Sailing forward into a new century may be as intimidating and dangerous to modern corporate executives as the 15th century journey to the New World was for Christopher Columbus and his fellow discoverers. What was once a comparatively calm competitive environment in which many good players could win is now becoming a tumultuous sea of hypercompetition. This is already the reality in most industrialized nations and is fast becoming so in the frantic "catch-up" environment of the newly industrialized countries.

A new battlefield is emerging that goes well beyond the manufacturer vs. manufacturer, distributor vs. distributor, and retailer vs. retailer competitive arenas of the past. The battle commands of today are flexibility, speed, and productivity—all amplified by the winds of consumer demand. The new competitive realities are causing suppliers, manufacturers, wholesalers, and retailers alike to rethink their strategic initiatives with their supply chain partners. In this hypercompetitive 21st century world of supply chain survival, excellence becomes the minimal requirement to play the game.

This new competitive environment results from the convergence of forces on all supply chain members around the globe. Some of these forces are organization-based, others consumer-based. Among the most compelling are the breathtaking new technology and information-exchange capabilities, ever-increasing quality and customer-service requirements, new demands for efficiency and speed to market, and the competitive realities of the global marketplace.

In the past, many supply chain members, especially those farthest removed from the end-consumer, were concerned only with what directly affected their organization.

Our thesis, however, is that survival in the hypercompetitive environment of the new millennium will require organizational leaders to look beyond how these forces affect their own companies and their supply chain partners. They now must look toward how these forces affect end-consumers.

The true keys to survival and supply chain efficiency will be found on the demand side of the supply chain equation. When analyzed from a corporate standpoint, end-use forces will determine how things are done in the supply chain and how operational best practices will emerge. This type of analysis focuses primarily on process. When analyzed from a consumer standpoint, end-use forces such as technology and changing lifestyles help determine what is done. Ultimately, this consumer-centered analysis will determine the mission and goals of the organization's supply chain management activity.

This point in underscored in Michael Dell's recent book, Direct from Dell. The author vividly details how changes in markets fundamentally alter not only the company's operations and organization but also the entire supply chain. For years, marketers have been analyzing channel power in an attempt to figure out how to become the captain of the supply chain. For Dell, however, the answer is clear: The captain of the supply chain ship is the customer! To compete against a company that understands—and acts upon—this central truth requires more than incremental improvements through improved logistics, EDI, automation, and other technology-based systems—as Compaq and IBM have discovered.

Revolutionary changes in organizational structure and supply chain relationships are fundamental requirements for companies that intend to thrive in a consumer-dominated environment. "Power to the People" has long been a battle cry of revolutionaries. "Power to the Customer" is the battle cry of today's supply chain revolutionary leaders. With myriad products and a morass of distribution alternatives available to them, consumers ultimately will shape the future of supply chain management. Marketers have long debated the efficacy of "push" vs. "pull" supply chain strategies. In fact, the resolution of this ongoing debate is to create a supply chain in which the consumer provides both the push and the pull—a process we call demand-chain management. This is the next evolutionary stage of supply chain management.

Traditional supply chains begin at the point of manufacture and end with the sale to consumers, with retailers selling products that manufacturers conceive and wholesalers supply. The focus of the supply chain professionals in this chain has been on the products that flow through the operations and logistics channels. Technology, information exchange, inventory cycle time, speed to market, cost efficiencies, transportation, and distribution are among their top concerns.

Ironically, it is the manufacturers—those farthest removed from the consumer market—that traditionally have dictated what products move through the supply chain. More often than not, these products were derived not from demonstrated need or consumer preference but rather from the manufacturer's historic strengths, resources, and best instincts. In some cases, this process has evolved into a more collaborative relationship between retailer and manufacturer. And this, in turn, has led to retail-friendly product adaptations (such as packaging that is easier to stack on shelves), collaborative forecasting, and various inventory-replenishment models. Yet even with closer collaboration between channel members, the traditional supply chain remains a linear, left-to-right progression in which the consumer stands passively at the receiving end. (See Exhibit 1.)

