Supply Chain Blog

Integrated Supply Chain Planning – 1 Reason Why It Is Difficult

Posted by Michael Thompson on Mon, Apr 14, 2014
In my previous two blogs on the subject, I outlined how producers (manufacturers) can achieve very significant improvements in the financial performance of their supply chains by a process of integration between the primary and secondary supply chains (Integrated Supply Chain Planning – The Number 1 Opportunity). I then described how to achieve focus when considering global supply chain integration programmes of this type by looking at different market profiles (Integrated Supply Chain Planning – 4 Opportunities and 2 Quick Wins).

This raises the following question.  If the opportunities exist (they do), and they are so significant (they are), and the process of achieving the success is well established (it is), why have more companies not simply gone ahead and implemented these changes?

The short answer is that some companies have. However, many haven’t.

There are several explanations but actually only one real reason.

To integrate the primary and secondary supply chains almost always involves the co-operation of two company departments – supply chain for primary and commercial (sales / trade marketing) for secondary.

Let’s look at the proposition from the point of view of the Supply Chain Department.  The key benefits relate to lower inventory and that’s a good thing for a Head of Supply Chain.  Integration benefits are long term and make for a more effective and responsive supply chain.

Now let’s consider Sales.  They will get fewer stock outs (higher sales - that’s good), more effective trade marketing (good again) and better deployment of product launches (also good of course).  So what’s not to like?
win_win_situation
The problem is this – the lower inventory applauded by Supply Chain, is also a one-off reduction in sales, very much loathed by Sales.  It is only a short term one-off hit to sales.  However, that matters.  If, for example, stock is reduced by 2 weeks, that is nearly a 4% reduction in annual sales.  Such a reduction is simply not palatable for most Sales Directors or CEO’s.  
So we have the competing interests of the Supply Chain and Sales Departments, long term vs short term considerations.  Moreover, for multinationals we also have the competing interests of each market (and Country Manager generally bonused on sales and profit), regional and global Heads of Supply Chain (whose bonuses will include working capital tied up in inventory), regional and global Heads of Sales (only the top line matters for them), regional Heads responsible for regional bottom lines and so forth.

To achieve integration of the primary and secondary supply chains on a global basis, just about all of the above stakeholders (and more) will have to agree.  And the only person who holds sway over everyone is often the global CEO.

So it may come down to this.  If you want to integrate your business with that of your distributor in, for example, Nigeria, you may need the approval of the Group CEO.  And that is the number 1 reason why it is difficult.   
However, for those who think about the long term and are prepared to grasp this particular nettle, the rewards are plentiful indeed.

 

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Tagss: FMCG, Route to Market, Pharma, Michael Thompson, Supply Chain, Sales, Distribution, Inventory Management & Stock Control, Integrated Business Planning