The strong correlation between supply and demand has prompted an emphasis on strong supplier relationships by resellers.
A demand chain is a component of the value chain business model developed by management expert and author Michael Porter in his 1985 book "Competitive Advantage." The demand chain component deals with the marketing, sales and service side of the value chain, which are directly involved with the customer, or the demand side of the supply chain.
Value Chain Basics
The value chain is the value-generating activities that take place in the distribution channel. It includes six basic elements that outline the typical flow of materials and goods through the distribution channel or value chain from manufacturing to front-end sales. They include inbound logistics, operations and outbound logistics, all of which make up what is referred to as the supply chain side. Marketing, sales and service constitute the demand side.
Understanding Demand
In business, demand generally refers to a marketplace condition in which potential consumer or business buyers of a product have interest in acquisition. Higher demand typically means more suppliers want to provide products and prices are typically higher initially. Lower demand generally means less marketplace interest, fewer suppliers and lower prices. Companies typically try to influence demand through the value chain activities in the demand chain.
Demand Chain Elements
Marketing is a major function of most companies that involves all facets of integrating product or service features and benefits and messages delivered to the marketplace. Marketing intends to increase demand, which subsequently drives prices and margins higher. Sales is often considered an element of marketing, but it involves more direct person-to-person efforts by salespeople to persuade customers of a product's value. Service is intended to maintain demand from existing customers and increase demand with new customers through positive word-of-mouth communication.
Seamless Integration
While operations and logistics of the supply chain are often discussed separately from demand-generating activities in the demand chain, companies have to consider the flow of products through the value chain in totality. For instance, controlling costs and optimizing efficiency at the manufacturing or supply level can have positive impacts on delivering value-oriented price points and generating demand at the customer side.
