PM in the Downstream Value Chain

6
Marc Helmold

The best way to predict the future is to create it.

Peter Drucker (1909–2005)

6.1 Managing Performance in the Downstream

Marketing (and sales) is the downstream activity in the value chain as illustrated in
Fig. 6.1. Marketing is a continually evolving discipline and as such can be one that
companies find themselves left very much behind the competition if they stand still
for too long. One example of this evolution has been the fundamental changes to the
basic marketing mix. Where once there were 4 Ps to explain the mix, nowadays it is
more commonly accepted that more developed 7 Ps add a much-needed additional
layer of depth to the marketing mix with some theorists going even further.

Product—The product should fit the task consumers want it for, it should work and it
should be what the consumers are expecting to get.
Place—The product should be available from where your target consumer finds it
easiest to shop. This may be high street, mail order or the more current option via
e-commerce or an online shop.
Price—The product should always be seen as representing good value for money.
This does not necessarily mean it should be the cheapest available; one of the
main tenets of the marketing concept is that customers are usually happy to pay a
little more for something that works really well for them.
Promotion—Advertising, PR, sales promotion, personal selling and, in more recent
times, social media are all key communication tools for an organisation. These
tools should be used to put across the organisation’s message to the correct
audiences in the manner they would most like to hear, whether it be informative
or appealing to their emotions.

# Springer Nature Switzerland AG 2019 91

M. Helmold, W. Samara, Progress in Performance Management, Management for
Professionals, https://doi.org/10.1007/978-3-030-20534-8_6
92 6 PM in the Downstream Value Chain

Input-transformation-output
Supply Demand
side Procurement Operations Marketing side
(Supply) management (Sales)

Information
technology
Finance and (IT)
accounting
Human
resources Support functions

Fig. 6.1 Marketing and sales in the downstream value chain. Source: Author’s own figure

6.2 Marketing Mix (7 Ps)

In the late 1970s, it was widely acknowledged by marketers that the marketing mix
should be updated. This led to the creation of the extended marketing mix in 1981 by
Booms and Bitner which added three new elements to the 4 Ps principles. This now
allowed the extended marketing mix to include products that are services and not just
physical things.

People—All companies are reliant on the people who run them from front-line sales
staff to the managing director. Having the right people is essential because they
are as much a part of your business offering as the products/services you are
offering.
Processes—The delivery of your service is usually done with the customer present
so how the service is delivered is once again part of what the consumer is
paying for.
Physical Evidence—Almost all services include some physical elements even if the
bulk of what the consumer is paying for is intangible. For example, a hair salon
would provide their client with a completed hairdo and an insurance company
would give their customers some form of printed material. Even if the material is
not physically printed (in the case of PDFs), they are still receiving a ‘physical
product’ by this definition.

Though in place since the 1980s, the 7 Ps are still widely taught due to their
fundamental logic being sound in the marketing environment and marketers’
abilities to adapt the marketing mix to include changes in communications such as
social media, updates in the places which you can sell a product/service or
customers’ expectations in a constantly changing commercial environment
(Fig. 6.2).
6.3 Incoterms 2010 93

Fig. 6.2 Marketing mix.

Source: Author’s own figure,
adopted from Helmold, Dathe, Product
and Hummel, 2019

