- 06 Sep 2006
- Working Paper
Cross Functional Alignment in Supply Chain Planning: A Case Study of Sales & Operations Planning
Executive Summary — Why do companies have such a hard time getting various functions to coordinate? Leitax, the pseudonym for a consumer electronics company studied by the authors, was suffering major supply-chain planning problems in 2002. The chief reason was typical to organizations: poor integration among the various functions. In response, the company introduced a system (rather than just a set of mechanisms) to better coordinate all processes and functions. The new system led to better collaboration from all participants, improved information-sharing, accurate and validated plans, and alignment in the execution of those plans. Key concepts include:
- Achieving true information sharing between functions is not just about creating the right information-sharing tool. True integration requires paying attention to the behavioral dynamics within operations management.
- Within supply chain management, coordinating systems can integrate the information requirements for planning yet also uphold the organizational differentiation that different stakeholders require. Such planning systems have great potential for capturing the advantages of simultaneous demand and supply management.
- A consensus forecasting system has advantages for buy-in and integration, and can respond promptly in a dynamic and challenging supply chain environment.
In 2002, Leitax, a niche consumer electronics company, suffered serious supply chain planning mishaps due to poor cross-functional integration in the supply/demand planning activities. The poor integration resulted from organizational differentiation among the functions and an unsophisticated approach to integration. In response to the planning mishaps, the organization introduced significant changes, which we examine in this case study. After highlighting the constituent responsibilities, structures, and processes, we recognize a system, as opposed to a list of mechanisms, as responsible for cross-functional integration. Operationalizing integration as functional alignment with generated plans, we find collaborative engagement of the functions to be a consistent process feature and operational norm encouraged and maintained by integrators. In particular, the information processing nature of the sales and operations planning (S&OP) process introduced at Leitax is argued effective as a result of this collaborative engagement. We argue that this collaborative engagement positively influences alignment even in the absence of an overall reduction in the level of differentiation exhibited by an organization, which stands in contrast to academic structural recommendations for changes in incentives for achieving integration. Examining a systemic tradeoff consciously acknowledged by the organization, we further argue that alignment encouraged by this collaborative engagement can be more important than achieving, superior performance along such dimensions as speed or accuracy in individual information processing steps of the S&OP process, a tradeoff which to our knowledge has not been highlighted in the supply chain management literature.