The glaring failure in traditional supply chain management, though, is the inability to deliver products that the ultimate user needs and will actually purchase. Studies indicate that about 80 percent of the time, consumers fail to buy products on the market at rates high enough to be profitable for the supply chain members. To increase the consumer acceptance rate, a major change in the process needs to occur. The objective must be to produce and supply products that not only do what they are designed to do but also outperform existing solutions. Mind-to-market leaders are beginning to transform this process from the old left-to-right paradigm into nonlinear, boundary-spanning thinking and partnering.

Dominance in the supply chain has shifted throughout American history. From the Revolution to the Civil War, the most influential member of the supply chain was the wholesaler, that entrepreneurial trader of the Colonial era and the early years of the nation. The wholesalers served as the connector between English products and U.S. markets. Without these middlemen, goods did not make it to the new colonies for sale to retailers and individual consumers.

From the Civil War to World War II, manufacturers emerged as the most powerful member of the supply chain. They were in charge of what was produced and ultimately made available for consumers to buy. If the manufacturers wanted to produce one million black cars, they did—regardless of how popular some other colors might have been with auto buyers.

This era gave way to a period of the mega-retailers that began in the 1950s and 1960s. During this time, retailers such as Toys R Us, Circuit City, and Home Depot began to take more control in the supply chain because they provided a powerful connection between manufacturers and wholesalers to the elusive consumer. When Wal-Mart emerged as the retail giant among giants in the 1990s, it rewrote the rules on what the supply chain would produce and how goods would be sold.

Although Wal-Mart and its thousands of vendors and partners continue to shape how the world does business, even this superpower is being challenged for the supply chain throne. As the center of power begins another landmark shift, we offer this simple thesis: Consumers will be in charge of supply chains and will dictate how business is done in the future. We believe that the new environment and the corresponding shift in supply chain dominance mark the beginning of the "Century of the Consumer." Visionary companies that recognize this paradigm shift are developing a stronger "stealth" weapon. It's a newfangled supply chain that caters and responds to consumer desire, which stands at both the beginning and end point of the supply chain. It is the demand chain.

The demand chain is so named for its intense focus on the needs of consumers. As the illustration in Exhibit 2 shows, a demand chain represents a circular process that flows from the mind of the consumer to the market. It encompasses all of the supply chain entities that may be involved in that process—manufacturers, distributors, retailers, and so on. Importantly, consumer behavior and consumer analysis dictate the exact composition of the demand chain. Rather than building and operating their supply chain from manufacturer to market, demand-chain leaders are creating alliances with those channel partners best able to fulfill consumers' needs and wants.

In the process of forming demand chains, some obvious questions arise: "Whose responsibility is it to understand consumer demand—the retailer's, wholesaler's, or manufacturer's? And does this responsibility shift according to the situation?" Traditionally, the retailer has been the "closest" organization to the consumer. Because of this proximity, it has assumed the role of monitoring consumer research and preferences to guide collaborative design efforts with manufacturers. But the Internet and direct sales are changing all that. Consumers now are interacting with different entities at various points along the supply chain.

The best scenario exists when every member of the demand chain—whether it designs, creates, markets, sells, transports, or retails a specific product—monitors the consumer market. Although not every chain member will be conducting direct consumer research, each should be given information on relevant consumer trends and product information. This knowledge makes it easier for everyone to identify product and packaging improvements, marketing opportunities, or brand extensions.

Success of both the product and the channel members depends upon full participation in the transfer of products from mind to market. Whether information is obtained from point-of-sale databases, focus groups, quantitative surveys, or from newer methods like "shadowing" consumers and in-home research, the data must be shared, analyzed, and acted upon by all channel members working as one entity. This is essential if supply chains are to be reinvented as demand chains.

