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Crafting Supply Chain Strategy Through Market Sensing


Alvin J. Williams, Ph.D.
Alvin J. Williams, Ph.D., Chair and Professor of Marketing, University of Southern Mississippi, Hattiesburg, MS 39406, 601/266-4634,

85th Annual International Conference Proceedings - 2000 

Abstract. As supply professionals grapple with the nuances of conceiving, activating, and assessing means to enhance organizational performance, increasingly attention is directed toward the art of actually crafting action-oriented strategies. A critical ingredient in this process is adroitly using market sensing as a complementary tool for market definition, monitoring of competition, value assessment, and partner satisfaction feedback. Sound and sustainable supply chain strategy is dependent upon designing a market sensing mechanism within the organization that allows for more effective and efficient resource usage.

Introduction. Given the dynamics of modern-day business operations, the success of the organization is almost synonymous with the success of the supply chain. For many firms, crafting and implementing strategic supply chains has become the sine qua non of success. One element of the supply chain success model that ensures some measure of performance continuity is adroit market sensing, both intra-and extra-chainwise. Market sensing describes the manner in which supply chain partners anticipate the needs, actions, intentions, and behaviors of fellow chain participants, in both formal and informal (intuitive) means. In reality, market sensing is an interactive, dynamic approach to using information strategically and tactically to maintain contact with the pulse of internal and external chain associates.

The purpose of this paper is to explicate how organizations use market sensing to design and execute tailored supply chain strategies. If supply chains are to be truly responsive and anticipatory to the needs of all participants, skillful market sensing is a necessary prerequisite. The focus is on the application of sensing to more effective management of integrative, responsive, and vibrant supply chains.

Background. Supply chains are complex entities requiring vast amounts of information dissemination and exchange in multiple directions. The nature of these information exchange processes define the core of market sensing. If each component of the chain is viewed as a "market" with the attendant expectations and roles, then market sensing must be considered an integral component of an effective chain. When one considers the myriad issues confronting supply chains, market sensing takes on an even more significant stature. The most germane issues facing supply bonds have been summarized as follows (Simchi-Levi, Kaminsky, Simchi-Levi, 2000):

  • Distribution network configuration
  • Inventory control
  • Distribution strategies
  • Supply chain integration and strategic partnering
  • Product design
  • Information technology and decision-support systems
  • Customer value

All of these issues in some way require a measure of market sensing adroitness if substantive solutions are to be formulated and executed. The seven issues above may have varying levels of significance to chain members, but sensing capabilities are the connecting links that bind them.

Market Sensing and Market-Driven Supply Chains. Day (1994) identifies market sensing as a distinctive capability of market-driven organizations. Likewise, sensing is a hallmark of market-driven supply chains. Market-driven firms are in a better position to detect events and proclivities of the markets faster and more accurately than competitors. Again, these parallels apply to supply chains. Their predictive capacities outdistance those of firms less attuned to their customers, supply chain associates, and competitors.

This keen ability to be anticipatory is achieved through (Day, 1994):

  • Open-minded inquiry - which includes acquiring information through active scanning, self-critical benchmarking, continuous experimentation, and informed imitation.
  • Synergistic information collection and distribution - acquiring information from myriad sources, including tacit knowledge, and sharing it strategically.
  • Mutually informed interpretations - appropriate use of mental models to interpret information and knowing when to alter the models.
  • Accessible memory - market-driven inquiry, distribution, and interpretation must function within the context of "collective organization memory."

The market sensing process can be summarized as follows: inquiry initiation, information acquisition, information distribution, interpretation, information usage, and evaluation of outcomes. This process is mediated by organizational memory. Again, the application to supply chains is clear. When supply chain partners view each other as customers, market sensing takes on special customer-linking characteristics that prove invaluable in achieving higher levels of chain effectiveness.

Components of Market Sensing. If supply chain associates realistically view themselves from marketing perspectives, inputs from the following areas would formulate the basis or foundation of an integrative market sensing initiative:

  • Market definition - identifying specific needs and segments;
  • Monitoring of competition - analysis of competitors and performance measurement;
  • Value assessment - methods of assessing value and construction of value models; and
  • Gaining customer feedback - assessing customer satisfaction, perceptions of return on quality, and other forms of input from various stakeholders.

All four of the above categories blend collectively as inputs to substantive and responsive market sensing systems capable of guiding the organization in general and the supply chain components in particular. If each element of the chain is viewed as a "market segment" then information must be collected and used to respond to the needs of that market. Manufacturers, distributors, third-party logistics providers, transportation components, inventory mangers, and purchasers are all "market segments" with multiple and complex information flows requiring market sensing input.

While market definition, segmentation, and competitive monitoring are essential contributors to market sensing success, two other elements - assessing value and acquiring customer feedback have especially strong roles in market sensing effectiveness in supply chains. The next sections of the paper highlight these areas.

