Effective management of supply chains is indeed a daunting and challenging task. Arguably, the main goal of supply chain management lies at the core of making overall chain profitability a common goal for all partners across the chain. Executing this task involves a great deal of boundary-spanning interdependent and coordinated efforts.
The scope of such efforts includes inter-functional as well as inter-firm cooperation. From an internal function standpoint, organizations can attain cooperation through coordinated efforts and commitment among the staff from all functional areas. However, In order to achieve such coordination, organizations must first learn how to overcome numerous obstacles that get in the way and that may or may not be within their direct control.
Where should network constituents start their coordinating efforts? What approaches should be used? A good starting point is identifying and approaching individual internal organizational obstacles. Initiatives should be implemented to align organizational goals and strategies with those of the supply chain partners. To that end, traditional organizational behaviors, activities, and roles should be given a new orientation.
Let’s start with sales staff. The sales function is a typical example of an organizational role that needs reorientation. But what exactly does it mean to give the sales function a new orientation? It simply means to evolve from a traditional to a contemporary approach.
In the traditional sales function role, salespeople are trained to focus on pre-purchase activities such as obtaining orders and contracts and selling products. They are trained to manage transactions. Under this modus operandi, performance objectives and compensation packages influence salespeople to focus on short-term financial results. For the “supply-chain-untrained” executive, that’s the way sales people should be trained and incentivized, right? However, this traditional approach is completely counterproductive to supply chain management objectives and goals as I will discuss.
Consider the case of sales representatives who receives a performance evaluation and quarterly bonus. Near the end of every evaluation period sales representatives will do their best to push sales to customers in order to increase period sales volume. This generalized practice increases inventory levels in the supply chain during the largest part of the following period. And, consequently increases total chain inventory costs and decreases overall supply chain profitability. This cycle will repeat period after period throughout the year thus contributing to the dreaded bullwhip effect. This is the most common example of the type of disconnect between supply chain goals and those of the sales force. In other words, under the traditional sales function view, salespeople get rewarded for doing the wrong thing.
Unlike the traditional approach to sales, in the contemporary approach to the sales function, the contemporary sales person is viewed as a relationship manager. Under this framework, the most critical priority of the sales function is to build and maintain strong customer relationships. In their roles as relationship managers the scope of the sales person includes: coordinating and
facilitating the smooth flows of products, services and information, learning about customer requirements and creating solutions that generate value for supply chain partners. Under this approach, sales staff is knowledgeable about basic principles of inventory management and its associated costs and drivers.
Under the traditional approach, the sales staff is focused exclusively on generating orders and securing contracts. The sales staff is more concerned with selling products rather than leveraging their companies as a strategic partner with customers. This approach is considered transactional-based or tactical. The contemporary approach on the contrary is more strategic in nature.
The goal is to adopt a strategic approach by aligning the sales function with overall corporate supply chain strategy. Under the strategic approach sales executives implement initiatives to help the sales function create value for the supply chain and its partners. Sales managers drive the new approach by assuming new roles and becoming change agents. In this new approach, sales executives see the sales function from a relationship management perspective. The sales force is by all means well positioned to assume new roles such as implementing, coordinating, and facilitating supply chain management activities. In order to be successful in these new activities, salespeople need to develop expertise in logistics and supply chain management practices. Sales managers must of course re-engineer existing sales training programs to focus on the development of competencies that help salespeople understand supply chain partners logistics operations, systems and capabilities.
Under this new orientation a redesign of performance objectives and compensation packages for both sales managers and sales force should also be implemented in order to achieve alignment with overall network strategies. Lack of alignment among performance measurement, compensation packages, and supply chain management goals could jeopardize the achievement of chain profitability.
A similar disconnect occurs with the logistics function. Under the traditional approach, a logistics manager’s performance and compensation is directly linked to the reductions obtained in transportation costs. To enhance his performance, the transportation manager will strive to exploit economies of scales that result from pushing larger orders. As a result, the organization increases its inventory levels, which in turn compromises chain profitability. It is evident one more time that in order to achieve overall supply chain profitability or chain surplus, it is imperative to align performance and compensation measures with overall corporate supply chain strategy.
Undeniably the roadway of change to evolve from a traditional to a contemporary approach is plagued with many bumps. Interestingly enough, in many instances those obstacles are found in the most valuable asset of any organization, its’ people. Change-resistant employees make it hard for the change agents to assume their new roles and responsibilities.
For instance, personal perceptions create a psychological dynamic called a competing commitment. A competing commitment is an unacknowledged, internalized commitment that conflicts with expected performance standards and functional roles of change-resistant employees. Effective managers should learn how to help employees identify the conflicting assumptions that create the competing commitments hindering change and productivity. Doing so can create significant employee contributions to the organization.
In the current era of supply chain management, organizations are more and more realizing the strategic value of overall coordination as the main value creation driver. In order to achieve coordination, organizational leaders across the board should be cognizant of the implications of disjointed functional strategies. Overcoming the internal and external impediments that get in the way of supply chain coordination requires change agents with clear understanding of organizational alignment and its impact in the bottom line.