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Demand Chain Management: FactorsEnhancing Market ResponsivenessCapabilitiesDurgesh Kumar Agrawal aa Rajiv Gandhi Indian Institute of Management , Shillong , IndiaPublished online: 12 Apr 2012.

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Demand Chain Management: FactorsEnhancing Market Responsiveness

Capabilities

DURGESH KUMAR AGRAWALRajiv Gandhi Indian Institute of Management, Shillong, India

For growth and long-term sustainable performance in the era ofglobalization, corporate enterprises have been facing a numberof challenges as customer needs and expectations continuallychange over time. It has resulted in increased market turbulenceand intense competition. Simultaneously, information technologyadvancements have provided an opportunity for marketers to bemore customer focused. Real-time delivery of superior value in acost-efficient way to customers has become the latest mantra. Forthis purpose, firms must enhance their market responsiveness capa-bilities. Demand chain management (DCM) is a new tool in thehands of the management that deals with all assets, information,and processes to define demand followed by synchronization ofvarious activities to fulfill demand on a real-time basis by manag-ing flow of information and products efficiently and effectively.The focus of this article is to explore various factors of DCM thatwould help firms in enhancing their market responsiveness capa-bilities in a dynamic business scenario.

KEYWORDS capitalizing on distribution, demand chain man-agement, demand-driven business strategy, leveraging informa-tion technology, market responsiveness, real-time informationflow, superior logistics services

Address correspondence to Durgesh Kumar Agrawal, Rajiv Gandhi Indian Institute ofManagement, Nongthymmai, Shillong 793014, India. E-mail: dka@iimshillong.in

Journal of Marketing Channels, 19:101–119, 2012Copyright # Taylor & Francis Group, LLCISSN: 1046-669X print=1540-7039 onlineDOI: 10.1080/1046669X.2012.667760

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INTRODUCTION

It is the gift of the last decade of the twentieth century that most of theeconomies of the world are zooming toward market orientation. Rapid inno-vations in the field of science and technology, especially information andcommunication technologies along with heavy industrialization as a conse-quence of liberalization policy of almost all the economies of the world, havetransformed world markets to a global village. All these have forced corpor-ate enterprises to perform in a highly competitive environment. These recentchanges have significant impact on the traditional way of doing business andmanaging competition. Competitive advantages have become competitivenecessities, which require major change in the response mechanism ofcorporate enterprises. The traditional business approach has evolved froma product-led marketing philosophy to ‘‘customer centricity.’’ The backdropto the current economic crisis across industries is over-capacity. Too manyproducts and services are chasing too few customers. Customers are scarce,not products. Demand is a problem, not supply, as most products andservices lack differentiation.

Demand chain management (DCM) is a new tool in the hands of thetop management to address prevailing and emerging market complexities.Contemporary thinkers of strategy, marketing, supply chain management,and information technology have started arguing that corporate enterprisesshould concentrate on the management of demand chain due to variousdegrees of flexibility, complexity, priorities, and requirement. The mainobjective of this endeavor is to enhance market responsiveness capabilities.It is the front-end and customer-facing side of the value chain.

DEMAND CHAIN MANAGEMENT

DCM is a recently introduced approach that seems to capture deeper syner-gies between supply chain management (SCM) and marketing by startingwith the specific customer needs and designing the chain to satisfy theseneeds instead of starting with the supplier=manufacturer and workingforward (Heikkila, 2002). Though most DCM contributions to date stem fromSCM and operations (Vollmann & Cordon, 1998; Lee & Whang, 2001), selec-ted citations among marketing academics can also be traced (Roger, 1997;Kotler, Jain, & Macsincee, 2002; Baker, 2003).

Juttner, Christopher, and Baker (2007) define DCM as a new businessmodel aimed at creating value in today’s marketplace and combining thestrengths of marketing and supply chain competencies. Demand chaindesign is based on a thorough market understanding and has to be managedin such a way as to effectively meet differing customer needs. It involvesmanaging the integration between demand and supply processes; managing

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the structure between the integrated processes and customer segments; andmanaging the working relationships between marketing and supply chainmanagement. Chase (2001) defined the demand chain as a dynamic networkof a company’s customers; customers’ customers; and direct and indirectmarketing, sales, and service providers who facilitate the firm with the capa-bility to get, keep, and nurture profitable lifetime relationships in better andfaster ways. According to Lee (2002), demand chain is a network of tradingpartners that extends from manufacturers to end consumers. The partnersexchange information, and finished goods flow through the network’s physi-cal infrastructure. Agrawal, Agrawal, and Deshmukh (2006) advocated thatDCM is a demand-driven process and system that manages organizationalactivities based on responsiveness to market demand. Caruso (2003) stressedthat it is an information technology-led (IT-led) strategic concept that enablesfirms and their resellers to rapidly respond to rapidly changing customerwants and conditions that affect demand. Blackwell and Blackwell (1999)explained that the essence of DCM is to define and understand customerdemand on a real-time basis followed by rapid response to it.