Value Assessment and Market Sensing in Supply Chains. In general, value assessment is designed to determine the monetary worth of some market offering (product, service, idea, behavior) [Anderson and Narus, 1999]. In the supply chain context, it refers to assessing the worth of various "market offerings" exchanged among manufacturers, intermediaries, support (facilitating) entities, and final consumers. Anderson and Narus posit several means of assessing value, including:

  • Field value-in-use assessment
  • Direct and indirect survey questions
  • Focus-group value assessment
  • Benchmarking
  • Importance ratings
  • Compositional approach

The field value-in-use method involves interviewing and collecting data from customers regarding benefit and cost elements associated with usage of a market offering vs the next best alternative. Monetary amounts are attached to benefit and cost elements to assist in providing an indication of approximate value. In a supply chain, this method allows each component of the chain to attach monetary- and non-monetary value to the exchanges between and among chain units.

Surveys among chain members allow market sensing to occur in both direct and indirect ways. Directly, participants are given a description of a "market offering" or service and are asked what the value would be to their organizations. Alternatively, the question would be "what would you be willing to pay for this?" Indirect questions might focus on the impact of changes in the market offering and the resultant effect on members' actions and behaviors. If a variable is changed, how would it affect the business functioning of the other parties in the channel?

A focus group approach to value assessment allows in-depth, involved form of market sensing. Various market offerings are presented and extended discussions ensue concerning the perceived value of each offering and the reasons behind the perceptions. This method could be used to probe or ferret out underlying causes shaping value configurations among channel members.

Benchmarking allows participants to determine how much more they would be willing to pay for a market offering above the industry standard. This provides some measure of the value placed on that service and allows comparisons over time. Importance ratings as a means of assessing value allow participants to rate the significance of attributes of market offerings. These ratings vary across channel members and time periods.

Collectively, all of the above approaches to assessing value represent important elements of an integrative market sensing effort. Input from one or more of these methods can be used to shape decision-making within an organization or in a supply chain.

Customer Satisfaction Measurement, Market Sensing, and Supply Chain Strategy. In addition to assessing the value various members of the supply chain place on an exchange (or market offering), it is important to determine the level of satisfaction with that offering. Measures of customer satisfaction have become an integral piece of both the strategic and tactical organizational landscape. It is certainly no different in supply chains.

One advancement in measuring an array of phenomena associated with firms, industries, economic sectors, and even national economies is that of the American Customer Satisfaction Index (ACSI) [Claes and Johnson, 1996]. ACSI measures the quality of goods and services as experienced by customers that consume them. It has three basic antecedents: perceived quality, perceived value, and customer expectations. Additionally, the ACSI model has two consequences: customer complaints and customer loyalty.

If supply chain partners perceive members as "customers," ACSI, in a modified version, has a key role to play in strengthening relationships within the chain. As a market sensing device, it encourages chain associates to gauge or register the dynamics of intra-chain satisfaction and the need to adjust market action accordingly. Pockets of dissatisfaction can disrupt both the efficiency and effectiveness of supply chains. ACSI is one means of determining the status of the myriad categories of relationships constituting a typical channel. It has proven valid across time and modalities, thus making it suitable for use in enhancing supply chain performance.

TABLE 1 - Questions Useful in Assessing Intra-Chain Market-Sensing Capabilities

  • How marketing-oriented is your supply chain? Do you think of supply chain associates as "market segments" with distinct market sensing requirements and needs?
  • Where are the market sensing gaps in your supply chain?
  • How is value assessed in the supply chain?
  • Are the measures of supply chain partner satisfaction valid? Do the results of the measures really impact strategic and tactical planning within the chain?
  • Have you benchmarked other, unrelated supply chains to discern best practices?
  • Is your supply chain innovative? entrepreneurial? anticipatory? leading-edge?

Summary and Conclusions. Deft and responsive supply chains are inextricably linked to capable market sensing processes. As supply chains become increasingly sophisticated, so must intra-chain sensing competencies. One means of accomplishing this is to view supply chain associates as market segments. This marketing orientation encourages stronger sensing commitment and it focuses on interfacing with chain cohorts from the perspective of customers.

As part of the strategic supply chain process, market sensing requires both value assessment and customer satisfaction data. There are multiple paths to acquiring both sets of information. It is incumbent upon supply chain managers to identify the most appropriate array of techniques and means to secure the information providing the highest level of usefulness.

As supply chain managers determine their market sensing readiness, the questions in Table I provide a good starting point. The questions encourage reassessment of current sensing strengths and weaknesses and offer suggestions for crafting more responsive systems. Enhancing and building intra-chain value is a key mandate for supply chain managers, adroit use of market sensing perspectives offer enormous possibilities for escalating overall chain effectiveness.


Anderson, James C. and James A. Narus. Business Market Management: Understanding, Creating, and Delivering Value. Upper Saddle River, New Jersey: Prentice-Hall, Inc., 1999, pp. 41-79.

Day, George S., "The Capabilities of Market-Driven Organizations." Journal of Marketing, Volume 58, October 1994, 37-52.

Fornell, Claes and Michael D. Johnson, "The American Customer Satisfaction Index: Nature, Purpose, and Findings." Journal of Marketing, Volume 60, October 1996, 7-18.

Simchi-Levi, David, Philip Kaminsky, and Edith Simchi-Levi. Designing and Managing the Supply Chain: Concepts, Strategies, and Case Studies. Boston: Irwin McGraw-Hill, Inc., 2000, pp. 1-10.

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