In the past, retailers fought retailers for dominance in the marketplace; wholesalers and manufacturers did the same. Each entity was strong enough on its own to take on the competition. Whether these companies survived and flourished, or languished and folded largely depended on how they performed in relation to their peers. In the new millennium, the rules of battle will be rewritten. Yes, organizations will still duke it out in the marketplace. But instead of battling each other individually, they will be fortified by supply chain alliances. In essence, competitive dominance will be achieved by an entire supply chain, with battles fought on a supply chain vs. supply chain basis.

This emerging competitive reality has affected the strategic direction of many leading companies across a range of industries. They realize that effective marketing strategies can no longer be built upon the activities of a single organization. Manufacturers as powerful as General Motors and Nestle, retailers as dominant as Wal-Mart and Carrefour, and wholesalers as big as Cardinal Health and Ingram Micro are seeking new collaborative ways of managing the total flow of goods and services to meet the changing needs of consumers. The strategic perspective is shifting from a single organization to partnerships and alliances involving many organizations. Notably, this new strategic focus centers on both customer and end-consumer satisfaction.

As supply chains begin to function as single entities in competition with other partnerships, building and maintaining strong relationships throughout the supply chain becomes essential. Writing in the Fall 1998 issue of Supply Chain Management Review, Dr. Bernard J. LaLonde of Ohio State University outlined the five building blocks that characterize a solid supply chain relationship. They are sharing of information, sharing of benefits and burdens, multiple contacts between economic entities, cross-functional management processes, and future-oriented collaborative processes. Although some relationships might include other building blocks, these five are the bedrock. LaLonde observes that if any one of them is missing, the relationship is at risk for long-term sustainability.

In the next century, supply chains will have to redefine these building blocks. Beyond exchanging forecasts and inventory data with their supply chain partners, the leaders will be sharing consumer research and customer data. And they will communicate this information to all of the channel members. Only then can each entity provide feedback on product design, marketing, packaging, and distribution strategies needed to benefit the entire chain.

Consumers can be a tricky bunch to analyze, especially for companies that have traditionally considered themselves "removed" from the consumer market. Consumers are becoming more difficult to capture and classify, with many of them exhibiting crossover consumption and buying behaviors. Although it still might be possible to predict buying patterns of a typical 55- to 65-year-old consumer in general terms, consumers of all ages and backgrounds are breaking the "traditional rules" associated with their demographic classifications. That's why it is more important than ever for supply chains to establish a relationship with consumers. It is not only about sales, it is about information.

But how can strategic information flow freely between partners when historically it has been tightly guarded? Although sharing is implied in the word partnership, the reality is that companies are still uncomfortable about sharing strategic information with their partners. Partners are more likely to trust one another and work toward common supply chain goals when they share similar values.

At least one transportation and logistics firm is putting this philosophy into action. The Daymark Group, based in Russelville, Ark., recently implemented a dramatic "overhaul" of its strategic vision. Dubbing itself "Pioneers in Demand Chain Logistics," Daymark is beginning to develop a "circle" of partners (the Daymark Demand Circle) that offer different strengths and specialties. The goal is to embrace a wide variety of companies in the circle—from transportation and warehouse service providers to advertising firms and software vendors. Drawing on the group's resources, Daymark will create the most efficient distribution network for each client based on the demands of the client's consumers. Daymark exemplifies a company that recognizes that the future lies in the ability to create demand chains effectively.

One key to developing those successful supply chains of the future is to assemble a group of partners capable of performing all of the supply chain functions. Assembling such a group requires a willingness among the individual partners to take on some nontraditional responsibilities. Cardinal Health offers a striking example. In the 1970s, Cardinal Wholesale Company (as it was then called) was a small Midwestern wholesaler serving grocery stores and drug retailers. Today, under the leadership of Robert D. Walter, Cardinal Health is a $16 billion supply chain leader that has prospered by taking on many functions traditionally performed by retailers or manufacturers. These include sales and credit functions for the large pharmaceutical companies as well as storage, warehousing, and inventory control for hospitals and retailers.