According to Lee and Whang (2001), the key success for many demandchain leaders is the smart use of information. They make use of a rich set ofwell-chosen and timely data to drive their replenishment processes. Under-standing demand requires a comprehensive knowledge of who your custo-mers are, what products=services they like, how they make their purchases,how often they order, and what constraints they place on the purchasingprocess. In DCM, this demand knowledge can then be used to drive a replen-ishment system that generates the right inputs from suppliers and reliablydelivers the products and services to customers. Agrawal, Agrawal, and Singh(2010) explained that DCM involves capturing of demand-related infor-mation by market sensing followed by various business decisions relatedto fulfillment of sensed demand through the network of different organiza-tions or units that keep stock of finished goods on a real-time basis. In thecustomer-centric marketplace, the focus of DCM is on real-time flow ofdemand-related information from point of inception (end-users) to the pointof use (vendors). The idea is to make optimal use of the distribution-relatedfunctions of marketing and ensure coordination with other value adding pro-cesses of the supply chain. In the demand chain, some locations of businessunits—such as central warehouses and regional distribution centers that, ineffect, are internal demand chain members—are owned by the firm itself.Independent business units (e.g., carrying and forwarding agent, distributor,wholesaler, retailer, and=or retail chain stores) are external demand chainmembers as shown in Figure 1.

Thus, DCM is a demand-driven process and system that manages orga-nizational activities based on responsiveness to market demand. Melnyk,Davis, Spekman, and Sandor (2010) defined responsiveness as an ability tochange quickly in terms of volume, mix, or location as a function of changing

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condition. DCM is a generic framework of consumer-centric business modelto enhance market responsiveness capabilities. It is based on ‘‘sense-and-respond’’ philosophy that focuses on acquiring new capabilities to offermaximum customer value in the dynamic market condition. It redefines net-work structure, information- and knowledge-sharing mechanisms, and rela-tionships (Haeckel & Nolan, 1996). For this purpose, a market-responsivedemand chain model synchronizes strengths of marketing and supply chaincapabilities by integration of various processes and activities in a radical newway, as shown in Figure 2.

FIGURE 2 Market-responsive demand chain model.

FIGURE 1 Demand chain management. Source: Agrawal, Agrawal, and Deshmukh (2006).

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LITERATURE REVIEW

Globalization and IT (especially the Internet) are the two major drivers of theemerging business environment (Agrawal et al., 2010). Due to global expo-sure, consumers around the world now have new ways of living and con-suming. They are demanding many things that they see. The changes inthe characteristics of markets are also supported by rapid technological inno-vations (Kotler et al., 2002). Sawhney and Kotler (2001) argued that there is aclear shift from information asymmetry to information abundance. As aresult, consumers have become better informed, alert, and resistant to mani-pulation these days. They are becoming very selective due to change andincrease in their expectation and aspiration and are ready to undertake cal-culated risks, resulting in a shift in the perspective of their value (Agrawal,Singh, & Agrawal, 2004). This shift is from a combination of benefits domi-nated by price to a range of benefits such as superior quality, convenientand hassle-free transaction, pleasant purchase experience, consistency andreliability of product performance, problem solutions, and value for money(Haeckel & Nolan, 1996; Blackwell & Blackwell, 1999; Agrawal, 2003; Kumar,2004). Furthermore, different customer segments have different expectationsand needs to be fulfilled by firms (Robert, 2004).

For success in this dynamic business scenario, Fine, Vardan, Pethik, andEl-Hout (2002) argued that the design of a firm’s value chain has traditionallybeen viewed as a static enterprise, the assembling of a fixed set of suppliersand distribution channels to get and keep competitive advantage. However,the pace of change in today’s technologies and markets has made thatapproach obsolete. Competitive advantage is, at best, a fleeting commoditythat must be won again and again. It requires continual disintegration andreintegration of organizations, with frequent reshuffling of structure andtechnological, financial, and human assets. Organizations today must quicklyand continually assess which parts of their value chain are vulnerable, whichparts are defensible, which alliances make strategic sense, and which threatsare deadly.

