover the current but especially the future needs of the customers is more difficult. It becomes more important to focus on innovating the product portfolio according to these customer needs. This asks for the concept of MO which “implies both responsive MO, which addresses the expressed needs of customers, and proactive MO, which addresses the latent needs of customers—that is, opportunities for customer value of which the customer is unaware.” (Narver et al., 2004). To discover needs of customers working together with customers is essential leading to the need to include MO theory in this research. And as Min, Mentzer, and Ladd (2007) concluded MO can very well be used as a foundation for SCM.

p.5 theory helps to discover the demands of customers in the case described above. Discovering the real needs of the different customers is essential in being able to manage the differing demands they have in types of SCM, for which therefore the MO theory is included in this research.

This research is done through the use of SCM theory and then adding a combination of RM theory and MO theory to a certain extent in order to analyze how the different demands of SCM can be managed and potentially improved. The

Dynamic capability theory is the overall theoretical lens through which this research is viewed. Defined by Teece et al. (1997) as “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing

environments”. In this research focusing on these internal and external competences to address large differences in customer demands.

SCM theory is a heavily researched topic. However, most research is focused on whole supply chains or leaders of supply chains. Also some research done on subjects within supply chains such as information sharing and collaboration. As Choi et al. (2001) correctly point out in their research: “The linear view using dyadic

analysis fails to adequately account for the interdependence between a large number of heterogeneous firms present in supply chain systems”. From the standpoint of suppliers operating within different supply chains, so not the leaders of the supply chain deciding on which SCM type to implement, no specific research has been done. Especially no research exists on the fact that suppliers operate in multiple supply chains facing differing demands from the supply chain leaders. These

suppliers have to cope with different demands in face of SCM, which provides a hard challenge. This research will look into this challenge by investigating how a supplier can effectively manage these differing demands in face of SCM. What is also new in this research is the link between the SCM theory and looking at solutions to the challenge posed above using RM theory and MO theory to a certain extent. The main theoretical lens that will be used in this research is the SCM theory; the RM theory and MO theory are used to help analyze certain important areas in being able to manage differing demands in SCM types.

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2. Research design Main research question:

The main research question deriving from the literature review and the accompanying analysis can be found below. The answer to this research question will contribute to the SCM theory and also some insights from RM theory and MO theory will be involved to create a dimension for possible analysis of the problem.

Main research question: How to effectively manage different supply chain demands from different customers?

Sub questions:

In this part the sub questions that need to be answered in order to form an overall answer to the main research question will be mentioned. The usefulness of each sub question in relation to the main research question will be shortly pointed out below. For the underlying questions accompanying the sub questions see appendix 4.

Who are the main customers of the supplier?

To answer the research question first it has to be decided who the main customers are in order for further research to take place.

What are the main customers supply chain demands?

To attain knowledge about how to effectively manage differing demands, first of course the specifics of those demands have to be known. This sub question is involved to create an image of the most important customers and their demands in face of SCM.

How are different supply chain demands currently managed?

p.8 How are competitors perceived to be managing the differing demands?

Then looking at the competition is needed. In order to decide on a management approach one can learn from the ways in which competitors are addressing different issues. Additionally in order to position a company within an industry it is important to know how to competitors are positioning themselves. In this way a competitive

positioning can be established.

Does the product portfolio meet the needs of customers?

Then the last sub question mentioned above is included in order to see if the

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3. Literature Review

3.1 Supply Chain Management Theory

In contemporary business environments effective SCM is critical. (Cabral, Grilo and Cruz-Machado, 2012). Supply chains are increasingly international oriented and through that more complex. Next to that the characteristics of supply chains are very diverse leading to different types of SCM like lean (Womack et al. 1990), agile (Fan et al. 2007), resilient (Cabral et al. 2012), and leagile (Naylor et al. 1999). A great deal of academic research focuses on how to effectively manage a supply chain, which factors to consider, what choices to make etc. Supply chains and SCM are defined as different phenomena within the literature. This difference according to Mentzer et al. (2001) resides in the fact that supply chains can also exist without being managed. The definition of a supply chain is pretty much corresponding in different researches as Mentzer et al. (2001) concluded. A supply chain is defined as “a set of three or more entities (organizations or individuals) directly involved in the upstream and downstream flows of products, services, finances, and/or information from a source to a customer.” (Mentzer et al, 2001). SCM however is defined in many different ways in the literature which also causes some confusion amongst

researchers of the topic. Making the topic more complex and less easy to

understand. The difference in definitions according to Mentzer et al. (2001) is based on how SCM is categorized, as a management philosophy, implementation of a management philosophy, and a set of management processes. For the sake of this report and to increase consensus the definition of Cooper et al. (1997) will be used which categorizes SCM as a set of management processes. Cooper et al. (1997) describes SCM as “an integrative philosophy to manage the total flow of a distribution channel from supplier to the ultimate user.”

