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 Jessie Mazzola
SUPPLY CHAIN
Individual Assignment – Jessie Mazzola
What are the main issues relating to customer demand?
Setting up a supply chain in a complex and fast moving world is a task that proves to be
complicated. Indeed, it is a question of putting in place strategies for the long term, while
taking into account the factors of production and the risks involved in the supply chain
process. Moreover, other business functions that are influenced by the supply chain group’s
decisions must also be considered. These functions are mainly the sales, the marketing team
and the product developers.
As a result, there are and complex trade-offs involving different organizational functions,
often leading to tensions and misunderstanding.
According to the article “Is your top team undermining your supply chain?” there are three
main tensions related to demand;
1) Supply chain and the sales
Within a supply chain process, an unexpected increase in orders can have a costly impact on
labor and distribution. Failing in forecasting the sales (and therefore the consumers’ demand)
can result in excess inventory or out-of-stock products that have to be heavily discounted in
order to be sold.
Both supply chain and sales groups are struggling to find effective solutions, to plan and
forecast as accurately as possible to avoid any loss. The issue is that these group do not
collaborate enough. Indeed, working in synergy would allow them to discover the original
causes of demand volatility and therefore find ways to control it.
2) Supply chain and services – Exchanging flow of information
Basic questions related to customer service levels such as the speed of the delivery or the
product availability are often considered by the sales teams, which take the decisions without
necessarily taking into consideration the operational aspects (supply chain) or the costs
incurred. The lack of partnership between the supply chain and the service groups results
sometimes in extra costs or loss of customers. These negative impacts could have been
avoided, if both groups would have worked more closely in order to conduct deeper services
analysis.
3) Supply chain and product proliferation – Managing products’ portfolio
Products portfolios are complex to manage. Indeed, companies work hard in order to adapt
quickly to the market requirements, to create products that meet consumers’ needs and
demand, while catching up with new technologies and innovations.
 Jessie Mazzola
For all of these reasons, products proliferation is almost unavoidable. The issue is that
proliferation implies an increased number of Stock Keeping Units (SKUs), and the more we
have, the more difficult and costly it is to manage them.
To sum up, in order to ensure to meet customers’ demand, the 3 trade-offs highlighted in the
article are necessary. Here are the relevant keys to success:
• Work in synergy, collaboration, build tighter partnerships between the groups
(marketing, sales, services, supply chain)
• Organizations’ CEOs have to take these failures into consideration and take action to
foster general collaboration within the teams
• Top management has to implicate more supply chain aspects within the decisionmaking
process
• Setting a strategy to reach alignment, balance, positive interdependency and a
smooth flow throughout the processes
Applying these keys would allow organizations to obtain better predictability, get improved
product capacity and propose the right services to the right customers.
What are the barriers to achieving the goal of a highly efficient supply chain planning process?
How could they be overcome?
The Sales & Operations Planning process (S&OP) is a collaborative decision-making process. It
allows organizations to establish a consensus between the sales targets, financial objectives
and the production capacity planning, the inventory management, the workforce…etc. The
purpose of S&OP is to achieve a unique, shared vision to allocate resources efficiently and
meet the business objectives. Today most of the large organizations have implemented it, but
the excepted result is not met and companies wooed end up with several different S&OP
processes.
According to Forbes’ article, there are 5 barriers to success:
1) Organizational functions
The organizational structure of a company defines the different functional activities and their
interaction within a business. Generally, these activities and the leaders have unaligned
purposes and use different metrics, which creates conflicts.
The solution would therefore be the implementation of targets and metrics that englobe and
fit all the processes.
 Jessie Mazzola
2) Misunderstanding the supply chain
Supply chain is a complex system involving many actors. As illustrated in the picture “Largest
Challenge in Building an Effective S&OP”, the main challenges relate to the understanding of
competing priorities (26%) and the lack of understanding and support from the executive
team (20%). In other words, it is difficult for the executive teams to properly understand the
interconnection between the functions and to manage the channel processes.
To overcome this barrier, it is essential for the executive team to implement a strategy
enabling to have a clear vision of the multifunctional activities involved in the supply chain.
3) Gaps between the different teams
As shown in the graph above, the gaps between the importance and the performance of an
organization’s team alignments are quite significant. The biggest gap involves the sales and
the operations teams. Indeed, companies are very resourceful when it comes to build
strategies, goals, innovative processes. However, according to a HBR study, 9/10 companies
fail in performing their strategy and 95% of employees are not aware or do not understand
the organization’s strategy. The main cause of these gaps is the disconnection between the
strategy’s statement and its execution. In other words, a lack of alignment.