Kotler et al. (2002) advocated that the classic marketing models must befuture-fitted and must be deconstructed, redefined, and stretched to performsuccessfully. Kumar (2004) argued that the problem with marketing today isthat it operates at a narrow, tactical 4Ps (product, price, placement, promo-tion) level that leads in emergence of gaps between the market opportunity,and crafting and sustaining a business model responding to it, resulting inloss of their leverage within the organization. Day (1999) strongly argued thatfirms must be market-driven so that they can respond to the market charac-teristics quickly and proactively. A market-driven firm has market orientationsuperior to that of its competitors. Market orientation enhances marketresponsiveness capabilities of firms (Agrawal & Gupta, 2006).

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Kohli and Jaworski (1990) defined market orientation as an organization-wide generation of market intelligence pertaining to current and future cus-tomer needs, dissemination of the intelligence across departments, andorganization-wide responsiveness to it. Narver & Slater (1990) argued thatmarket orientation consists of three behavioral components and two decisioncriteria: consumer orientation, competitor orientation, and inter-functionalcoordination and a long-term focus and a profit objective. Day (1999) sug-gested that market orientation represents superior skills in understandingand satisfying customers and understanding competitors. He further ident-ified elements of market orientation as an externally oriented culture withdominant beliefs, values, and behaviors emphasizing delivery of superiorcustomer value and the continual quest for new sources of advantage; dis-tinctive capabilities in market sensing, market relating, and anticipatorystrategic thinking; and a configuration that enabled the entire organizationcontinually to anticipate and respond to changing customer requirementsand market conditions.

For enhancing market responsiveness capabilities, Hoover, Eloranta,Holmstron, and Huttunen (2001) suggested that firms need a new corporateand marketing mindset for creating and delivering superior customer valueand must have more influence on the rest of the organization. Ashkenas,Todd, and Kerr (1995) advocated speed, flexibility, integration, and inno-vation. Bond (1991) argued that businesses will have to operate from strate-gies based on organizational flexibility, an unrelenting drive to create anddeliver the value, and constant attention to the detail of the customerdemands. Haeckel & Nolan (1996) argued that added value shifts down-stream from development and production to distribution, logistics, and ser-vice functions. As this happens, flexibility and responsiveness replaceefficiency and predictability. Kotler et al. (2002) advocated maximization ofcustomer value by pooling resources of all stakeholders (firm, customers,collaborators, and communities), core competencies, and collaborative net-works. Marketers need to get more involved in deciding what products topump out. Proactive and smart firms are adopting a ‘‘holistic marketing’’mindset for sustained corporate growth and social equity.

Robert (2004) emphasized identification of smaller groups of customerswith dissimilar needs and responding with custom-made products by pro-duction versatility and process innovations. Integration of numerous coreprocesses and activities across the value chain with the shared goal of max-imizing strategic effectiveness and operating efficiencies by managingknowledge, technology, and relationship (Walters, 2002); customer-focusedculture; and process-oriented phenomena enable suppliers to deeply under-stand the buyer’s requirements and have feedback mechanisms in place tocontrol its performance (Roger, 1997).

Shared knowledge by collection and dissemination of market insightsabout changing customer requirements and market conditions continually

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facilitates firms in building relationships with customers and increasing mar-ket focus (Day, 1999). For these purposes, information technology facilitatesfirms in intelligence generation and dissemination that increase the respon-siveness capability of firms (Kohli & Joworski, 1990). These IT-enabled pro-cesses ensure delivery of superior customer experience and increasedperceived value that result in better customer relationships and loyalty(Prahalad & Ramaswamy, 2004).

Melnyk et al. (2010) defined responsiveness as an ability to changequickly in terms of volume, mix, or location as a function of changing con-ditions. Conventionally, the supply chain is primarily responsible for firms’market responsiveness in a complex and uncertain world (Agrawal, 2007).However, Fisher (1997) argued that market-responsive supply chains use stra-tegically placed buffer inventories and capacities to achieve responsivenessand allow inventories to be kept as generic products. Trommer (1999) esti-mated $21 billion excess inventory in warehouses on a typical day. Inventorydepreciates at 1% per week in the electronics industry. Sage (2000) estimated$50 billion finished goods inventory—typically a 60-day supply—at dealerends or in transit to them on any given day. This supply chain drive resultsin a huge stockpile of finished goods inventory. In the U.S., $1.1 trillion ininventory supports $3.2 trillion annual retail sales (Lee, 2002). Simchi-Levi(2010) identified that inventory has increased by more than 60% between2002 and 2008 in United States, which requires demand chain optimizationby enhancing responsiveness capability. Consumers are getting on an average25-, 50 to 60-, and 60 to 120-day-old automobile, durable, and fast-moving con-sumer goods (FMCG) products, respectively, in India (Agrawal et al., 2006).