p.10 flexibility according to Fan et al. (2007). This encompasses being able to respond rapidly to changes in demand, in terms of both volume and variety. This SCM type is therefore mostly used in rapid changing or fast innovating industries. An often

mentioned example of a company applying an agile supply chain is Zara, the fashion company who managed to establish “one of the most effective quick-response

systems in its industry” (Christopher, 2000).The last of the three types mostly described in the SCM, resilient SCM is opposed to lean SCM not focussing on cost minimisation but on having capacity to overcome problems, and respond effectively to unexpected disturbances (Cabral, Grilo and Cruz-Machado, 2012). This SCM type is often used in uncertain business environments (Carvalho and Machado, 2009). Christopher and Peck (2004) point out a case where Land Rover was not resilient enough and experienced large problems when their chassis manufacturer UPF-Thompson became insolvent in 2001. In short the three different types can be said to focus on costs, change or uncertainty. Keeping in mind that it is a bit short sighted of course to only distinguish three distinctive paths companies can follow in their SCM. From the literature it becomes clear that the SCM type implemented by companies is not always a choice but it is more or less decided by the industry. However

companies can position themselves differently within an industry which can mean that different types of SCM are implemented within the same industry. For example a company focussing on the lowest cost will implement a lean SCM type and a

company in the same industry focussing on innovation might adapt an agile SCM type. A consequence of this is that a supplier in an industry can be facing customers that position themselves totally different within the market, meaning different priorities in their demands to this supplier. The three different types of SCM are of course no clear set paths to follow and some companies might combine types of SCM. This also becomes clear in the literature where researchers have combined lean and agile into leagile SCM. Leagile is defined as ‘the combination of the lean and agile

paradigms within a total supply chain strategy by positioning the decoupling point so as to best suit the need for responding to a volatile demand downstream yet

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3.2 Resource Based View Theory

Especially from the resource based view literature stream a considerable amount of research is done on SCM and how to make a company’s supply chain a competitive advantage. Brendan-Jones et al. (2014) for example look into resilience and

robustness of supply chains from a resource-based view perspective. Where Hunt and Davis (2012) critically assess the use of looking at SCM with a RBV and comparing it to the resource advantage theory. These researches mainly focus on the supply chain as a whole. Wu et al. (2006) apply a resource-based view in looking at the impact of information technology on supply chain capabilities and firm

performance. This is however very specific in focus by looking at the impact of information technology and by this including possibly other interesting aspects that could have major impact on these capabilities. Rungtusanatham et al. (2003) look into the linkages apply a resource-based-view perspective. However in their research they look at the operational level which limits the ability to generalize the research for multiple industry and multinational companies.

3.3 Relationship Management Theory

Other researchers are focussing on relations within supply chains. Chandra, Grabis, and Tumanyan (2007) focus on the importance and the problems with information sharing within supply chains. Fawcett et al. (2012) looked into the motivations,

resistors, enablers, and outcomes of collaboration within supply chains. Both of these researches focussing on the situation within supply chains already point out how important the relationships within the supply chain are. RM is defined as a process “to establish, maintain, and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met.” “This is achieved by a mutual exchange and fulfilment of promises” (Gronroos, 1994, p. 9). This theory indicates that there can be different levels of strength between partners, a strong relationship is favoured since with a ‘strong’ relationship there can be a consisting of repeat purchase, willingness to invest in the relationship, and a reluctance to search for alternatives (Barry, Dion, & Johnson, 2008). A problem with this can be that the perception of the relationship is different between partners, which might lead to

co-p.12 operation, a better understanding of customer requirements, and a dialogue with customers leading to a closer relationship and the co-creation of value through the development of co-created and customised product and services (Ruokonen, Nummela, Puumalainen, and Saarenko, 2008). Effective relationships are also said to reduce costs due to more efficient ways of working and less frustrations in the working process.

3.4 Trust and Commitment

Another factor mentioned in the area of relationship research is trust. Numerous studies have confirmed that the presence of trust and commitment has a positive impact on relationships (Barry et al., 2008; Ivens, 2005; Melewar, Hunt, &

Bridgewater, 2001). Trust is also seen as a way to avoid complex contracts, there is a basic level of trust meaning that not every little detail has to be discussed and documented. This means that it is also partly a cost-saving issue, since drawing up such detailed and complex contracts would be costly. Trust can refer to “the

expectation that a person can have confidence in, or reliance on, some quality or attribute when undertaking a business transaction” (Small and Dickie, 1999). In the literature about trust in supply chains it comes forward that trust is an essential element in supply chain partner’s relationships. Spekman and Davis (2004) argued that trust is at the heart of managing risk and a prerequisite (Kasperson et al., 2003) in supply chain. Morgan and Hunt (1994) include commitment as an addition to trust in SCM relations they state that “Commitment and trust are ‘key’ because they encourage marketers to (1) work at preserving relationship investments by

cooperating with exchange partners, (2) resist attractive short-term alternatives in favor of the expected long-term benefits of staying with existing partners, and (3) view potentially high-risk actions as prudent because of the belief that their partners will not act opportunistically.” They indicate that both trust and commitment have to be present in order to promote efficiency, productivity, and effectiveness. However in the literature also the limitations of trust are pointed out. Trust does not always take place easily and automatically among the supply chain network. (Szulanski 1996, Argote et al. 2000, and Szulanski and Cappetta 2003). For trust to occur information between the partners has to be shared, however sharing of information may be used in asymmetric ways to gain advantage for single actors among the partners

p.13 place as commitment can be defined as an exchange partner believing that an

ongoing relationship with another is so important as to warrant maximum efforts at maintaining it. (Morgan and Hunt, 1994). As Eisenhardt (1989) points out information about business practices and capabilities is an asset of value that may be used in asymmetric ways to gain advantage for single actors among the participants. This is the downside that trusting a partner can bring, eventually leading to disadvantages of one of the actors. Trust and commitment have to be considered as a critical factor in RM, and also in the SCM theory however the limitations and possible asymmetries within trust also have to be kept in mind.

