Channel Effectiveness Risk

Questionnaire



2

Source: www.knowledgeleader.com
Table of Contents
What is Channel Effectiveness Risk? .............................................................................. 3
A Shift from the Industrial Age to the Information Age .................................................... 4
Business Risks related to Channel Effectiveness ......................................................... 10
Management Practices and Performance Measures .................................................... 12
Lessons Learned ........................................................................................................... 13
Questions ...................................................................................................................... 15



3

Source: www.knowledgeleader.com
What is Channel Effectiveness Risk?
Channel effectiveness risk is the risk
that poorly performing or positioned
supply chains, or distribution
channels, may threaten a firm's
capacity to effectively and efficiently
interact with suppliers and inhibits the
ability to access current and potential
customers and end users.
An organizations supply chain and
distribution channels encompass the
network of resources and processes
involved in producing and delivering
final products; from procurement of
raw materials, their transformation
through manufacturing, to distribution
of finished goods to end customers.
The supply chain and distribution
channels are considered a company's
link to its suppliers and access
pathways to both current and potential
new customers. Control over these
channels in many cases amounts to
control over the business relationships with the firms suppliers and ultimately, consumers.
To succeed, an enterprise must commit to product availability, price, and delivery date at the
time of order entry. If the raw material is not immediately available to be processed and later
shipped in the form of finished product, the enterprise must know when it will be available and
allocate it appropriately to the customer.
Another challenge in the current digital economy is performance. The competition likely has an
online presence and the barriers to switching vendors almost instantaneously are rapidly
eroding. To deliver at this level of performance, all participants in the supply chain and
distribution channels must act collectively as one seamless fulfillment process.


4

Source: www.knowledgeleader.com
A Shift from the Industrial Age to the Information Age
Supply chain and distribution channel management has been evolving for decades. The tools
to achieve efficiency gains have often been available long before mainstream adaptation.
Often, the reason for the postponement of their adoption has been high growth rates, which can
substitute for inefficiency in bringing results to the bottom line.
Today however, the economy is driven by the customers of global and virtual markets, and has
dramatically changed the rules. Companies have started focusing on implementing entire suites
of solutions (including customer relationship management, supply chain management, and
supplier relationship management) designed to optimize each phase of the supply chains and
distribution channels. These solutions enable companies to streamline and transform key
business processes into one dynamic, fully integrated, end-to-end channel, the Value Chain.
Before the Internet, the value of an enterprise was generally based on its physical assets. Such
companies controlled inventory costs through vertical integration, owning everything from raw
material to finished goods, with a large chain of intermediaries along the distribution channels.
Due to such practices, they were also more supplier-oriented, meaning that the supply chain
was more focused on the supplier relationships and their requirements (make-to-stock), as
opposed to the customer relationships and their requirements (make-to-order). The focus on
suppliers resulted in the establishment of better contracts. However, many companies failed to
closely align themselves with what customers truly wanted and when they wanted it.
Using network technology innovations, value chains are enabling significant restructuring of the
traditional enterprise, as well as the time dimensions of these channels. Concurrent information
sharing models are being used to improve inter-enterprise process planning and execution.
These models work by using Internet technology to join together multiple enterprises. These
enterprises share access to systems to support inter-enterprise process planning and execution.
Robust application-to-application decision making, which will be the hallmark of the leading and
commercially scalable partnerships, will require the closed-loop collaborative capabilities
concurrently available only through the value chains powered by the Internet technologies.
These collaborative ventures are beginning to enter contingency planning, which enables more
efficient multi-enterprise responses to potential upsets in demand and in the value chains. As
enterprises move from small-scale collaborative prototypes to full-scale inter-enterprise
initiatives, the capabilities of the infrastructure must also become more robust.


5

Source: www.knowledgeleader.com
Meaningful collaboration starts with the alignment of strategic decisions among all involved
parties and continues seamlessly to the end-consumers purchase. This new paradigm must
support a spectrum of relationships that have advanced beyond using the purchase order and
invoice as the primary documents of commerce. The following table summarizes some of the
changes mentioned above:

Focus
Area
Industrial Age
Supply Chain
Information
Age
Supply Chain
(Value Chain)
Comments & Observations
Business
Focus
Vertical Matrix
The business focus moves from a
vertical perspective, which entailed
owning every process of the
production line, to a matrix approach
which implies a supplier web adding
value by sharing processes and
information.
Competition Company vs. Company
Supply Chain vs.
Supply Chain
Competition is no longer simply one
enterprise versus another, but also
encompasses partners and strategic
alliances along the entire value chain.
Cooperation among partners along
with seamless technical integration is
the winning mix.
Competitive
Advantage
Physical Assets
Cost
Speed and
Knowledge
Industrial Age advantage came from
owning inventory vertically to reduce
cost. Efficiency along the entire
supply chain, regardless of
ownership, is now the basis for
competitive advantage.
Demand
Focus
Direct (Closest)
Customer
End Consumer
Instead of focusing only on the
demand of the closest customer, the
end consumers order now drives the
overall replenishment of that order
through tiered suppliers. In other
words, a purchase by a consumer
kicks off a number of transactions in
a make-to-order enterprise.
Additionally, the flexibility of these
systems allows offering customized
products cost-effectively.

6

Source: www.knowledgeleader.com
Focus
Area
Industrial Age
Supply Chain
Information
Age
Supply Chain
(Value Chain)
Comments & Observations
Market
Presence
Domestic
International or
Global
Globalization highlights the need to
maximize supply chain efficiencies to
gain advantage or remain
competitive. In addition, the
appearance of virtual Business-to-
Business (B2B)
marketplaces/independent trade
exchanges is accelerating
globalization even more.
Scope of
Supply
Chain
Management
Multiple Processes
(Functional Silos);
Several Isolated Value
Chains
Multiple
Enterprises,
A Shared Value
Chain
The Industrial Age Supply Chain
could never achieve the highest level
of efficiency from an overall
perspective due to the fact that it was
primarily focused on improving intra-
enterprise processes in functional
silos. The requirement to move to an
inter-enterprise context highlights the
necessity of addressing overall
efficiency at the shared value chain
level.
Supply
Chain Focus
Cost and Asset
Utilization
Customer
The approach to managing the
supply chain shifted from being
focused on assets utilization and cost
to adding value to processes
concerned with fulfilling the
Customers needs and expectations
timely and efficiently.
Supply
Chain
Process
Behavior
Predictable;
Consistent;
Many Intermediaries;
All Processes
Performed by the
Company;
Paper-Based Workflow;
Manual Controls
Ad Hoc;
Experimentation;
Channel;
Disruption;
Few
Intermediaries

The process is no longer driven by
paper-based activities that hinder
speed and integration. Web-based
workflows are capable of extending
supply chain processes across
enterprise borders -- in some cases
up to the end customer. The
integration capability of an
enterprises processes is a factor in
taking advantage of outsourcing
strategies because companies may
easily access and monitor outsourced
processes through their own
information systems.


7

Source: www.knowledgeleader.com
Focus
Area
Industrial Age
Supply Chain
Information
Age
Supply Chain
(Value Chain)
Comments & Observations
Customer
Service
Low Customer
Expectations;
Reactive;
Rigid Processes
High Customer
Expectations;
Anticipatory and
Responsive;
Flexible and
Adaptable
Processes
The Internet has shifted power to the
buyer from the seller. Supply chain-
related systems must integrate with
Customer Relationship Management
(CRM) applications, so a full picture
of the customers relationship with
the enterprise can be considered
when responding to their needs and
wants. Additionally, CRM systems
enable an enterprise to anticipate the
needs of the customer and suggest
solutions.
Planning
Staff Manager and
Analysts;
Clear Delineation
between Planning and
Execution; Spatial
Integration
Entire Trading
Community;
Simultaneous
Supply Chain
Planning and
Execution;
Inter-Temporal
Integration
(Hierarchical
Planning)
Planning activities were performed
by staff, managers and analysts
using mostly internal information and
clearly separated from supply chain
execution. The focus of planning
being the management of the
physical inventory. The New
Economy model requires a
simultaneous process of planning
and executing the fulfillment of
orders almost real-time. Additionally,
given that the entire supply web is
affected, they are all involved in
planning.
Decision-
Making
Standalone;
Periodic;
Person-to-Person;
Executional/Operational;
Sequential
Integrated;
Real-Time;
Process-to-
Process;
Strategic/Tactical
Concurrent
The decision-making process shifted
from a stand-alone mode that was
based on person-to-person
relationships to an integrated mode
whereby decision-making is
embedded in sophisticated
automated processes. These inter-
enterprise supply chain processes
are synchronized to achieve strategic
goals.