As a result, the business world needs a shift from supply-side todemand-side thinking (Rayport & Sviokla, 1995). The supply chain has a‘‘make-and-sell’’ view of the business (Kotler, 2003) that competes by esti-mating market demand, planning production, and building up inventory tomatch supply and demand for achieving economies of scale (Kotler et al.,2002), primarily focused on cost reduction but contributing little in termsof growth and profitability (Wayland & Cole, 1997) and managing the supplybase, including sourcing, supplier integration, and in-bound management(Copacino, 2003). Though responding to the dynamic market scenario, thesemeasures are not enough (Hoover et al., 2001); the demand chain is oftenoverlooked (Lee & Whang, 2001), lacks demand-side initiatives (Deloitte &Touche, 2003), and does not properly understand and estimate the demandthat resulted in the crashing of the market hype of the late 1990s about sup-ply chain management (Caruso, 2003).

For enhancing market responsiveness capabilities, firms need to analyzethe demand chain to better understand different customers’ buying processesand their value models (Hoover et al., 2001), to have a good grasp of cus-tomer demands, and to have a responsive system to meet those demandsin a timely and cost-efficient manner (Lee & Whang, 2001). It needs to be

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based on a ‘‘sense-and-respond’’ philosophy (Kotler, 2003) that invites custo-mers to participate in defining their broad needs and choosing the exact attri-butes, then trigger activities in response to orders for quick fulfillment by theuse of digital technology (Kotler et al., 2002).

DCM facilitates firms in enhancing market responsiveness capabilities as itis based on a customer-focused business culture and making customized valueofferings (Wayland & Cole, 1997; Blackwell & Blackwell, 1999; Walters, 2002),real-time product availability, prevention of stock-out without over-stocking,and continuous replenishment in small quantity (Lee, 2002; Lee, 2003; Simchi-Levi, Kaminsky, & Simchi-Levi, 2003; Agrawal et al., 2004). Further, it enhancesdemand fulfillment capability (Blackwell & Blackwell, 1999; Walter, 2002;Kotler et al., 2002); customer pull (Lee, 2002; Simchi-Levi et al., 2003; Agrawalet al., 2004); pooling channel resources in value addition; building partneringchannel relationships (Vollmann & Cordon, 1998; Blackwell & Blackwell,1999; Chase, 2001; Lee, 2002; Agrawal et al., 2004); and rationalization of distri-bution costs (Lee, 2002; Kotler et al., 2002; Kumar, 2004; Agrawal et al., 2004).

To do so, DCM needs extensive use of IT for restructuring of the chan-nel system in terms of disintermediation and reintermediation (Rosenbloom,1999; Kotler et al., 2002; Walters, 2002; Lee, 2003; Agrawal et al., 2004;Kumar, 2004; Agrawal et al., 2010), minimum distortion of demand-relatedinformation (bullwhip effects), an intelligence and knowledge-centric deci-sion mechanism, web-based transparent business transactions, and sales pro-cesses automation (Lee & Whang, 2001; Lee, 2002; Agrawal et al., 2010) andmatching of supply with demand (Beech, 1998; Agrawal et al., 2010).

METHODOLOGY

To explore various dimensions of superior market responsiveness in emerg-ing business environment, an exploratory research was conducted throughextensive literature and experience surveys. The experience survey was con-ducted to have a deeper insight into the problem domain by an informal dis-cussion with four senior-level corporate executives each from automobile,durable, and FMCG industries. Thereafter, a field study was conducted forthe purpose of collection of specific primary data with a pre-tested question-naire during June and July 2010. Corporate respondents were asked to scalecriticality of 18 variables of superior market responsiveness identifiedthrough a literature survey on a semantic differential scale of 1 (least impor-tant) to 7 (most important).

In total, 45 top-level corporate respondents (CEO, COO, CMO, GM=president-marketing) from the automobile (10), consumer durable (18), andFMCG (17) industries were taken as a sample on the basis of convenience.The selection of responding firms was made on the criteria that they musthave an annual sales turnover of more than Rs. 500 crore and an ERP system

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in operation. To validate and interpret data, mean and standard deviationwere calculated followed by factor analysis with the help of the SPSS 11.0software package.