3.5 Market Orientation Theory

For effective relationships to remain in existence for a longer term innovation forms a crucial factor. As part of the MO theory point out “the marketing concept holds that the key to achieving organizational goals is to be more effective and efficient than competitors in identifying and in satisfying the needs of target markets”. (Kotler 2003, p. 19). According to the Market Orientation (MO) theory this implies “both responsive MO, which addresses the expressed needs of customers, and proactive MO, which addresses the latent needs of customers—that is, opportunities for customer value of which the customer is unaware.” (Narver et al., 2004). The latent needs of customers are the most difficult to distinguish since these are even unaware to the customers themselves. Different theories focus on this aspect of discovering the latent needs of customers. Thomke and Von Hippel (2002) for example suggest an approach where customers incorporate their real needs directly into the development of a new

product. This is however a difficult task especially when having a large number of customers. Ulwick established an outcome-driven method (2002, 2006) which focuses on helping customers get jobs quickly, conveniently, and effectively. Hard thing with this method is that the customers’ set of metrics they use to analyze how well a job is done is unknown to the supplier. The methods from these researches all have their strengths and weaknesses and are not applicable to all companies. The amount of research done on the topic however points out the importance of

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4. Research Methodology

Most part of this research is of a qualitative nature and mostly primary data will be collected. For some parts secondary data sources will be used from for example annual reports and company reports to compare information or to add needed information. References to these sources will be provided in-text as well as in the reference list. For the qualitative data gathering the goal is to acquire primary data from interviews (see appendix 3 for interview examples). Interviews will be semi-structured in order to be able to have a base from which the different interviews can be compared, also leaving room for new findings to arise. Different parties involved in the business to business relationship will be interviewed in order to create a more credible research including sales staff (10), R&D staff (2), company management (4), and customers (5). In total ten persons of the sales staff of the supplier where

interviewed all representing sales in different product areas or regional areas. From the R&D department the head of R&D and his assistant where interviewed. Four persons from company management where interviewed. And finally from customers procurement departments five people were interviewed representing three different customers. Due to confidentiality the name of the supplier as well as the customers will not be mentioned. The customers analyzed will be referred to as customer V, customer W, customer X, Customer Y, and customer Z. Science and logic suggest that understanding the whole requires rigorous questioning of its parts via the inductive method (Holland, 1992; Locke, 2007). Grounded Theory is an appropriate and vetted method of inductive research according to Randall and Mello (2012). Grounded theory developed by Glaser and Strauss (1967) involves four stages of analysis; codes, concepts, categories and theory. This method of analyzing the data is used in order to account for the internal validity of the research, so “a sound contest between researcher’s observation and the theoretical ideas they develop” (Lecompte and Goets, 1982). For the exploratory nature of this research focussing on one supplier to look at the complex relationships discussed above, can be

p.15 coding and then axial coding will be done which entails dividing the codes made into different concepts and finally into different categories. These categories concepts, and the codes addressed will then be processed into tables. For each interview this process will be done and after all interviews are processed there will be the

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5. Results

In the following part the results for the sub questions will be provided. A discussion of these results is needed in order to be able to answer the main research question. First the main customers will be distinguished, followed by the results of the differences in SCM demand. In the coding process the following categories where established: main customers, customers demands (with the concepts price, quality, and technical support), key account structure, improvement possibilities, competitor, product portfolio, customer need identification, customer involvement in the

innovation process, and potentially interesting innovation areas. The following section discussing the results of the analysis is structured according to these categories and supported with the accompanying concepts and codes where needed.

5.1 Main customers

In industrial markets, a company's customers are often its greatest assets. Corey (1976) says that 'the development of strong, multidimensional and constructive working relationships with one's customers is the key to industrial marketing success'. In order to conduct the main research on how to manage the differing customer supply chain demands, first the main customers need to be distinguished. In this part the main customers will be distinguished as well as some additional information about the beer market situation important for showing where the power lies within the beer industry.

The main customers coming forward are five of the top 20 of global brewers according to the CANADEAN research institution (2013). In Table 5.1 the main

p.17 The beer brewing companies, that the supplier has to deal with have huge market shares in the global beer market. This large size also means that they have

considerable power over their suppliers. These large sizes of the brewing companies are caused by a consolidation process in the global beer market.

5.1.1 Beer Market Consolidation

In this part the consolidation of the beer industry over the last years will be described to provide some overview of how the industry is build up and why the top brewers have so much power. Over the last decade, the global brewing sector has gone through a large consolidation process. Recent activity suggests that this process is continuing. (Rabobank, 2013). The top five brewers in 2013 account for just over half the global beer volume as can be seen in the figure below. Where, in 2001, the same five brewers accounted for only 16 percent of the global beer volume. (see also Figure 5.1). Due to economies of scale these top brewers had an average growth rate of 13 percent over the period mentioned above where local breweries

experienced a growth of only 4% in the same period. (Rabobank, 2013). In recent years the consolidation process continued through acquisitions by the giants in order to increase their scale, by “either entering new markets (e.g. Heineken entering India through the S&N acquisition), or adding differentiating products to their portfolio (e.g. SABMiller acquiring Grolsch and Peroni Azzurro), or to serve both purposes

p.18 The consolidation process described above is important to keep in mind when

looking at the nature of the situation between suppliers and customers in this

research. The large market size controlled by the main customers provides them with a high power position towards their suppliers. This means that meeting the demands of the customers and being able to innovate and meet their future demands is crucial for the suppliers.

5.2 Differences in supply chain demand

In this part the findings on the major differences between demands in SCM types resulting from the data analysis will be discussed. The main customers distinguished in the previous part are used as a base for this analysis of the differences in supply chain demands. These customers will be referred to as Customers V, W, X, Y, or Z. Besides the major differences also the relation of these different demands to the SCM theory will be pointed out.

5.2.1 Amount of suppliers

p.19 main customers. The three types are a few/small amount of suppliers (preferred supplier systems), a large amount of suppliers, and one exclusive supplier.