As seen in Exhibit 3, Cardinal has positioned itself to provide services throughout the pharmaceutical supply system. It can fulfill different clients' needs through a variety of services provided by its various business units. Cardinal has attained its greatest success, however, by performing the information function of monitoring consumer demand (see broken line on the illustration) and by developing the logistics systems required for shipping and inventory replenishment. The company can perform these activities more efficiently than many of the retailers and their manufacturer suppliers.

When forging the demand chain, the channel partners must be aware of broad demand trends in consumer markets, which are driven mainly by population demographics and lifestyle changes. Although an in-depth analysis of these trends is really the subject of another article, a brief overview is in order.

The key point to note here is that we've entered into an "era of compression." Although there will always be pockets of growth (either in consumer niches or in geographical locations), overall birth rates in most industrialized countries are declining. And with shrinking family size, there will be fewer new consumers to buy goods and services in these markets. At the same time, experienced shoppers of the aging baby boomer generation are growing weary of the "hunt" for consumer goods. They're spending less time shopping than in the past, focusing instead on other ways to spend their valuable time and energy. Some are turning to new technologies such as Internet-based shopping to satisfy their consumption and lifestyle needs.

A parallel trend finds corporate downsizing and increased automation in industrialized economies, resulting in smaller workforces. As a consequence, the U.S. and other economies are unlikely to ever again experience the double-digit growth of the 20th century (although some of the computer-based industries may prove the exception). The race is on to find growing, profitable businesses. Often that race will lead to new areas of the globe where birth rates and affluence are still growing. In industrialized economies, it often leads to new segments and new ways of reaching consumers.

Regardless of where the consumers do business, companies big and small are feeling the pressure to perform better and more efficiently with less money, time, and human resources. These are the same pressures consumers experience when buying and replenishing inventory for their households. Those same environmental forces causing supply chain partners to re-examine their operations and strategies are forcing consumers to adjust their strategic thinking about which products to buy and where and how to buy them.

Failure to acknowledge this reality leads to two common misperceptions about demand-chain thinking. The first is that consumers always buy from retailers. Though consumers often buy from retailers, they also are searching for new ways to obtain products and services. Increasingly, they show a willingness to buy from any entity in the supply channel that will give them value-pricing, quality products, and efficient delivery systems. In reality, consumers are deciding which supply chains to support and which to abandon. Accordingly, channel partners must be committed to increasing the efficiencies and profits of all channel members and strengthening the supply chain as a whole. They need to understand that when end-consumers choose certain retailers or buying outlets over others, they are affecting the future success of the entire supply chain.

Consumers vote with their time, attention, and dollars for the businesses that they believe should remain successful. Regardless of how efficient or profitable a vendor is today, if consumers choose not to do business with a significant proportion of its channel retailers, that vendor will suffer—unless it adapts to the changing environment.

This leads to the second misconception about demand-chain thinking: Business-to-business companies need only monitor their customers. The rationale is that they don't have to worry about end-consumers because they don't sell directly to them. In industrial or business-to-business organizations, though, helping solve your customers' problems sometimes means solving your customer's customers' problems. Keep in mind that all customer/industrial demand for products or services across the supply chain is derived from consumer demand. Business-to-business customers will not order more parts or contract for more transportation if consumers are buying fewer of their end products. Forecasting must incorporate changing consumer trends—sometimes before the marketplace feels the effects of those trends.

The demand-chain model shown in Exhibit 2 conceptualizes what leaders like Henkel-Manco, a visionary Cleveland-based wholesaler, have accomplished in the marketplace. Manco, best known for its dominance in the tape market (including its signature Duck Tape), has delved into the minds of consumers to design, brand, and market household products in conjunction with mega-retailers, most notably, Wal-Mart.

Company founder Jack Kahl wanted to develop a logo that was based on the foundation of the company—Duck Tape. Thus, the Manco duck was born. The logo was designed to establish a memorable link between the minds of customers/consumers and Manco's products. The goal was to develop a brand that consumers would trust, recognize, and request from retailers.