ANALYSIS AND RESULTS

In the very first question of the questionnaire, the focus was to measureawareness about the increasing complexities of the business environmentand the need to enhance market responsiveness capabilities among respon-dents. A total of 93.3% of the corporate respondents have shown their majorconcern about growing complexities of business scenario and expressedtheir concern about how to manage it more efficiently. Thereafter, they wereasked to scale criticality (issues of concern) of different variables of superiormarket responsiveness as identified through literature and experience sur-veys on the semantic scale of 1 (not critical) to 7 (very critical). Thereafter,mean and standard deviation were calculated for issues of concern of indi-vidual different variables of demand chain for enhancing market responsive-ness capabilities, as shown in Table 1.

An analysis in Table 1 reveals that timely demand-related informationsharing (6.232) is the most critical issue of the demand chain. It is followedby partnering channel relationships (6.139), minimum distortion of demand-related information (6.045), web-based transparent business transaction

TABLE 1 Criticality of Variables of Market-Responsive Demand Chain

Variables of demand chain for enhancing marketresponsiveness capabilities

Issues of concernon scale of 1 (not critical)

to 7 (very critical)

Mean SD

Pooling channel resources in value addition (V1) 5.581 0.956Customized value offering (V2) 5.814 0.823Partnering channel relationships (V3) 6.139 0.600Real-time product availability (V4) 5.790 0.832Prevention of stock-out without over-stocking (V5) 5.697 0.673Minimum distortion of demand-related information (V6) 6.045 0.754Sales processes automation (V7) 5.597 1.194Timely demand-related information sharing (V8) 6.232 0.823Rationalization of distribution costs (V9) 5.046 0.785Continuous replenishment in small quantity (V10) 5.418 1.467Enhancement of demand fulfillment capability (V11) 5.558 0.933Web-based transparent business transactions (V12) 5.883 0697Disintermediation of channel structure (V13) 3.418 1.005Reintermediation of channel structure (V14) 4.860 1.206Matching of supply with demand (V15) 4.651 1.251Intelligence and knowledge-centric decision mechanism (V16) 4.907 1.191Pull marketing strategy (V17) 3.314 0.956Customer-focused business culture (V18) 4.953 1.194

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(5.883), customized value offering (5.814), real-time product availability(5.790), prevention of stock-out without over-stocking (5.697), and the like.Pull marketing strategy is relatively the least critical issue of concern. As low-est mean value is 3.314, it can be said that all variables barring pull marketingstrategy and reintermediation of channel structure are critical for superior mar-ket responsiveness as their mean values are lower than the mid-point of 3.5.

To have a deeper insight into the criticality of different variables ofdemand chain for enhancing market responsiveness capabilities, factoranalysis was conducted to know the number of factors and the number ofvariables falling into each of the factors extracted. In this study, principalcomponent analysis has been used as the objective is to summarize mostof the original information (variance) in a minimum number of factors forthe purpose of development of a framework. Further, the Varimax withKaiser normalization rotation method is used to simplify the factor structure,and only the factors having latent roots (eigenvalues) greater than 1 (unity)are considered. We chose those factor loadings that were greater than0.486 (ignoring the signs) and loaded them on the extracted.

Table 2 provides the Varimax with Kaiser normalization rotated factorloadings against the 18 variables measuring criticality of various variables of

TABLE 2 Rotated Component Matrix (Loading Criteria> 0.486)

Components

Variable F1 F2 F3 F4 F5

V1 Pooling channel resources in value addition .548V2 Customized value offering .891V3 Partnering channel relationships .804V4 Real-time product availability .786V5 Prevention of stock-out without over-stocking .818V6 Minimum distortion of demand-relatedinformation

.580

V7 Sales processes automation .750V8 Timely demand-related information sharing .744V9 Rationalization of distribution costs .833V10 Continuous replenishment in small quantity .727V11 Enhancement of demand fulfillment capability .494V12 Web-based transparent business transactions .829V13 Disintermediation of channel structure .638V14 Reintermediation of channel structure .503V15 Matching supply with demand .640V16 Intelligence and knowledge-centric decisionmechanism

.641

V17 Pull marketing strategy .580V18 Customer-focused business culture .503Eigenvalue 2.612 2.570 2.402 1.870 1.660Cumulative variance 27.68 43.03 55.44 62.42 68.83

Note. Extraction method: principal component analysis; rotation method: Varimax with Kaiser

normalization.

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demand chain for enhancing market responsiveness capabilities. This wasobtained in eight iterations through SPSS (Version 11.0). This factor analysisfinds five derived factors, and those variables that had factor loading ofabove 0.486 (ignoring the signs) are grouped under their respective derivedfactors. These five factors—F1, F2, F3, F4, and F5—have eigenvalues of2.612, 2.570, 2.402, 1.870, and 1.660, respectively, which explains 68.83%total variance, which is quite high, and this establishes the validity of thestudy.