Three of the main customers want to operate with a (few) small amount of suppliers (Customers V, W and Z). Customers V and W tried to implement a preferred supplier system. This system entails that there are only two suppliers that the customer works with who both receive all orders from the customer and then can make an offering on the order. The customer then chooses one of the suppliers to deliver the products according to the offer. The customer more or less tries to give both suppliers the same share of orders to keep them satisfied. This means that there should be limited competition between the suppliers since they are only competing with one other supplier for the contracts. The reason for this way of operating is standardization which has to deliver cost savings. Customers V and W did not both achieve equal successes by implementing this system. This was due to the customers’ decision making structures. Customer V has a very centralized decision making structure. This made the implementation of a preferred supplier system easier. They created a little bit of a safeguard by not labeling all orders preferred supplier orders, in order to be able to use local or cheaper suppliers when needed. Also they tried to let the supplier standardize their prices, this also failed since the customer was not willing to provide the supplier with the required amount of information needed to form accurate price calculations. Customer W has a more decentralized decision making structure which leaded to subsidiaries not conforming to the implementation of the preferred supplier system and ordering at other suppliers as well. This also means for the preferred supplier that they have more competition from local suppliers than with a fully implemented preferred supplier system.

p.20 Customer Y operates with a very large amount of suppliers. In fact every supplier in the world can respond to the demands for beer brewing equipment of this customer. Customer Y works with e-auctions on which suppliers can make online offers on product orders auctioned. This way of working means that there is the highest possible amount of competition between the different suppliers. When

working with customer Y competition is therefore very intense. For customer Y this is a way to drive the prices down to a minimum level.

Customer Z works with an exclusive supplier. This means that there is only one supplier that delivers them all the beer brewing equipment. All orders go straight to the supplier and no negotiations take place. Within this exclusivity agreement strict deals are made about the amount that suppliers can earn on each product (profit margin) and the quality levels of the products for example. When an exclusivity agreement like this is in place it means that no competition exists any more. This is the closest form between a supplier and a buyer without one taking over the other, it can be seen as a strategic alliance.

Concluding on these differences it can be said that for each customer totally different competitive situations exist for the different suppliers. These different competitive situations also demand different strategies from the supplier. As was mentioned in one interview that “we have exclusivity on delivering tanks and processes to their breweries” poses a total different competitive situation than if “every supplier in the world” can compete for an order. Coming back to the literature review for this factor differences in RM theory can be distinguished. There are differences in strength to be perceived in the relationships with each customer. Customer Z where the supplier is exclusive shows higher strength of the relationship then for customer Y who lets all suppliers compete with each other and works with the cheapest one. Likewise the agreement on exclusivity for a supplier with customer Z shows more trust than the other customers who work with more suppliers.

5.2.2 Price focus

The focus on prices also differs between the main customers; of course every

p.21 buy the lowest priced products from whoever offers it, with only a certain minimum quality specification in place. Customers V and W also focus on low prices to a certain extent, since there is less competition within such a system suppliers are not driven to bottom prices as with the previous customer. These two customers also operate with minimum quality specifications and for products fulfilling these minimum demands they aim at paying the lowest possible prices. Customer X does not focus on low prices. They pay relatively high prices but in exchange for this expect some other things which will be described in further detail below. The Customer Z has partly entered the exclusivity agreement to achieve integration and through this cost advantages. For example the supplier cannot charge the customer sales and

negotiation costs since the orders go straight to the supplier without the sales

process taking place. These set profit margins on products are negotiated which the supplier has to obey. Their focus is also not mainly on price levels since they expect some other synergies from having the exclusivity agreement.

For pricing products suppliers therefore also have to consider different pricing models when making offerings to customers. As was discussed in the literature review the supplier should align their perception of the relationships with the different customers in face of their focus. Customer Y is focused on low prices the most as was concluded in the analysis, they were quoted to buy their brewing equipment from whoever “provides the lowest offer”. This is of course different than aiming for the “cheapest product for the best quality” like customer V who also only works with preferred suppliers. Which points out the next important factor product quality.

5.2.3 Product quality

In product quality also some differences exist between the customer demands. There are some slight differences in product quality focus between the main customers that can be distinguished. All customers have minimum quality specifications that must be fulfilled by the supplier; these are also partly decided by industry rules and

regulations. Since the beer market is part of the consumer food and beverages segment some more strict regulations regarding health and safety are in place. Customer Z demands a higher quality product and the latest product technologies when they order new products. Also customer X who pays slightly higher prices has higher demands for product quality than the other three customers. The other

p.22 Especially customer Y who only looks if the products “fulfill the minimum product requirements”. Where the other customers also point out that quality is important as a factor as well. Customer X point out that “quality is of essential importance”. From the RM theory discussed in the literature review different levels of trust can be

distinguished between the customers with respect to this factor. Customer Z and X trust the supplier to deliver a certain higher level of quality on their products. The other customers trust the supplier to meet the minimum requirements, which are most of the time also guided by industry regulations and therefore legally required which comes down to a lower level of trust than with customers Z and X.

5.2.4 Technical support

The last factor where differences between the main customers are found is the demand for technical support. Customer X expects more service from the supplier especially technical support. This entails support in the designing and engineering of the beer brewing equipment. The supplier sends over engineering personnel to the customer in order to support their small engineering staff. The customer partly relates to the expertise of the supplier in return for paying higher prices. This is pointed out by the sales person working with customer X, they “demand more expertise and service from us”. This integration also leads to the creation of mutual trust and synergies from working together leading to long-term relationship building as components of RM theory that where discussed in the literature review. Leading to what was stated in the interviews as a “more cooperative situation”. Customer Z also demands “technical support and specialism” especially when problems arise. This is on a less integrated base than described for the customer above. From the other main customers these demands for technical support are significantly less. These customers have larger engineering departments and can make their own product designs and specifications resulting in straight forward product demands without the extensive technical support. As was stated for example by company V “design specifications of the order” we will provide to the supplier ourselves.