Manco's success as a demand-chain leader can be attributed in no small part to its continuous consumer research, which includes analysis of household and individual buying habits and trends. This is not a traditional role for a wholesaler. But Manco is not your traditional wholesaler. An innovative orientation helps keep the company several steps ahead of the market. Manco uses a range of tools—including focus groups, expert advisory panels, and, most importantly, a consumer hotline—to stay out in front. The toll-free number, which receives more than 8,000 calls each month, is one of the company's best investments. Through this service, Manco can instruct consumers on product usage and direct them to retailers in their area. The toll-free number also is an excellent vehicle for capturing consumer ideas.

Manco provides benefits to its retail customers by "being close to the consumer." Through its consumer-oriented initiatives, Manco gives end-users the personal attention they may not receive in the store. At the same time, the wholesaler is building loyalty (to the brand and to the retailer) while providing supply chain partners with feedback on current products and suggesting ideas for new ones.

Listening to consumers, in fact, led to the creation of EasyLiner—a nonadhesive, roll-out shelf liner from Manco that resembles rubber mesh and is easy to cut, place, and remove. Consumers had complained about the problems of removing the existing product (Rubbermaid's sticky-backed vinyl product known as Contact paper) from shelves. Together, Wal-Mart and Manco worked to develop and market a new product that met consumer needs more precisely. Manco did the product design, consumer research, and packaging. It also tapped manufacturers already in its demand chain for help and consulted with new ones. In just three months, Manco had brought the new product from conception to market.

Manco also probes the minds of its retail customers to learn what inventory turns and margins are expected for each item or area of the store. In addition, the company works hard to determine what logistics management and information systems will help its retail partners be successful. All members in Manco's demand chain are considered process partners. They all contribute to the mission of getting products from the minds of consumers to the marketplace in as little time as possible.

Mass retailers as large as Wal-Mart need the technology and resources of partner companies, most of which cannot supply the brands and meet logistics, productivity, and other requirements of consumers by themselves. These retailers rely on creative, proactive, visionary companies like Manco to bring all of the partners together in a win-win-win solution. Because Manco demonstrates many of the qualities needed to lead the demand chain, it has enjoyed rapid growth in a highly competitive industry. This creative company proves that a small company can use mind-to-market principles to grow and challenge some of the world's largest and most respected manufacturers, such as Rubbermaid and 3M.

Manco's development of new products represents a major departure from the wholesaler's traditional supply chain role. By linking the interests of retailers and manufacturers with its own branding, packaging, and logistics capabilities—and by being proactive in creating solutions to problems—Manco commands its demand chain. The company's boundary-spanning efforts drive the creation of new, cutting-edge products and demand-chain relationships.

Supply chain management has evolved over the years to provide strategic and competitive advantage to many companies. Demand-chain management, with its emphasis on delivering to the marketplace what consumers actually will buy, adds a new dimension to this concept. The demand-chain approach goes beyond the physical distribution boundaries of supply chain management. Demand chains seek to unite channel members with the common goal of delighting customers and solving consumer problems by:

• Gathering and analyzing knowledge about consumers, their problems, and their unmet needs.
• Identifying partners to perform the functions needed in the demand chain.
• Moving the functions that need to be done to the channel member that can perform them most effectively and efficiently.
• Sharing with the other chain members knowledge about consumers and customers, available technology, and logistics challenges and opportunities.
• Developing products and services that solve customers' problems.
• Developing and executing the best logistics, transportation, and distribution methods to deliver products and services to consumers in the desired format.

Successful implementation of these activities will lead to profitable, long-term demand-chain partnerships. Within these partnerships, information from and about consumers will flow freely to the channel members as will product and service information. Exhibit 4 depicts the process. It shows the flow of information on preferences, lifestyles, needs, and problems from the minds of consumers to the supply chain and the flow of products from the demand chain to the market.