Thereafter, different variables of the demand chain for superior marketresponsiveness were then loaded on the five factors (as exhibited in Table 3).Naming of factors has been done on the basis of the size of factor loading ofthe variables. As depicted in Table 3, factor F1 consists of four variables (V4,V5, V10, and V11) that have been named as ‘‘superior logistical services.’’Similarly, factor F2 with V7, V12, V13 and V14 variables may be named as‘‘leveraging IT.’’ F3 with V1, V3, and V9 variables named as ‘‘capitalizingon distribution.’’ Factor F4 consists of V6, V8, and V16 variables and namedas ‘‘real-time information flow.’’ Finally, factor F5 includes of V2, V15, V17,and V18 variables and named as ‘‘demand-driven business strategy.’’

TABLE 3 Critical Factors of Market-Responsive Demand Chain

F1:Superiorlogisticalservices

F2:Leveraginginformationtechnology

F3:Capitalizing

ondistribution

F4:Real-timeinformation

flow

F5:Demand-driven

businessstrategy

Real-timeproductavailability(5.790)

Prevention ofstock-outwithout over-stocking(5.697)

Continuousreplenishmentin smallquantity(5.418)

Enhancement ofdemandfulfillmentcapability(5.558)

Sales processesautomation(5.597)

Web-basedtransparentbusinesstransactions(5.883)

Disintermediationof channelstructure(3.418)

Reintermediationof channelstructure(4.860)

Poolingchannelresources invalueaddition(5.581)

Partneringchannelrelationships(6.139)

Rationalizationofdistributioncosts (5.046)

Minimumdistortion ofdemandrelatedinformation(6.045)

Timely demand-relatedinformationsharing (6.232)

Intelligence andknowledge-centricdecisionmechanism(4.907)

Customizedvalue offering(5.814)

Matching ofsupply withdemand(4.651)

Pull marketingstrategy (3.314)

Customer-focusedbusinessculture (4.953)

Note. The figures in parentheses represent the average scores on the scale of 1 (not critical) to 7 (very

critical) for the variables under each factor that determines criticality of various factors of enhancing mar-

ket responsiveness capabilities.

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IMPLICATIONS

The implications of this study are described in the form of a DCM frameworkfor enhancement of market responsiveness capabilities in the dynamic busi-ness scenario. This market-responsive DCM framework has five key factorsas identified in this study below.

Demand-Driven Business Strategy

Though responding to the changing and evolving business scenario proac-tively, businesses must strive to satisfy the needs of customers in the mostconvenient way, minimizing the time and energy that they spend in search-ing for, ordering, and receiving goods and services. In other words, firmsneed to maximize customer value in the dynamic market scenario to beahead of competition. These call for formulation and implementation of stra-tegies by firms to sense customer demand on a real-time basis and speed uptheir processes to respond to it quickly in a cost-efficient way. This wouldresult in maximizing customer value. For this purpose, firms need ademand-driven business strategy whose philosophy revolves around marketorientation and customer-focused business culture across the value chain.This strategy would aim at identifying profitable customers, retaining themlonger, and eliminating unprofitable customers quickly.

In this perspective, the design of a firm’s value chain needs to be revis-ited in terms of traditional assembly of a fixed set of suppliers and distri-bution channels to achieve and retain competitive advantage. The firmneeds to re-optimize its value chain for enhancement of market responsive-ness capabilities. The value chain must be demand-oriented for customerpull and fulfillment of demand on real-time basis in a cost-efficient way.For the purpose of winning competitive advantage again and again, firmsneed continual disintegration and reintegration of organizations, with fre-quent reshuffling of structure and technological, financial, and human assets.In other words, to enhance market responsiveness capabilities, firms need tooffer customized value to both consumers and business partners (cost-efficient best possible benefits to market), match supply with demand, adoptpull marketing strategy, and inculcate customer focused business culturethroughout the organization. That is why Beech (1998) emphasized thatthere are interdependent relationships between supply and demand. Firmsneed to understand customer demand so that they can manage it, sensefuture demand, and meet the desired level of customer satisfaction. Demanddefines the supply target, whereas supply-side capabilities fulfill, support,shape, and sustain demand.

Markets consist of groups of potential customers. Different customergroups have different sets of needs and expectations. Thus, truly demandchain–focused firms need to have a demand-driven business strategy

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wherein there is customer-centric marketing by adopting market fragmen-tation strategy for fulfilling their needs exclusively. To equip with this capa-bility, they need to match supply with demand and prefer and encouragepull strategy by ensuring involvement and participation of customers indefining broad market offerings through continuous interaction. Hence, ademand-driven business strategy is the most fundamental and core factorof DCM for enhancing market responsiveness capabilities.