8

Source: www.knowledgeleader.com
Focus
Area
Industrial Age
Supply Chain
Information
Age
Supply Chain
(Value Chain)
Comments & Observations
Internet
Channel
E-Mail
Medium
Consumer-
Business Alerts
From a technology standpoint, the
Internet was at first only considered
to be a new sales channel.
Unfortunately, the opportunity to
integrate was missed. Over time, it
became clear that the Internet is a
new communication medium through
which to integrate and communicate.
Information
Technology

ERP Competitive
Advantage;
Non Integrated
Systems ;
Proprietary
ERP Systems is
the Backbone of
the
Infrastructure;
Truly Integrated
Systems;
Cheaper and
Open
Technologies;
Data Intensive
Communications
As most enterprises operate with
Enterprise Resource Planning (ERP)
systems, they become less of a
competitive advantage. The next
plateau of competitive advantage
comes through networking. Network
technologies enable integration
among the ERP, Supply Channel
Planning (SCP) and Supply Channel
Execution (SCE) systems. This
infrastructure enables efficient
knowledge sharing at low
communication cost.
Application
Value Focus
Transaction
Decision
Support/
Optimization
Pre-Internet, the value of SCM was
execution of transactions faster and
with fewer mistakes. The value of
eSCM is better business decisions
based on optimization of supply chain
operations.


9

Source: www.knowledgeleader.com
Focus
Area
Industrial Age
Supply Chain
Information
Age
Supply Chain
(Value Chain)
Comments & Observations
Information
Exchange
Communication
(the information flows
with products);
Rigid Industry-Oriented
Business Standards
Collaboration;
Flexible; Global
Business
Standards
Pre-Internet, the exchange of
information among participants in the
supply chain was just for
communication purposes, not for
transacting. Every party in the
exchange was only concerned about
its internal functional performance,
resulting in a value-chain for each
company. Today, creation and
sharing of supply web knowledge is
the hallmark. Consequently,
selection of the right business
standard plays a key role in cost
savings.
Inventory
High-Levels;
Controls Focus on
Carrying Costs
Low Levels;
Controls Focus
on Price
Protection;
Exposure
Since inventory has always been a
requirement in the face of uncertain
demand, the use of information
sharing and inventory management
techniques, such as Just In Time
(JIT), may shrink inventory levels to
the minimum. Since less inventory is
on hand in this scenario, the focus of
management control shifts to price
protection as opposed to minimized
carrying cost.


10

Source: www.knowledgeleader.com
Business Risks Related to Channel Effectiveness
Sources of channel ineffectiveness, and their corresponding impacts, are as follows:

















Under-utilized resources (or systems) may be present within an organization, resulting in
significant overhead costs but minimal productivity.
Inefficiencies or lack of productivity may add unnecessary costs to the bottom line as a result
of poorly designed or inappropriately planned infrastructure of the value chain.
Dependence on a relatively costly or hard-to-manage franchised dealer network may occur in
a period when customer preferences are changing rapidly or alternative distribution channels
are opening up.

The process can be inefficient in satisfying valid customer/policyholder requirements,
resulting in higher costs than competitors.
If the underwriting process and interface with distribution channels are ineffective, production
success may be impacted.
Inefficient distribution processes or mechanisms will greatly inhibit distribution channel
effectiveness in the overall value chain.
Poor or inadequate policy and endorsement issue processes may deter production.

11

Source: www.knowledgeleader.com
Visibility, velocity, and variability, are the foundations of todays economy value chain. If this is
true, the business challenges inherent in the Information Age value chain need to be overcome
by organizations and can be stated as follows:












Visibility Velocity Variability
Poor point of sale/use
visibility
Poor line item visibility
Poor capacity visibility
Poor business rate
visibility
Poor forecast, event
and inventory visibility
Batch updates
Point-to point interfaces
Communication costs
Information security
Platform, database,
application
heterogeneity
Different syntax,
context and notion
Different planning
cycles
Different planning
horizons
Different problem
definitions
Static lead times,
capacities, yields,
capabilities, costs

12

Source: www.knowledgeleader.com
Management Practices and Performance Measures
Today, the rules for effective supply chain management and efficient distribution channels have
changed. That is, the success of the enterprise will be driven by how efficiently it coordinates
the differences in speed from the front-end to the back-end, on a 24/7 basis, while giving as
much visibility and variability to the customer as possible.
There is only one way of accomplishing this tuning the infrastructure and implementing the
value chain. The enterprise must develop a technical architecture that supports, in real time,
the full range of business interactions from employee, to customer, to trading community, to
marketplace, all while providing a framework for content integration. Having the value chain
aligned with the business strategy is key.
Excellence in fulfillment operations becomes a critical issue as competition heats up. Especially
since they will require as much inter-company integration as possible, as customer retention
rates will be a direct reflection of how well it works. Customers will demand instant turnaround
on orders. The rate at which they come will vary widely and they will range from very small to
very large. Promotions will be boosted by real-time price wars. From the business performance
standpoint, customers and suppliers are better at measuring performance, so mistakes are
more easily detected and the opportunity for improvement could be identified through new
system capabilities.