5.2.5 SCM types demanded

Looking at these factors that differ in the demand of the main customers it can

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5.3 Current management of differing demands

The question that arises from the analysis done above is now: how is the supplier used in this research currently managing all these differing demands? The answers to this question will be explained in this part derived from an analysis of the acquired data through the interviews. Also the areas in which possibilities for improvements are present are analyzed and discussed following the current customer management structure.

5.3.1 Key management structure

The supplier participating in the research has developed a ‘key account structure’. This structure is organized in a way that every main customer has its own contact persons with the supplier called the key account managers. Each key account has three key account managers. The head manager of the key account has a directory function within the supplier company. This person handles the most pressing and important issues with customers. The other two key account managers especially deal with the sales processes between the supplier and the customer. One of them focussing on the tank segment and the other one focussing on the process segment of the beer brewing equipment. These key account teams can focus on one customer and its demands without having to deal with other customers. In this way they try to create clear structures in order for customers to know who to address for which issues. Additionally the key account management team can create relationships with the customers by working together ideally trying to create a state of mutual trust. This is indicated as an important factor in the management of relationships. Through these key account management teams the supplier hopes to maintain and enhance the relationship with the customer according to the aspects of RM theory. These teams can focus on one customer and increasing the strength of the relationship with this customer to create long-term commitments. As RM theory indicates different

relationships can have different levels of strength, therefore also different approaches based on the strength of the relationship should be used. In this key account

p.25 The allocation of the key account managers to certain main customer is mainly done based on geographical location. In some cases the ties lie slightly different which is caused by parts of the supplier being individual companies in the past. This caused some key account managers to be based not the closest to the main customer, this situation was based on historical preferred relationships between a customer and one of the subsidiaries. In these cases the key account managers are based in the

subsidiary with these historically based relationships.

Through the above explained customer management structure the supplier tries to fulfill the differing demands by the different main customers as good as possible. Each key account management team can adapt their offerings to the price sensitivity of the customer, they can adapt their strategy based on the amount of other suppliers they are competing with for a customer, and they are able to provide more support to the customers demanding these services. This was indicated in one of the interviews with a sales manager: “each customer demands a different way of doing business”. Where some customers value “visiting them personally”, in dealing with customer Z “no sales costs can be charged” meaning that personal visits of sales staff are not required. The pricing and quality that can be offered, forms a strategic issue since the quality level the supplier maintains brings a certain price level with it.

5.3.2 Potential improvements

In the interviews some critical point where the management of the different

customers needs could be improved came forward. The critical areas turn out to be working together, coordination, communication, and regional management. These areas need to be improved in order for the above described key management structure to work effectively according to the personnel interviewed.

As the results show the way in which the different subsidiaries work together is not optimal. Every company is perceived to be focused on their own business instead of the goals of the whole organization. This lack of working together involves to a certain extent improvements of all the other critical areas in the customer

management structure that are mentioned above.

p.26 between the subsidiaries is also not management effectively. Improving the

coordination of different task would therefore also increase the way in which the subsidiaries work together. The lack of coordination can also provide customers with confusion as to which subsidiaries to for which issues.

Internal communication between the different subsidiaries is also pointed out as a point that could be improved in the current situation. Stimulation of better

internal communication would of course also improve the first critical area of working together between the different subsidiaries. Internal communication takes place to a certain extent however not on a regular day to day base and mainly on the higher management levels.

Last point that could be improved in the current customer management structure is regional management. In the interviews it came forward that customers get confused with the current style of management. If they want products delivered in Asia they communicate with a subsidiary in Europe and the final product is produced in China. These regional issues are perceived to be unclear and should be improved also in order to send out clearer messages to customers.

Increased communication can also address the problems with coordination. Better coordination will also improve the problems with regional management. And all these different factors will improve the overall working together of the supplier. As turns out the critical areas are all inter-related and boil down to improving the way in which the subsidiaries work together.

5.4 Competition

p.27 Chinese competitor. The figures provided point out the major differences in size between the competitors. The German competitors both do not focus solely on the beer brewing equipment market, this market forms actually only a small part of their total operations when looking at all the segments they are operating in. For the Chinese competitor the beer brewing equipment segment is a major segment within their operations. Two competitors are profitable in the beer equipment industry; one of the German competitors is operating in the beer equipment industry with a loss for the last few years. They are able to continue operations because their main product segment is product filling and decoration is providing them large profits.

This also points out the first way in which one of the competitors is managing the differing demands. They offer an additional product segment namely a “bottling and packaging product line”; this enables them to offer a more complete brewery solution to the customers. Through this they try to make customers buy the whole package with them instead of focusing on fulfilling the differing needs in SCM the customers demand. Being able to provide the product filling and decoration products delivers them orders for their less profitable beer brewing equipment as well. This is their way of trying to create a competitive advantage over the other suppliers.

Another way in which one of the competitors (the Chinese one) is managing their relations with the differing demands in SCM type from the customers is applying a focus within the industry. As mentioned in the part about the customers some of the customers have a high focus on low prices. This supplier is responding to this focus by making low costs their main priority as well. They were described as “Cheap, pursue cost leadership” by the sales manager in the Asian area. They are able to do this by being located in China and having access to cheap labor.