Real-Time Information Flow

Real-time information flow is the most basic element of any market res-ponsiveness system. Without intact information flow from customers aboutdemand or requirement to vendor or supplier, demand cannot be met.Superior market-responsive firms always have distinctive capabilities in mar-ket sensing, market relating, and anticipatory strategic thinking along with aconfiguration of a system that enables and ensures minimum distortion ofdemand-related information throughout the demand chain. Any distortionor delay in demand information sharing across the network leads towarduncertainty that results in excessive inventory across the distribution networkcalled the bullwhip effect (Lee & Whang, 2001; Lee, 2002), resulting in failureof the logistics system. It also ensures a system that continually anticipatesand responds to changing customer requirements and market conditions.Demand chain members know the priority of customer satisfaction andretention as key to the success of their firms. In this context, it is essentialto have timely information sharing about demand across the network, failingwhich; demand cannot be fulfilled on a real-time basis. For this purpose,various business decisions must be based on market intelligence and knowl-edge and transmitted simultaneously to different places for immediate andeffective implementation. Enhancement of market-responsive capabilitiesneeds real-time capture of demand data and their processing for fulfillmentfollowed by sharing such decisions across demand chain for real-timeactions.

Hence, to enhance market responsiveness capabilities, it is essential toensure to-and-fro real-time information flow across the network. Thus,real-time information flow factors for enhancing market responsivenesscapabilities of firms include minimum distortion of demand information,timely demand information sharing among business partners, and an intelli-gence- and knowledge-centric decision mechanism across the network.

Capitalizing on Distribution

In the prevailing market scenario, there is a major change in mindset of thecorporate world about the role and functions of distribution in general andchannel members in particular from a routine to a strategic one. Firms have

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been gradually realizing and experiencing that gaining sustainable competi-tive advantage cannot be possible by product features, competitive price,and heavy promotion. Distribution ensures sustainable competitive advan-tage, greater market dominance, and long-term performance of business.Distribution strategies are based on some proactive philosophies such as dis-tribution efficiency, pooling resources, and building and maintaining part-nering relationships with channel members. Channel members gain powerdue to availability of a large number of undifferentiated products in the mar-ketplace and alternative attractive business avenues. This has resulted inmore dependence of firms on channel members as their extraordinary zealand interest in firm’s business make a difference and generate additionalsales volume for long-term performance of business (Agrawal, 2003, 2007).

For enhancing market responsiveness capabilities, the demand chain offirms needs to capitalize on its channel resources. It is the demand chainstructure of the firm that captures and fulfills consumer demand. It is theefficiency and effectiveness of the channel members that ultimately deter-mine the market responsiveness capability of the firm in comparison withothers. Without pooling resources of channel members, firms cannot sustaingrowth and long-term performance solely on their own resources. Channelmembers add significant value throughout the purchase process of consu-mers (before, during, and after purchase). In the prevailing market scenario,firms’ dependence on channel members has been increased significantly forthe qualitative contributions of marketing (Agrawal, 2007). For this purpose,they need to develop and maintain partnering relationships with channelmembers by keeping them happy, loyal, and well motivated toward businessbecause they have final interface with end-users. The preceding measures,along with initiatives such as pull strategy, contribute immensely in reductionand rationalization of distribution costs. Thus, capitalization of distributionenhances firms’ market responsiveness capability in the dynamic marketscenario by superior delivery value to customers.

Superior Logistics Services

For enhancing market responsiveness capabilities, there is a need for quickand real-time flow of products from sources to customers for the fulfillmentof demands that require superior logistics services and systems. There is agrowing awareness about the strategic role of logistics services in the firm’soverall success. It has a significant impact on revenue and profitability ofbusinesses. Businesses have moved beyond viewing logistics as merely anarea for cost efficiency and improvement to viewing logistics as a key sourceof competitive advantage effectiveness within a firm’s total market efforts.Agrawal (2007) argued that customer service has been a key focal area ofresearch in the logistics discipline. Its capabilities can be leveraged to createsuperior value to customers and suppliers through consistent and reliable

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service performance, customization of demand-fulfillment services based ondifferent segments, and effective market responsiveness systems. This, inturn, facilitates gaining a differentiating advantage, brings superior customersatisfaction, and improves corporate performance in sales volume and valueterms.

