Get your house in order. Why effective Supply Chain Management starts inside…

Good SCM is about effectively configuring and coordinating supply to meet customer demand. Sounds pretty simple, but why do organisations find it so difficult? I believe much of this has to do to with their structures, methods for incentivisation, differing functional goals and radically different views as to who the customer actually is.

Let’s look at the simple example of the procurement and sales functions. Procurement’s goal as a function is typically focussed on negotiating the best price (let’s leave the thorny debate on whether the cost is actually clear to another time) and they might be looking for surety of supply. They will be incentivised to achieve these. Who’s their customer? That’s probably operations who have different goals. If we then turn to the sales function, what’s their goal? Typically to sell ‘stuff’ to the customer. Their customer is the customer. The sales function will be incentivised to sell ‘stuff’ I would suggest that this creates something of a paradox. Procurement focused on cost, Sales on sales and Ops doing their own thing in between. So, what are the chances of matching supply and demand inside a single organization, let alone the numerous organizations that make up today’s supply chains?

Some organisations I have worked with attempt to create a supply chain function. They attempt to address the structural challenges of effective SCM. All of those I have seen forget to include some functions – typically sales (making the SC function wholly upstream focussed), or operations (meaning a critical component of the supply chain is not integrated). So trying to address this through structural means looks difficult. An alternative option is to consider more integrated goals and incentivisation mechanisms that guide functions towards considering that while they all have different internal customers, together they have one end customer. Once this is in place, intra-functional integration becomes easier and working together becomes part of the day-to-day. Only after learning how to do it can organisations begin to drive real value from their supply chains. So, first get your own house in order.

One thought on “Get your house in order. Why effective Supply Chain Management starts inside…

  1. Pingback: Why can’t we all just get along? Creating the conditions for (non) collaboration | OM @ WBS

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