The two companies originating from Germany with huge organizations try to make customers choose for them by marketing their extensive global orientation. “They have a very high global presence and large project management teams” and “their large size forms a strength” are examples that support his conclusion. In this way they try to overcome the differing demands for SCM by offering project solutions for almost every location in the world.

p.28 accordingly will not receive any orders. One of the large German competitors is operating at a loss in the beer brewing equipment market which indicates that they have high costs from trying to comply with all the differing demands from the large brewers. From the other German competitor it is known that they apply a similar management strategy as the key account management strategy described earlier. Another issue that came forward which forms a problem for the German competitors is their large organizational sizes. Their size makes them less flexible. Being flexible was mentioned as very useful when dealing with great variety in demands for SCM type from the different customers by the managers.

5.5 Product portfolio

5.5.1 Description of the product portfolio

To know if the product portfolio fulfills the needs of the customers first the current product portfolio should be mapped. The products of the company used in the

p.29 Within the tanks and vessels segment the most important products for the company are fermenting storage tanks, bright beer tank, and storage tanks. Profile panels and coils are only sold in combination with tanks and vessels and not as single products. Yeast plants including yeast propagation units and yeast storage tanks as well as cleaning in place (CIP) processes are mainly done by two subsidiaries of the

company. The remaining products within the tanks and vessel segment (water tanks, yeast tanks, and process tanks) are produced in less quantity then the above

mentioned products en through that are of less strategic importance. Turnkey brewery products are total solutions for breweries. This means that all products needed to install a brewery are delivered and installed. The brewer only has to ‘turn the key’ and the brewery works. Additionally to this product offering the company also provides services in advising, delivery, installation, and on-site production/local

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5.5.2 Customer product needs

Now the question is if the above explained product portfolio meets the product needs of the customers? From analyzing the data acquired it became clear that the needs from customers are shifting towards turnkey solutions. As one of the sales managers stated: “the market is asking more and more Turnkey solutions”. The concept of turnkey means that the supplier delivers complete breweries with all accompanying products. The customers themselves only have to ‘turn the key’ of the brewery and it operates according to their wishes. As can be concluded from the above description of the beer brewing equipment supplier they are able to provide these turnkey

solutions. The results show that there are some product areas in which the supplier is currently not meeting the customer needs. The two areas in which the customer needs are not met are smaller sized products and lower cost products.

The supplier is not able to provide products for all sizes of breweries.

Especially the needs for smaller sized tanks and brew houses are not met within the current product portfolio. As was stated by a sales manager the “Demand for small standardized brew houses is not met”. Also one of the customers stated: “In smaller tanks we are not buying from” the supplier. In this area the supplier has the

opportunity to increase their production in order to meet more needs of customers and increase their product portfolio.

The need for lower cost products is also not met by the supplier at this

moment. Some customers are demanding cheaper products as also came forward in the identification of differences in SCM types. As was also experienced by sales managers: “Need a cheaper solution for small breweries” and our “Brew house is often too expensive”. There is an opportunity for extending the product portfolio by including a cheaper product line additional to the current product lines.

5.6 Customer needs

p.31 needs ideally the supplier needs to apply both a responsive as well as a proactive MO strategy. If customer needs are identified the supplier is better able to meet and predict customer demands, as well as it gives them the opportunity to increase the trust of their customers by showing their empathy with the customer and their innovative capabilities. In this part the results deriving from the interviews with

Research & Development (R&D) employees on the way in which the customer needs are identified (proactive/responsive) and how the customers are involved in the innovation process will be discussed.

5.6.1 Customer need identification

The supplier incorporates a number of different ways in their search for identifying customer needs and potential product innovations. They use their own ideas to come up with potential product innovations, they listen to, talk to, and sometimes even work together with customers to discover their needs, they look at what the competition is doing, and they look at problems with construction of breweries for potential

improvements. As one of the head of R&D pointed out “We have a pilot brewery which is a small scaled brewery where we can test”, but also research can be done, or customers can be trained. When the supplier for example introduces new products that require some capabilities and knowledge, the supplier offers customer

employees to join a training session at their pilot brewery to teach them how to handle the new product.

Since not all customers know what they want (latent needs) a large part of innovating relies on own initiatives. The R&D employees also describe customers as a bit conservative. If they think something works well they are not actively thinking about or looking for further improvements. Therefore the R&D staff is actively looking for further improvements themselves. As was pointed out in one of the interviews “We ourselves have of course many ideas about new developments”. All sorts of different exhibitions are visited, sometimes with no single relation to the beer brewing industry, for inspirations. When they have a potentially feasible idea they test it in their pilot brewery. If these tests show positive results they also involve universities for further testing in certain projects. This involves the universities testing the

p.32 seller of the product saying the product is beneficial to customers.

Additional to these own initiatives the supplier also looks at problems that occur at the construction of breweries. “We also look at problems that arise when constructing a brewery and then look how we can improve and solve these

problems”. These problems can form input for improvements or potential innovations for future products, so that the next time these problems will not occur.

They do not only rely on their own initiatives. They also look at what the competition is doing and in which areas they focus their research efforts. As one of the R&D employees’ states “you hear rumors and try to figure out in which areas they are looking in face of innovation”. At product exhibitions they will also look at the stands of the competition, just as the competition will do the other way around.

Also the customer is not neglected in the process of identifying the customer needs, since they are of course the buyers of the end products. How the customers are involved in this process will be explained into more depth in the next paragraph.