Superior logistical services variables facilitate firms in making productsavailable on a real-time basis, preventing stock-outs without over-stocking,continuous replenishment in small quantities, and enhancing demand fulfill-ment capabilities. Firms must emphasize superior logistical services with theobjective to create superior value and deliver it to meet demand in a complexand uncertain world. It has been seen that the conventional supply chain–ledmarket responsiveness system resulted in a huge pile-up of finished goodsacross the chain. Thus, there is enough scope for improvement in the logis-tics service quality to gain differential advantage in the marketplace. That iswhy proactive firms are shifting from a ‘‘make-and-sell’’ philosophy of supplychain to market-responsive demand chain based on the philosophy of‘‘sense-and-respond.’’ Major contributions of this initiative are in terms ofboosting sale, unlocking working capital, minimizing space requirement,and superior return on investment to all stakeholders.

Leveraging Information Technology

In the era of networked systems, firms need to leverage IT for the enhance-ment of its market responsiveness capabilities. IT is redefining the entire sys-tem and market responsiveness practices and management. It provides newopportunities and poses new threats on a continuous basis. It enables firmsto have a sense-and-respond strategy–based logistics services wherein infor-mation about demand flow backward before flow of goods forward. As aresult, it is essential to optimize time and costs in the capturing of customerorders, their processing, efficient assortments to optimize productivity ofspace and inventory, and total system for the demand fulfillment for fixedand small replenishment system. Firms can leverage IT for real-time, accurate,and paperless communication of information seamlessly; JIT and flexible sys-tems for quick response; building partnering relationships; redefining distri-bution channel structure; and expansion of market from local to national toglobal.

IT-enabled marketing and sales processes facilitate firms to increasetheir market responsiveness capabilities. It enables firms to capture and pro-cess demand data on a real-time basis for quick fulfillment of demand.Web-based systems make business transactions more transparent by makingcomplete visibility of information about marketing, brand, merchandising,sales and trade promotion schemes, order status, and shipment schedule.It ensures anxiety-free completion of business transactions preventingchannel conflict (Agrawal, 2003). It has been seen that small distribution

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network is needed for an integrated market responsiveness system. IT pro-vides new opportunity in this regard to restructure a firm’s distribution net-work by disintermediation and reintermediation. It may eliminatenon-value adding channel members and empowers others. having moremembers in the demand chain network results in more chances of distortionof demand-related information and more pile-up of inventory at each link(Agrawal et al., 2004).

A careful analysis of the functions and characteristics of the precedingfive factors reveals that the first four factors—demand-driven business strat-egy, real-time information flow, capitalizing on distribution, and superiorlogistical services—are interrelated and interdependent, working like aclosed and integrated system within the framework of IT. For enhancing mar-ket responsiveness capabilities, firms should leverage IT to have a smoothand synchronized functioning of these factors. Hence, the IT-enabled frame-work of integrated factors of DCM for enhancing market responsivenesscapabilities is shown in Figure 3.

The nature and characteristics of the first four factors, excluding lever-aging IT, are largely interrelated and interdependent, which needs a highdegree of coordination and integration among them. Firms can synchronizesuch processes and activities in dynamic market scenario only by lever-aging IT.

CONCLUSIONS

It has been seen that there is a major transformation in the characteristics ofthe business scenario mainly due to globalization and rapid innovations inthe field of IT. This has resulted in a significant amount of increase in thebusiness intricacies mainly due to the dynamic nature of the environment.Firms need to enhance their market responsiveness capabilities for growth

FIGURE 3 IT-enabled integrated factors of demand chain management enhancing marketresponsiveness capabilities.

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and long-term performance and to outperform against their rivals. For thesepurposes, firms need to redefine their business model and make itdemand-driven. DCM is an emerging dimension of management disciplinethat is based on a sense-and-respond business philosophy. It is the front-endand customer-facing demand side of the value chain that focuses on acquir-ing new capabilities required for quick response and offers superior value toall stakeholders.

On the basis of literature and experience surveys, 18 variables ofdemand chain were identified for enhancement of market responsivenesscapabilities. Factor analysis classified these variables into five factors thathave been named as demand-driven business strategy, real-time informationflow, capitalizing on distribution, superior logistics services, and leveragingIT. These factors constitute DCM for enhancing market responsiveness capa-bilities. Among these five factors, most of the DCM processes and activitiesare largely undertaken in the IT environment that redefines network struc-ture, knowledge-sharing mechanism, and relationships that in turn enhancemarket responsiveness capabilities of firms. That is why firms need a radicalchange in their mindset for the integration of various demand chain–relatedprocesses and activities. This new breakthrough demand chain frameworkfor enhancing market responsiveness capabilities of the firm starts with therecognition of addressable problems of consumers and ends with their solu-tions with distinction in the marketplace. Thus, DCM is a generic tool forenhancement of market responsiveness capabilities.

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