The solution would be to develop tighter relationships between the different teams and to
increase the visibility of the work being done across departments.
4) Balancing the teams’ needs
Organizations need to find the right balance between their sales & marketing processes and
their operations such as manufacturing and logistics, which is the core of S. When the
balance is not found, it can lead to higher costs or higher inventory for example.
In order to reach balance and coordination between teams, clear communication and
metrics’ alignment is essential.
5) From planning to execution
 Jessie Mazzola
Most of the companies fail to accurately execute their S&OP processes. The main reason is
that they have not implemented suitable processes which would allow a proper execution.
To enhance the business’ results, organizations need to develop the right path that would
allow an accurate translation of planning to execution.
Altogether, the data presented in the article definitely proves that most companies
undermine the S process. The 5 covered areas should be starting points for CEOs, who
should call for more results in terms of S development. In the long-term, companies
would achieve a balanced, unique, multifunctional and efficient business process.
Demand disturbances are often created by the company’s own practices. Give 2 examples
and indicate solutions which could be implemented.
1) Supply chain/Sales
The first article explains the case of an automotive supplier.
The sales teams were under pressure and were doing everything they could in order to reach
the quarterly goals and receive bonuses. Customers noticed this behavior and therefore took
advantage of it. Indeed, some of them purposely withheld their orders until the end of the
quarter, in order to get more discounts. This practice had the effect of confusing the chain
and reducing net profit.
The solution of the problem was (again) to increase collaboration between the sales and the
supply chain teams. Therefore, the sales VP and the supply chain leader met, and looked for a
way to improve demand forecasting. They decided to significantly decrease end-of quarter
discounts and they based their prices and discounts on sales volume, product fidelity and
involvement in promotions. They also put in place incentives to urge employees to balance
sales across the quarter.
2) Supply chain/Services
The decisions regarding services are often left to the sales teams, which do not completely
understand the impact of their decision on operations and costs. A typical example is given is
the first article and it perfectly illustrate the issues with this kind of approach.
The sales staff of a chemical company were urging the logistics team to reduce the delivery
time from 3 to 2 days. Le business eventually met the objective. However, it would use labor,
delivery and warehouse less efficiently, resulting in a 5% rise of distribution costs. After
examination, the sales and supply chain groups realized that the 2 or 3 delivery day were not
that important to customers. The real high rated value was the 24 hours’ delivery. Therefore,
they decided to go back to a 3 days’ delivery time and the distributions costs quickly went
back to normal. Additionally, the company created a special express service (24 hours) higher
charged. The express service incurred costs, but they were counterbalanced by the overall
business result.
In both cases, two different functions of the process interacted and collaborated and
managed to reduce their costs and achieve a better result.
 Jessie Mazzola
Should companies work to improve service levels (such as delivery times) for all customers?
What is the approach of those companies that are considered leaders in supply chain
performance?
According to a PricewaterhouseCoopers (PwC) survey, companies that have an efficient
supply chain have better financial results and are 2x more profitable than organizations that
leave the supply behind. This study shows that the supply chain must be used as a “strategic
asset”. As a matter of fact, organizations that manage to adapt to the needs of customers and
manage multiple configurations within their supply chain achieve better results.
Consequently, the answer to the question is yes, companies need to focus on improving their
service levels and adapt them to customer needs. Organizations have to propose different
services levels (differentiation) in order to enter markets and attract more customers.
“83% of companies which are supply chain leaders differentiate their services according to
the needs of their customers”.
To summarize, the approach PwC recommends is the basic adaptation to the needs of
consumers.
Concrete example:
Unilever is part of the Top 10 global supply chain leaders according to Supply Chain Digital
and Gartner. The key aspects the surveyors look at are “closer, customer-driven partner
integration, further adoption of advanced analytics and a strong focus on corporate social
responsibility. ” Here is Unilever’s strategy regarding customer services.
As we can see in the pictures, the company uses KPIs to measure its service performances in
order to become the leader in the supply chain strategy. We can see clearly that all the KPIs
are mostly customer-related, customer needs-driven, which proves the efficiency of a
customers ‘needs driven strategy.
 Jessie Mazzola