Price Place

7Ps
Physical
Promotion
evidence

Process People

6.3 Incoterms 2010

The International Chamber of Commerce (ICC) in Paris has been issuing ‘International
Rules for the Interpretation of Commercial Contract Formulas’ known as Incoterms
(International Commercial Terms) since 1923. The Incoterms rules have become an
essential part of the daily language of international trade. They have been incorporated in
contracts for the sale of goods worldwide and provide rules and guidance to importers,
exporters, lawyers, transporters, insurers and students of international trade. After ICC’s
creation in 1919, one of its first initiatives was to facilitate international trade activities. In
the early 1920s, the world business organization set out to understand the commercial
trade terms used by merchants. This was done through a study that was limited to six
commonly used terms in just 13 countries. The findings were published in 1923,
highlighting disparities in interpretation. To examine the discrepancies identified in the
initial survey, a second study was carried out. This time, the scope was expanded to the
interpretation of trade terms used in more than 30 countries in 1928. Based on the
findings of the studies, the first version of the Incoterms rules was published as a global
standard. The terms included FAS, FOB, C&F, CIF, ex ship and ex quay. Due to World
War II, supplementary revisions of the Incoterms rules were suspended and did not
resume again until the 1950s. The first revision of the Incoterms rules was then issued in
1953. It debuted three new trade terms for non-maritime transport. The new rules
comprised delivered costs paid (DCP), free on rail (FOR) and free on truck (FOT).
The ICC launched the third revision of the Incoterms rules, which dealt with
misinterpretations of the previous version. Two trade terms were added to address
delivery at frontier (DAF) and delivery at destination (DDP). The increased use of air
transportation gave cause for another version of the popular trade terms. This edition
94 6 PM in the Downstream Value Chain

Table 6.1 International commercial terms 2010 (Incoterms)

Abbreviations Description (English/German)
EXW Ex works/Ab Werk
FCA Free carrier/Frei Frachtführer
FAS Free alongside ship/Frei Längsseite Schiff
FOB Free on board/Frei an Bord
CFR Cost and freight/Kosten und Fracht
CIF Cost, insurance and freight/Kosten, Versicherung und Fracht
CPT Carriage paid to/Frachtfrei
CIP Carriage, insurance paid to/Frachtfrei versichert
DAP Delivered at place/Geliefert benannter Ort
DAT Delivered at terminal/Geliefert Terminal
DDP Delivered duty paid/Geliefert verzollt
Source: Author’s own table, adopted from Helmold and Terry (2017)

included the new term FOB airport (free on board airport). This rule aimed to allay
confusion around the term free on board (FOB) by signifying the exact ‘vessel’ used.
With the expansion of carriage of goods in containers and new documentation processes,
came the need for another revision. This edition introduced the trade term FRC (free
carrier named at point), which provided for goods not actually received by the ship’s side
but at a reception point on shore, such as a container yard. The fifth revision simplified
the free carrier term by deleting rules for specific modes of transport (i.e. FOR, free on
rail; FOT, free on truck; and FOB airport, free on board airport). It was considered
sufficient to use the general term FCA (free carrier at named point) instead. Other provi-
sions accounted for increased use of electronic messages. The ‘License, Authorizations
and Formalities’ section of FAS and DEQ Incoterms rules were modified to comply with
the way most customs authorities address the issues of exporter and importer of record.
The Incoterms 2010 is the most current edition of the rules to date. This version
consolidated the D-family of rules, removing delivered at frontier (DAF), delivered ex
ship (DES), delivered ex quay (DEQ) and delivered duty unpaid (DDU) and adding
delivered at terminal (DAT) and delivered at place (DAP). Other modifications included
an increased obligation for buyer and seller to cooperate on information sharing and
changes to accommodate ‘string sales’. To keep pace with the ever-evolving global trade
landscape, the latest update to the trade terms is currently in progress and is set to be
unveiled in 2020. The Incoterms 2020 Drafting Group includes lawyers, traders and
company representatives from around the world. The overall process will take two years
as practical input on what works and what could possibly be improved will be collected
from a range of Incoterms rule users worldwide and studied (Table 6.1).

6.4 Vendor-Managed Inventory

Vendor-managed inventory (VMI) is a supply chain management strategy in which a

supplier manages goods that are located in a customer’s, third party’s or vendor’s
warehouse. The warehouse is usually located close to the customer consumption
6.7 Case Study: Airbus and AirSupply 95

place. The goods can be consigned or non-consigned stock. The consigned stock is
owned by the supplier until the customer consumes it, and the non-consigned stock
is owned by the customer when the customer receives it.