In face of MO theory the supplier uses both proactive and responsive MO strategies in their process of identifying customer needs. Following their own

initiatives and testing these in their pilot brewery is a clear example of a proactive MO strategy. An example of following their own initiatives is one of the latest product innovations which involve producing snow to use for cooling in different parts of the brewery. This innovation came from a conventional old method that brewers used in the past, stocking snow in the winter to use for cooling in the brewery. Where looking at problems occurring at construction of breweries, looking at what the competition is doing, and listening to customers are more responsive MO strategies. The supplier uses both types of MO in their attempt to identify the customer needs which is the way it should be. When focusing on only one MO strategy important information will be neglected leading to competitive disadvantages when the competition is able to apply both MO strategies.

5.6.2 Customer involvement in innovation process

p.33 which needs for innovation from the customers’ exist. They have to communicate their findings to the R&D department, who then can look into the possible innovations for the specified needs. In some cases this goes in a more direct way. When

negotiating with larger customers about larger projects R&D personnel is also present at the meetings in order to directly talk to the customers and discover about their needs. Or as one of the R&D staff stated “We talk to customers when attending negotiations or on exhibitions”. In this way they can directly distinguish the needs and possible areas for innovation. This involvement of R&D personnel takes away the reliability on the sales personnel for the identification of customer needs, and gives the opportunity to discover the needs to the people who are also going to research the innovation possibilities. Besides these direct contacts the R&D department also has direct contact with some smaller customers to discover where innovations are needed, this is only taking place with some customers located in the near region close to where the R&D department is located. This is simply because it is easier to communicate with customers located nearby who they also see in person more often. The direct contact with customers in negotiations is especially taking place with the largest global brewers.

“Mostly the global brewers” are sometimes involved in the innovation process to a more intensive extent. Customers Z is for example engaging in joint R&D

programs from time to time. Also customers V and W have worked together on some confidential projects with the supplier. Since the global brewers most of the time also have their own R&D departments, they are able to work together with the R&D of the supplier on innovation projects occasionally. This is a way for both companies to share costs and risks from their research projects. It is also the case that it forms a marketing tool for the supplier. If the innovation proves to be successful and the customers’ R&D department acknowledges this, they might order the innovative product for more of their breweries. The joint project also gives the supplier the opportunity to test innovations in real breweries when they proved to be successful in their own pilot brewery. This inclusion of the customer in the innovation process is a way of effective RM which according to the theory has a lot of benefits. It benefits the supplier through increased co-operation, a better understanding of customer

p.34 the amount of joint projects with customers has declined extensively. Also the

resources and effort put into the projects by the customers are decreased to a minimum level.

To conclude the main customers, so the global brewers are involved to the greatest extent in the innovation process. The smaller customers (located in the region near the R&D centre) are only involved to a limited extent in the innovation process. This involvement also resides in the larger R&D budget and R&D staff available at these larger global brewers.

5.6.3 Potentially interesting innovation areas

From analyzing the data it becomes clear that there are large differences in

innovation potential within the current product portfolio of the supplier. In the tank and vessels product segment there is not very much potential for innovation. There might be some improvements possible in the cooling of tanks but for the rest the product seems more or less developed to its full extent. The most potential exists in the process technology products segment, especially in the brew houses segment there is perceived to be significant potential for innovation.

The latest customer demands for innovation turn out to be focused either on energy saving or on improving efficiency. The demands for a certain innovation are dependent on the situation within the customers’ country. In the countries where energy costs are high, energy saving innovations are demanded. In the countries where energy costs are low, innovations that improve efficiency are demanded.

The R&D department has also looked into expanding the product reach, by for example including bottling and packaging products. This did not turn out to be

successful. After this failure the supplier decided to mainly focus on the brewing market and all the possible innovations within breweries. The brewery market is also the area in which they are experts and where they have proven to be successful. They decided to focus on their core strengths and not compete in the bottling and packaging market in which they lack expertise and experience. Additionally some focus is directed to looking into other markets (juices, diary, and edible oils) as well, but these markets are especially interesting for the tank products which, as

p.35

6. Discussion

p.36 results adds to the current literature on the subject matter will be discussed. Leading to a final conclusion on the main areas of importance and how they should be

improved in order for the supplier to be able to effectively manage these different demands of their most important customers.

As came forward through analyzing the beer market situation the suppliers have to deal with customers who enjoy a great amount of power in the market. Accordingly the largest global brewers are also the main customers (Customers V, W, X, Y, and Z) for suppliers of beer brewing equipment. This points out the

importance for suppliers to fulfil the different supply chain demands of the largest global brewers. Effectively managing the supply chain demands from the different customers therefore is a critical issue for the management of the supplier. Well established RM practices should be in place to manage the differing demands in SCM types present at the different customers as can be found in table 5.2.

6.1 The customer management structure

The current management of the supplier is organized in a key account management structure. This structure involves a key account management team for each different customer. Such a team consists of an overall key account manager who also has directory functions within the company and two more key account managers, one for tanks and one for process. This structure is efficient in that it provides the opportunity for such key account management teams to adapt their approach and strategy to the customer they deal with. Contemporary research focuses on the singular relationship where for this supplier clearly the need to manage different relationships in different ways is present. With such a key management structure they have the opportunity to focus on the demands of one customer and apply adapted RM practices without having to focus on different ways of doing business with other customers. This structure is also clear for customers, they know who to address for which problems. Since the SCM demands of the customers are quite differing (table 5.2) such a customized approach as the key account management structure as described above is required for this market situation. Eventually aiming to meet the objectives of all parties involved “by a mutual exchange and fulfilment of promises” (Gronroos, 1994, p. 9). This key account management system as explained above provides an

p.37 adds to the RM theory by providing opportunities “to establish, maintain, and

enhance relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met” on a single customer level.