13

Source: www.knowledgeleader.com
Lessons Learned
Changes brought by the Internet, which must be addressed by the new business model,
include the following business critical success factors:
Eliminate the redundant and non-value-added steps between demand and fulfillment.
Immediacy of demand drives production in the value web of todays business systems, which
create an open sourcing environment where the time between demand and fulfillment is
measured in seconds or minutes. The enabled enterprise has progressed in its thinking and
execution, from establishing a supply chain, to a value chain, to a value web. Emphasis has
shifted from a series of serial interactions to compressed parallel communication that enables
response in real time.
Integrate the supply chains and distribution channels to create value chains.
Todays business must support a spectrum of relationships that have advanced beyond using
the purchase order and invoice as the primary documents of commerce. Relationships are
established dynamically, leading to JIT collaborations. Enterprises will work together and then
disengage. Market exchange sets the stage for dynamic brokering to create custom solutions.
Increased global competition is forcing firms to band together to compete more effectively.
Enterprises must look to structure new partnerships with the trading community, identify the
most-valuable partner relationships, and develop recommendations to improve responsiveness
to and from these firms.
Business in real time.
The business is a 24/7 operation. Since the next provider of any product or service is only one
click way, the enterprise must be poised to transact business quickly, which requires that it must
understand its competitive positioning. Consumer, customer and partner inquiries can be
answered online for immediate response.
Business-enabled enterprises have begun the process of identifying all the various repositories
of data that could and should affect a consumer or customer interaction. They are developing
an enterprise-wide process for standardization of content and context, as well as redesigning
functions and processes among multiple departments for improved customer relationship
management.
An enterprise must develop a technical architecture that supports business in real time. The
architecture must support the range of business interactions from employee, to customer, to
trading community, to marketplace and provide a framework for content integration.
A singular focus on satisfying client demand is the hallmark of the business.
The business also realizes that service has become more important than products (assuming
products are fungible). Consumers and customers, as well as employees and partners, are
treated individually. The business-enabled enterprise grows continually more capable of
serving the market of one. As power continues to shift even more dramatically toward the
buyer, the enterprise must ensure that business intelligence is equally available to all
employees.
Fixed prices transform into dynamic pricing models more reflective of market conditions. In
addition, information itself has become a product the business-enabled enterprise can provide
to its customers to help them better manage their businesses, and as a result the enterprise is

14

Source: www.knowledgeleader.com
viewed as providing better service. Employees must be focused on meeting client demand and
empowered with the information they need. The enterprise should examine additional services
it could provide to its clients and the potential opportunity for providing information as a
product.
Business is nothing if not agile.
As entire industries are restructured, the enterprise must re-establish its position in the value
web. To do so, it needs a strategy as a guide for a series of specific projects that will enable it
to constantly realize its business vision. With each effort, the enterprise gains valuable insight
to modify its course. In building business models, enterprises should be flexible and be able to
ensure that the model can accommodate new customers and markets. Keeping track of the
competition and watching for new competitors are imperative.


15

Source: www.knowledgeleader.com
Top Questions to Consider
1. Has the company clearly identified the customers and suppliers desired service output
level, in order to design and manage a value chain?
2. Were all channel alternatives considered in the channel selection process?
3. If the company needs to change channels or change existing channel participant terms or
duties, how easily and quickly can it implement the change? Have product changes to
address required channel changes been considered (e.g. the need to have more robust
customer service applications because travelers no longer carry paper tickets)?
4. How open and effective is the communication between the company and its channel
partners?
5. Does the company analyze the trend in distribution
costs or other economic criteria (e.g. sales growth)
through its current channels? Are alternative
channels becoming less expensive or growing
faster?
6. Do the channel partner competencies include
logistics and marketing?
7. Has the channel conflict increased after the
implementation of the value chain? Are there any
channels overlapping each other and creating redundancy?
8. Has the company properly addressed the appropriate integration of various network
technologies with other systems like ERP packages to enable efficient knowledge sharing
at low communication cost?
9. Are the companys supply chain-related systems properly integrated with Customer
Relationship Management (CRM) applications and can a full picture of the customers
relationship with the enterprise be considered when responding to their needs and wants?
10. Are the companys Distribution Resource Planning (DRP) modules integrated as part of
ERP systems and other analytical IT tools (using operational data and heuristics)?