6.5 Efficient Consumer Response

Efficient consumer response (ECR) is a strategy to increase the level of services to

consumers through close cooperation among retailers, wholesalers and manufacturers
by means of electronic data interchange (EDI). ECR is a strategic concept compiled by
a consulting firm Kurt Simon Associates at the request of organizations concerning the
US processed food distribution industry, aiming to recover the competitive strength
for surviving the turbulent time of the industry when discounters emerged in the USA.
By aiming to improve the efficiency of a supply chain as a whole beyond the wall of
retailers, wholesalers and manufacturers, they can consequently gain larger profits
than each of them pursuing their own business goals. Companies who compose the
supply chain can reduce the opportunity loss, inventory level and entire cost, as well as
increase monetary profitability by sharing the purpose of ‘customer satisfaction’.

6.6 Enterprise Resource Planning System

Enterprise resource planning (ERP) manages business processes through an applica-

tion that allows an organization to use a system of integrated applications to manage
the business and automate many support or secondary functions related to technol-
ogy, services and human resources.
ERP software typically integrates all elements of an operation—including prod-
uct planning, development, manufacturing, sales and marketing—in a single data-
base, application and user interface.

6.7 Case Study: Airbus and AirSupply

Airbus SE, formerly Airbus Group SE, is a company based in the Netherlands that is
active in the aerospace and defence industry. The company operates through three
segments: Airbus Commercial Aircraft, Airbus Helicopters and Airbus Defence and
Space. The Airbus Commercial Aircraft segment focuses on the development,
manufacturing, marketing and sale of commercial jet aircraft and aircraft components,
as well as on aircraft conversion and related services. The Airbus Helicopters segment
specializes in the development, manufacturing, marketing and sale of civil and
military helicopters, as well as on the provision of helicopter-related services. The
Airbus Defence and Space segment produces military combat aircraft and training
aircraft, provides defence electronics and global security market solutions and
manufacturers and markets missiles. For the commercial side, more than 75% of the
value creation is done by suppliers. The suppliers are supplying components and
96 6 PM in the Downstream Value Chain

systems, which are assembled to subsystems by Airbus operational sites. These

subassemblies are produced in four different countries and then shipped downstream
to the final assembly as shown in Fig. 6.1. The subassemblies are delivered from
different national sites to the final assembly lines (Fig. 6.3).
Airbus uses the AirSupply system, which integrates ERP systems on the down-
stream side. AirSupply is a single supply chain solution for direct deliveries to Airbus
by its suppliers in the downstream supply chain. The portal is shared by the main
European aerospace companies within the BoostAeroSpace hub. The AirSupply
collaborative hub helps manufacturers and suppliers to gain visibility, as well as
ensure control and integration for critical business processes. This common secured
platform for European aerospace and defence industry players results from the
BoostAeroSpace cooperation led by Airbus, Dassault Aviation, Safran and Thales
as shown in Fig. 6.1. It provides:

One solution for the aerospace community connecting original equipment

manufacturers (OEMs) and suppliers
Standardized supply chain collaboration processes and shared formats for data
exchange
One platform for a single supply chain process collaboration via the Internet (Soft-
ware-as-a-Service provided by SupplyOn (2019), with worldwide service)
(Fig. 6.4).

75 percent external value crea on

Suppliers are supplying
components and system
Subassemblies are produced in
four different countries
Subassemblies are delivered from
different na onal sites to the final
assembly lines

Fig. 6.3 Downstream supply chain of Airbus. Source: Author’s own figure, adopted from
SupplyOn (2019)
 Portal Portal Portal Portal Portal Portal

Suppliers Suppliers Suppliers Suppliers

6.7 Case Study: Airbus and AirSupply

AirSupply

Suppliers

Fig. 6.4 AirSupply. Source: Author’s own figure, adopted from SupplyOn (2019)
97
98 6 PM in the Downstream Value Chain

References
Helmold, M., & Terry, B. (2017). Lieferantenmanagement in China. DeGruyter: Berlin.
Helmold, M., Dathe, T., & Hummel, F. (2019). Erfolgreiche Verhandlungen. Best-in-Class Emp-
fehlungen für den Verhandlungsdurchbruch. Wiesbaden: Springer Gabler.
SupplyOn. (2019). www.supplyon.com