From analyzing the results of the interviews with sales people and management some problems came forward with regard to the current way of managing customer. As described in the results on the sub questions there are possibilities for improvement in the level of working together, coordination, and communication between the different subsidiaries. But also the regional division structure of the supplier is not totally clear to their customers. Being able to effectively manage the key accounts these factors (working together, coordination,

communication between the different subsidiaries, and regional division) have to be strong within the company.

As pointed out before, the meeting of customer demands is very important for a supplier in the beer brewing equipment market. This also increases the importance of RM with those customers and to increase the strength of the different

relationships. To create effective RM and profit from the accompanying benefits described by Ruokonen et al. (2008) (increased cooperation, better understanding of customer requirements, dialogue with customers leading to closer relationships, and co-creation of value through development of co-created products and services) the described areas where possibilities for improvement exist should be addressed.

To manage the differing demands in SCM from the different customers a customized approach as the key account management structure described above should be in place. For such a structure to work and being able to apply RM practices on an individual level a great deal of internal clarity and cooperation is asked from the supplier. As came forward in the results the way in which different subsidiaries are working together should be improved. Better working together includes improvements in the other problem areas that where distinguished (coordination, communication, regional division).

p.38 Clear coordination of different activities relating to customers should be in place. The key account managers of each customer should be handling the further coordination of tasks within the supplier organization. They need to know who is working on assignments for their key account, what the requirements are, and set deadlines for response times. For this to work effectively it should not only be clear for customers who they need to address for certain problems or questions, but also within the company this should be very clear. In this way when an employee that is faced with a certain problem or question from a customer for which they do not have responsibility, they know to which person to communicate the problem.

This points out the next critical aspect in the customer management structure. Clear internal communication is needed to coordinate different tasks relating to customers. If specific demands of customers are better suited to be addressed by a different subsidiary than where the key account managers are located, the key account managers should communicate with the other subsidiaries in order to meet the demands. Not only communication within a subsidiary, but also between different subsidiaries is needed. This requirement for clear communications between different subsidiaries demands willingness to work together as one company.

For a supplier operating on a global scale it is also very important to clearly divide responsibilities of operations in certain regions. As an example from one of the interviews “Clients who often get very confused having to communicate with a

European company in order to have a product delivered in Asia manufactured in China”. This is partly dependant on the centralised way of doing business of a certain customer, so where does their decision making power reside. Within the customized approach of the key account management structure it should be able to distinguish where the decision making power lies and how to address these different customers with regard to demands for global projects.

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6.2 Product portfolio

From the results on different sub questions it came forward that some problems occur with the current product portfolio. The product portfolio is not fulfilling all the demands of the main customers sufficiently. Improvement of the product portfolio is needed in order to effectively manage the differing demands in SCM of customers (see table 5.2). As these SCM demands of customers are for a large part focussed on the products demanded.

From the analysis of the current product portfolio and if it meets the needs it came forward that the trend of customer demands is going towards turnkey solutions. The supplier is perceived to be effective at doing turnkey projects. This expertise in turnkey projects should be maintained and improved further where possible. There are also some demands that are currently not met by the supplier. For example the demand for smaller sized tanks and brewing solutions is not met by the supplier. The major customers are of course the large global brewers which more focus on larger breweries and subsequently larger products. The opportunity is present to increase sales in smaller product sizes, which might also decrease the dependency on the large global brewers. From analyzing the competition it became clear that the competition is addressing this market for smaller sized products. They do tap into these demands and they are currently able to do so without serious competition from the supplier used in this research.

The other problem with the current product portfolio is the lack of lower cost product options. By analyzing the different demands in SCM by the customers it came forward that some of the customers are very much focused on low product prices. These demands are not met by the current product portfolio. From analyzing the competitors it also came forward that the supplier is not competing in the lower price product segment, where the competition is addressing these demands for lower price products by certain customers. Also by the sales personnel it was indicated in the interviews that these lower cost options for products are missing, where some customers do express demands towards these types of products. Lower costs leads to decrease in product quality, regarding this relation the supplier has to fulfill only the minimum quality specifications of the cost focused customers.

p.40 could improve their competitiveness, decrease their dependency on the major global brewers and at the same time be able to fulfill the demands of the major global brewers better. MO theory points out this importance by stating that “the key to achieving organizational goals is to be more effective and efficient than competitors in identifying and in satisfying the needs of target markets” (Kotler 2003, p. 19).The product portfolio should be expanded. A product segment addressing the demand for smaller brewing solutions should be added to the portfolio. Furthermore, also

different pricing options for products should be integrated in the product portfolio. The supplier already has the opportunity in house for creating cheaper products, with the cheap labor and production facilities in their factory in China. This on first though simple aspect of business (product portfolio that meets customer needs) proves to be not that simple for the supplier, also in contemporary literature this relatively simple aspect is not addressed when assessing SCM relationships.

6.3 Discovering of customer needs

To be able to fulfill the customers’ demands in face of SCM, it is also very important to have a clear image of what the customer needs are and what they are expected to be in the future. Additionally a clear understanding of the (future) customer needs is critical in creating competitive advantages. As described in the theory even

customers themselves are not always aware of all their real needs. This makes discovering customer needs a complicated process. MO theory distinguishes between proactive MO and responsive MO in finding out about customer needs. Where the proactive MO focuses on discovery of latent needs, so the needs that customers are not aware of themselves. Responsive MO is responding to things that happen in the market, these needs are more expressed and are relatively clear. According to MO theory (Narver et al., 2004) both responsive MO and proactive MO need to be pursuit in order for a company to effectively discover customer needs.

As the results showed the supplier is applying both types of MO. They apply